Capita will work with British Islamic Insurance to launch this initiative in April. The partnership will initially sell car and cheap home insurance followed by investments. Life insurance, savings and ethical finance products are being added later in 2008.
Capita will run the back office side of the business, selling policies and processing claims. Over the next 8 years the deal is expected to be worth £87 million to Capita.
Typical UK insurance products are not in line with Islamic beliefs as “riba”, or interest, is forbidden in the Koran, although progressive Muslims tend to view this as extortionate interest. Devout Muslims are also put off by the elements of gambling and uncertainty insurance products involve as you are betting on whether you think your property will be safe or not.
Chief executive of British Islamic Insurance Holdings, Bradley Brandon-Cross, said: “The Muslim faith states that, because of various product features, conventional UK insurance options are in conflict with Islam and this creates a dilemma for British Muslims. We are planning to create a British insurer that operates in a way that removes this dilemma and creates an exciting new sector in the British insurance market."
This is a corner of the market previously untargeted by insurers and if Capita manages to get it right it could be very lucrative. Insurance is a practical purchase, designed to cover you against theft, accidental damage, loss and sometimes ever natural disasters and it often pays to have this cover.
Capita’s new insurance product is going to comply with ‘Takaful’ principles. This is an Islamic insurance concept which has been seen for more than 1400 years being practised in many forms. Its origins are from the Arabic work Kafalah which is loosely translated as guaranteeing each other or a joint guarantee. Takaful is a form of mutual insurance, based on responsibility and co-operation. Policyholders co-operate among themselves, each will pay a subscription, meaning any uncertainties are eliminates, losses are divided and the liability is spread across the community of policyholders.
Capita began trading in the financial markets in 2000, initially offering general insurance and then more so in the life and pensions side of the market. Insurance has provided Capita with some of its biggest contract wins, for example in the past year it began a £722 million agreement with Prudential for the administration of 7 million mature life and pensions policies. This has since seen 1,750 Prudential UK staff move to Capita and 1,250 Bombay staff have also joined Capita.
The company has also been appointed to run the back office in Norwich of Marsh in early 2008, a US based insurance broker, this deal is expected to be worth £200 million to the company across the next decade.
Pre-tax profits have risen for Capita in 2007 by 19% to £238.4 million on turnover up 10% to £2.07 billion. Capita also said it has excellent visibility on its 2009 and 2010 earnings having already got 2008’s £2.3 billion secured.
Capita’s chief executive, Paul Pindar believes that any economic downturn would be a good thing for Capita, because other companies would be looking to outsource their back office work.
Capita is also beginning to take on other companies’ sales and front office operations. It run customer contact centres for DSG, formerly Dixons and eircom, an Irish telecoms operator.
Capita has said its dividend will increase by 33%, this is in line with a five-year average of 32% increase. The company has also proposed to return to 25p per share through a different, special dividend.
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