The Muamalat Newsletter Vol. 2 2024

FEM eNewsletter | December 2024 69 financial sector has also extended to takaful, with many companies investing in mobile apps, online portals, and digital marketing strategies to engage with consumers. Technological Integration in the Takaful Industry In the early stages of takaful’s growth, companies relied on traditional methods of operation, including manual paperwork and in-person interactions. However, with the rapid digitalization of Malaysia’s economy in the 21st century, takaful companies began to embrace new technologies to streamline operations. By the late 2000s, the introduction of digital platforms allowed customers to purchase takaful policies online, make claims, and manage their accounts via mobile applications. This shift towards digitalization was particularly important in reaching younger, tech-savvy consumers who were increasingly seeking convenient, online-based financial services. Malaysia is set for a digital revolution with the expected entrance of whole digital insurers and takaful operators. In 2022, Bank Negara Malaysia (BNM) published its exposure draft on Digital Insurers and Takaful Operators (DITOs), detailing requirements for interested applicants. Up to five digital licenses will be issued to insurers and takaful operators that meets all the requirements. This move is in line with the aspirations of BNM’s Financial Sector Blueprint 2022 – 2026 to advance digitalisation of the financial sector and elevate the dynamism of the insurance and takaful sector (BNM, 2022). The rise of InsurTech, the intersection of insurance and technology, has also influenced the takaful sector (Shamsuddin et al., 2023). Startups and established takaful providers alike have begun to experiment with advanced technologies such as artificial intelligence (AI), smart contract and blockchain to improve underwriting, risk assessment, and claims management. For instance, AI algorithms can be used to assess customer data and provide more accurate pricing for takaful products, while blockchain technology can enhance transparency and reduce fraudulent claims by ensuring secure, immutable records of transactions. Furthermore, the use of data analytics has enabled takaful companies to better understand customer preferences and tailor products tomeet individual needs (Belhadi et al., 2023). By leveraging big data, companies can offer more personalized services, improving customer satisfaction and loyalty. This technology-driven transformation has made the takaful industry more competitive and responsive to changing market dynamics. Challenges and Future Prospects Despite the significant growth and technological advancements, the takaful industry inMalaysia faces several challenges. One of the main challenges is the need to balance innovation with compliance to Shariah law (Hassan & Salman, 2021). While technological advancements offer opportunities for greater efficiency and customer engagement, they must be carefully implemented to ensure that they do not compromise the ethical and religious principles upon which takaful is based. Maintaining Shariah compliance is a critical concern, particularly as takaful products become more complex and diversified. Another challenge is the relatively low level of takaful penetration in Malaysia, particularly in comparison to conventional insurance (Jusoh, 2023). The combined penetration rate for conventional insurance and takaful in Malaysia stood at 54 percent in 2022, with conventional insurance taking up 34 percent. The remaining 20 percent was from the takaful segment (MTA Report, 2023). This indicate that although the market