How Insurance Can Unlock Somaliland's Global Trade Potential

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Somaliland's aspirations to engage in global trade encounters a significant hindrance due to the absence of insurance infrastructure within its borders.

The country grapples with a scenario wherein traffic accidents result in individual liabilities, compelling reliance on clan-based support systems as substitutes for formal insurance mechanisms. This vacuum arises from the absence of insurance entities and widespread unawareness regarding their indispensability. While the efficacy of the existing clan system might lead some to question the necessity of insurance, others ponder its compatibility with Islamic law. Yet, a prevailing sentiment exists that the establishment of insurance companies could diminish tribalism and reduce dependency on clan structures.

Several initiatives have attempted to introduce insurance services to the Somaliland populace, primarily through Takaful, a form of voluntary insurance grounded in Islamic law. Similar to the clan's practice of creating collective funds for compensation, Takaful involves communal contributions to safeguard against losses or damages, emphasizing cooperation and mutual protection as advocated by Sharia principles. Efforts to enforce mandatory motor vehicle insurance faced formidable resistance, culminating in legal challenges posed by motorists. Simultaneously, presidential intervention led to the formation of the National Insurance Board, addressing the absence of an existing body to oversee such matters.

The prevailing legislative landscape, underscored by the absence of a robust insurance law, amplifies ongoing debates within the House of Representatives. Central discussions revolve around the necessity of vehicle insurance, its alignment with Islamic Sharia, and the dichotomy of mandatory versus optional coverage for motorists. The significance of insurance transcends vehicular damages; it serves as a vital shield for safeguarding assets, mitigating financial risks, and ensuring protection against unforeseen medical emergencies, illnesses, and future healthcare needs. Moreover, it plays a pivotal role in channeling accumulated capital into productive investments while fostering financial stability and promoting trade and commerce.

Somaliland, occupying a pivotal global position and distinguished for its efforts in counterterrorism and maritime security, stands poised for expanded international engagement. However, the absence of a robust insurance framework presents a substantial impediment to both inbound and outbound trade activities. Addressing this challenge entails not only the establishment of comprehensive regulatory frameworks but also creating an environment conducive to foreign entities providing superior insurance solutions. Legislation governing insurance and investment assumes paramount importance in bolstering a nation's foreign relations. The absence of insurance infrastructure renders a location less trustworthy in financial matters, exerting adverse effects on government credibility and overall perception.

Efforts aimed at instituting an effective insurance ecosystem within Somaliland are important, not only for the protection of individuals and assets but also for fostering economic growth, bolstering global trade relations, and enhancing the nation's credibility on the international stage.

Comparative analysis.

Many Muslim-majority countries have successfully navigated these challenges by introducing Takaful, an insurance system compliant with Sharia. Takaful, which operates on the principle of communal contributions to protect against shared risks, aligns closely with Islamic teachings, emphasizing mutual cooperation and responsibility. Countries like Malaysia, the UAE, and Saudi Arabia have integrated Takaful into their economic systems to foster business growth and international trade. These nations have structured regulatory frameworks that promote both local and international insurance companies, significantly boosting trade, particularly in sectors like logistics, oil and gas, and international investments.

For instance, Malaysia's dual conventional and Takaful insurance systems have enabled a thriving business environment. The presence of Takaful in Malaysia has provided the necessary protection for domestic businesses and attracted foreign investors. By offering comprehensive insurance solutions, Malaysia has mitigated risks associated with international trade, making the country a more attractive business hub in the ASEAN region. The UAE, another prominent example, has used its insurance industry, particularly through partnerships with global insurance firms, to promote trade and business within free zones. Their Islamic insurance frameworks provide foreign investors with confidence in dealing with large-scale projects.

In contrast, Somaliland's attempts to introduce insurance have faced significant hurdles, including public resistance and a lack of comprehensive legislation. Efforts to enforce mandatory motor vehicle insurance were met with legal challenges and pushback from motorists, reflecting a general reluctance to embrace insurance. However, Somaliland has a foundation to build on—its efforts in introducing Takaful resonate well with the local population, given its similarities to traditional clan-based compensation mechanisms. Somaliland can take inspiration from these progressive Muslim countries by establishing a clear and robust legal framework that supports both conventional and Takaful insurance systems. The formation of the National Insurance Board is a promising first step. However, to truly unlock Somaliland’s potential in global trade, this must be followed by comprehensive legislation that includes investment protections, trade risk insurance, and mandatory insurance coverage for sectors like transportation, healthcare, and business assets.

Creating a conducive environment for foreign insurers and ensuring compliance with Sharia law, Somaliland could not only boost domestic trade but also attract foreign investors and traders. This would help diversify its economy beyond livestock and agriculture, fostering economic growth and establishing Somaliland as a credible player on the global trade stage. The development of a strong insurance sector is essential for Somaliland to reduce its reliance on clan structures, promote individual financial independence, and establish a reputation as a secure destination for international business.

Yousef Timacade is a lawyer, legal analyst, and commentator with over a decade of experience in program management, research, and human rights advocacy. He holds master’s degrees in both law and executive management, which have equipped him with a unique blend of legal expertise and leadership acumen. Throughout his career, he has worked with numerous national and international non-governmental organizations, driving impactful initiatives in the areas of human rights, policy development, and social justice. Currently, Yousef serves as the Country Coordinator for Somalia and Somaliland at SIHA Network, where he leads efforts to advance women's rights and advocate for marginalized communities.

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