A Sound Building Block for Future Expansion and Engagement
Given ICIEC’s uniqueness in being the only Shariah-compliant multilateral insurer in the world, and this year marking its Pearl Jubilee of 30 years of operations, underwriting and service to its 40 member states, it is only timely that the Corporation articulates this compelling backstory as the foundation for its next three decades while at the same time helping to promote the credit and investment insurance culture in its 49 member states. Mohamud Hussein Khalif, General Manager of Underwriting Operations, and Yasser Alaki, General Manager of Business Development at ICIEC, give a legacy insight into the world of risk mitigation and credit enhancement, of credit and investment insurance culture, of navigating emerging risks, and the huge advances made by ICIEC in three decades in a cohort of manifold metrics, with a special focus on future priorities, strategies, innovations, delivery objectives, and standout achievements, and what needs to be done by IsDB member states and industry bodies to enhance the awareness, uptake and culture of credit and investment insurance in their economies.
ICIEC has made significant advancements in the credit and investment insurance landscape over the past three decades. As the only Shariah-based multilateral insurer in the world, it has played a crucial role in promoting trade and investment among IsDB (Islamic Development Bank) member states. Some notable achievements of ICIEC include:
- Expansion of Coverage: ICIEC has expanded its coverage to various segments of credit and investment insurance, including short-term trade credit, and medium and long-term investment insurance. This expansion has provided comprehensive risk mitigation solutions to support economic growth and development.
- Business Development: ICIEC has focused on business development initiatives to enhance the awareness and uptake of credit and investment insurance in member states. It has actively engaged with IsDB member states and industry bodies to promote the benefits of insurance, develop customized solutions, and facilitate capacity building programs.
To further enhance the awareness, uptake, and culture of credit and investment insurance in member economies, ICIEC member states and industry bodies can:
- Foster Collaboration: by encouraging collaboration between ICIEC and member states’ financial institutions, insurance companies, and industry associations to jointly promote credit and investment insurance and exchange best practices.
- Create Awareness: by conducting awareness campaigns to educate businesses, investors, and financial institutions about the benefits of credit and investment insurance. This can include workshops, seminars, and publications highlighting successful case studies and the positive impact of insurance on economic growth.
- Engage Regulatory Bodies: Through streamlining regulations and creating a conducive regulatory environment that facilitates the use of credit and investment insurance. This can involve simplifying procedures, reducing barriers, and providing incentives for businesses to adopt insurance solutions.
The current state of the credit and investment insurance landscape especially Takaful-based solutions in ICIEC member states, especially in an era of poly-crises and growing uncertainties and risks is at best evolving. ICIEC is cooperating with the AMAN UNION in this respect. But, in ICIEC member states, including advanced countries such as Saudi Arabia, UAE, Türkiye, Egypt, as well as countries in Africa and Asia, Takaful-based solutions in the credit and investment insurance landscape have gained traction. However, several challenges persist in underwriting transactions and projects. These challenges include:
- Policy Limitation: as seen in the limited availability and suitability of Takaful-based insurance policies that specifically cater to credit and investment risks. Developing comprehensive and tailored policies aligned with Shariah principles is crucial to address this challenge.
- Limited Market Penetration: due to limited awareness and understanding of Takaful-based credit and investment insurance among businesses and financial institutions. Increasing market awareness through targeted marketing campaigns, education, and training programs can help overcome this challenge.
- Credit Information and Structured Product Challenges: affects the potential of assessing creditworthiness, managing counterparty risks, and developing suitable products for complex transactions. Collaboration between ICIEC, member states, and industry stakeholders can address these challenges through the sharing of expertise, conducting risk assessments, and developing innovative products.
ICIEC’s cooperation with the AMAN UNION, the premier professional forum for commercial and non-commercial risk insurers and reinsurers within the member countries of the Organization of the Islamic Cooperation (OIC), can facilitate knowledge exchange, capacity building, and collaborative initiatives to address these challenges in underwriting transactions and projects – policy, market, credit, product, lack of reinsurance capacity – in member states, both in credit insurance advanced countries such as Saudi Arabia, UAE, Türkiye, Egypt and others in Africa and Asia.
Given the manifold emerging risks and tensions in the global geopolitical, economic, trade and investment, climate-related and catastrophic events landscape, it is inevitable that this is affecting the business side of credit and investment underwriting in terms of premiums, claims, claims ratio and insured exposure. ICIEC is adapting to mitigate and enhance its risk management strategy to meet these challenges head on. ICIEC’s forward-looking Risk Management strategy revolves around the following key considerations:
- In alignment with its multilateral status, ICIEC prioritizes achieving long-term sustainability by ensuring business continuity, portfolio and operational resilience, as well as capital preservation and optimization. This strategic approach not only aims to scale up developmental interventions for Member States (MSs) but also makes a significant contribution to IsDB Group’s overarching strategic directions.
- The enhancement of existing risk management frameworks to adeptly identify and manage emerging and strategic risks amongst others. It emphasizes fostering collaboration between economic sustainability and risk management functions to create a more integrated and responsive approach.
- Streamlining ICIEC’s focus on optimizing capital utilization through the implementation of forward-looking, risk-based capital planning. This ensures efficient allocation of resources and supports ICIEC’s overall financial resilience.
- Scaling up overall performance through the implementation of automated and tailored ERM architectures. This approach contributes to increased efficiency and effectiveness in addressing risks across ICIEC.
The defining issues and risks of the day include the ever-increasing need for climate action, sustainability, food security, infrastructure, and tackling disaster events. All stakeholders, especially in the financial services and underwriting sectors, have been urged to contribute more through resource mobilization and risk mitigation solutions. In this respect, ICIEC’s Board of Directors recently approved ICIEC’s Climate Change Policy which aims to mainstream Climate Action across ICIEC’s operations.
Climate Change, food security and sustainable development are inextricably linked through the water-food-energy nexus and ICIEC’s de-risking tools can make a positive contribution in all three areas. ICIEC has a crucial role in facilitating increased climate investment through de-risking climate action transactions and projects in its member countries.
De-risking through insuring non-payment due to commercial and political risk is needed across various value chains linked to procuring equipment and services for clean energy, agriculture and other activities linked to climate change resilience.
ICIEC is a member of the Berne Union’s Climate Working Group and signed an MoU with the Global Green Growth Initiative at COP28 which aims to develop innovative blended finance solutions that include de-risking for climate action in ICIEC member countries. Through its membership in the Energy Transition Accelerator Financing (ETAF) Platform, managed by IRENA, ICIEC is proactively engaging with partners to de-risk renewable energy projects and transactions.
Technology especially Generative AI, Tokenization and Blockchain apart from the normal online services including processing applications, payments and claims are set to be the game changer in most economic and financial services activities.
ICIEC recognizes the transformative potential of emerging technologies such as Generative Artificial Intelligence (AI), tokenization, and blockchain to enhance underwriting operations and business development and has set ways to integrate these technologies while adhering to Shariah-compliant underwriting and investment metrics as follows:
Implementation of ICIEC Takaful System (ITS)
Considering the Vision of the IsDB Group that explicitly recognizes the importance of Information Technology in improving the Group’s productivity and contribution to the IsDB Group Member Countries, ICIEC is in the last phases of deploying the ICIEC Takaful System (ITS) whose main objective is to enhance ICIEC’s institutional performance, capacity, and responsiveness in pursuit of its strategic objectives outlined in its Strategic Plan.
These objectives aim to increase the volume of intra-trade between member countries, attract investments, and promote Islamic Insurance Services and Solutions.
Adoption of Generative Artificial Intelligence (AI), Tokenization, and Blockchain
Following the deployment of the ITS, ICIEC will advance its digital strategy through major initiatives to adopt:
- Generative AI: Enhance risk assessment and underwriting by analyzing large datasets, detect fraud through anomaly and pattern detection in claims and transactions, and improve customer service with AI-driven chatbots and virtual assistants.
- Tokenization and Blockchain: Implement smart contracts for automated claims processing, enhance transaction transparency and security, and play a major role in ICIEC’s digital platform.
- Enhanced Online Services: Improve online platforms for seamless application, payment, and claim processing, utilize advanced encryption and security protocols to protect sensitive information, and expand mobile services to allow clients to manage their policies and claims from anywhere, increasing accessibility and convenience.
This is in addition to supporting the development of new products that leverage technology while adhering to Islamic principles. By embracing these technologies, ICIEC aims to enhance operational efficiency, improve customer experience, and maintain its commitments to Shariah-compliant practices. This strategic adoption positions ICIEC to better serve its Member Countries and support their economic development agendas.
In terms of business development, ICIEC’s most impactful policies and services have significantly contributed to international trade and economic development through various initiatives, including trade credit insurance, investment promotion, capacity building, and innovative risk mitigation strategies, and through innovations in terms of products, strategies, markets, technical education and market awareness, credit, and investment risk strategies.
These include:
- Trade Facilitation and Investment Promotion: ICIEC’s trade credit insurance has facilitated international trade by mitigating risks like non-payment and default, while its investment insurance has attracted foreign direct investment by covering political risks such as expropriation and currency inconvertibility.
- Capacity Building and Risk Mitigation: ICIEC has engaged in capacity-building initiatives to enhance stakeholders’ understanding of credit and investment insurance and developed innovative risk mitigation strategies, including Shariah-compliant products and support for green projects.
- Market Expansion and New Innovations: ICIEC has expanded its presence in Africa and Asia to support economic development and introduced new insurance products for emerging sectors to improve customer experience.
ICIEC’s outlook for its underwriting business and for developing new initiatives for the near-to-medium term remains cautiously encouraging. There are still 8 member states of the IsDB/OIC that have not acceded to ICIEC membership, so we have more work to do in this respect.
At ICIEC, we are committed to meticulously addressing our clients’ specific needs, ensuring that their distinct requirements and concerns are the cornerstone of our operational strategy. Consequently, ICIEC has undertaken a comprehensive revision of existing insurance/reinsurance policies and has been instrumental in formulating innovative products to meet our clients’ demands.
In the near future we will unveil two groundbreaking policies: the Fair and Unfair Calling of Bonds Insurance Policy and the Avalized Drafts Insurance Policy. These policies have undergone thorough deliberation and dilligence by our esteemed Product Development Committee and have received the endorsement of the IsDB Group Shariah Board. We have also engaged in constructive dialogues with external stakeholders, including policyholders, brokers, banks, and others, to refine these offerings.
The Fair and Unfair Calling of Bonds Insurance Policy is designed to provide contractors with robust coverage against both commercial and political risks associated with the issuance of various bonds, including bid, advance payment, and performance bonds, particularly for operations within ICIEC Member Countries.
The Avalized Documents Insurance Policy is tailored for use in international trade operations. Avalized bills of exchange and promissory notes are instruments commonly utilized by exporters, importers, and traders in documentary collection operations. Banks that are policyholders and in possession of avalized documents stemming from trade transactions will benefit from ICIEC’s comprehensive protection against the commercial and political risks posed by the avalizing bank/party.
