Identifying Causes for the Failure of Salaam Halal Insurance

Principal Insurance Holdings Limited was the first dedicated, stand alone Islamic insurance provider in the UK. The company received Financial Service Authority authorisation in May 2008 and raised in excess of £60 million of capital. The shareholders were institutional and private investors predominantly from Gulf Cooperation Council countries. Islamic insurance was launched as a new consumer brand known as Salaam Halal insurance (Salaam).

However, not long after the launch of Salaam in 2008, the company closed to new business in November 2009 with the Chief Executive stating that ‘we are in a period of solvent run-off, which means that while we continue to offer existing policyholders our full support, we are not providing any further policies to new or existing customers at this time’.

The reasons provided for the closure of Salaam were that the company had failed to raise sufficient capital to continue trading. The purpose of this paper was to use Salaam as a case study and investigate the reasons as to what contributed towards its demise.

An analysis of questionnaires as well financial data was conducted to determine what led to the failure of Salaam.

Our research indicated that a combination of both internal and external factors led to the demise of Salaam. Internal factors consisted of under-pricing, poor underwriting, inadequate cost control, poor management and absence of re-takaful. Whilst external factors included an erroneous time to enter the insurance market as it coincided with the financial crises which made raising additional capital very difficult for Salaam.