Takaful orienataion - Qatar 01-03-2014


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This presentation gives basic orientation of Takaful to non insurance professionals and public at large. It was delivered to Pakistan Professional Forum Qatar

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Takaful orienataion - Qatar 01-03-2014

  1. 1. PERVAIZ AHMED INTERNATIONAL ISLAMIC 1st March, 2014, Qatar T A K A F U L Shari’ahCompliantAlternative to Conventional Insurance
  2. 2. Flow of Presentation  Risk Mitigation from Shari’ah Perspective  Global development of Takaful  How does Takaful Function?
  3. 3. Risk Mitigation from Shari’ah Perspective Is the concept of risk mitigation permissible in Islam? • This very concept is not only lawful/permissible in Islam but is in fact encouraged What are the available risk mitigation tools? • A concept misunderstood as against Tawakul.. Avoid using Risk Mitigation Tools • Funds may not be sufficient to compensate the loss Self-Insurance or setting aside contingency money for the rainy day • A commercially viable system but contains the element of Riba, Gharar, and Qimar/Maysir Conventional Insurance • A commercially viable system which is also Shariah Compliant Takaful
  4. 4. Risk Mitigation in Islam Islamic history is replete with examples featuring risk mitigation activities: Hadith: “Tie the Camel and then Submit to the Will of Allah” Dhaman Khatr al- Tareeq: A person would undertake another person’s risks without any consideration/fee in return Dhaman Al- d’ark: A person would influence a sale by promising to compensate for the loss if the subject-matter proved faulty Aqila: A risk sharing mechanism in which community members pooled their share of Diyat (blood money)
  5. 5. Shari’ah Ruling on Conventional Insurance Concept of Insurance? Content of Insurance? ? Shari’ah has no objections as to the concept or objectives of insurance ; it only has reservations with the way it is carried out i.e. the process of insurance
  6. 6. What is Allowed?  Risk Transfer without Consideration (premium)  Risk Sharing between Participants  Basis of Contract: Taburru i.e. unilateral non-commutative  Takaful Operator has no ownership claim on the contributions (premiums) paid by the participants  The Participants lose ownerships rights once the contribution is paid on the basis of Taburru  The contribution becomes the property of the Pool (Waqf) What is not Allowed?  Risk Transfer Against Fixed Consideration (premiums)  Basis of Contract: Muawaza i.e. bi-lateral sales & purchase  Reason: Such a contract involves Riba, Gharar, & Qimar/Maysir
  7. 7. Origin of Modern Takaful  Western socio-economic, political, and legal orders overshadowed Islamic and traditional local norms  Muslim Revival and Renaissance began around the 1920s on multiple fronts  As a result, development of Islamic Banking started in 1970s  Dubai Islamic Bank, the first commercial Islamic bank, was established in 1975  There was a legal requirement that Islamic banks’ underlying assets be insured e.g. Car Ijarah  Islamic banks could not avail insurance from conventional companies as that would be antithetical to the cause  The need for a practical risk mitigation mechanism grew as the Islamic banking industry grew  First Takaful company was established in Sudan in 1979, four years after the establishment of the first Islamic bank
  8. 8. Need for Takaful was felt after the development of Islamic Banking 1975 First Islamic Bank 1979 First Takaful Co.
  9. 9. Development of Takaful Industry
  10. 10. (USD) BILLON 187 # of Takaful Operators in 2012 Approx. 48 Window Operators 15 Irani Operators >18 Re-Takaful Operators Global Market Size of Takaful Source E&Y Report 2013 Worldwide Takaful Developments & Growth 4.2 5.4 7.1 8.3 9.4 10.9 0 2 4 6 8 10 12 2007 2008 2009 2010 2011 2012
  11. 11. Geographical Distribution of Takaful Volumes 51% 25% 16% 2% 5% 1% Saudi Arabia ASEAN GCC South Asia Africa Levant Source E&Y Report 2013
  12. 12. Takaful Arrangements can be broadly divided into the following two categories: Family Takaful covers All risks associated with human life, like - death, - disability and illness - short-term and long-term investment needs General Takaful covers All risks associated with Physical Assets and Property, like - house, - marine, - motor, - engineering and misc.
  13. 13. Three Operational Models Pure Mudarbah Practiced earlier, it is no longer in use. Pure Wakalah This model in not widely practiced. Hybrid – Wakalah + Mudarbah This is the most prevalent model. Hybrid- Wakalah+ Mudarbah+ Waqf This model was suggested by Shari’ah Scholars in Pakistan.
  14. 14. How does it Function? Wakala h Wakala h Wakalah Wakalah Takaful Operator Investment Participant Participant Participant Participant Participant Pool Risk sharing Between Participants Wakalah Wakalah Surplus Wakalah Fee, Claims, Re-Takaful
  15. 15. Participant’s Investment Account (PIA) Waqf Fund Operator / Wakeel Participant Contributions Profits from Investment Wakalee Fee(s) for Investment Management Contributions for Takaful Benefit Payment of Claims Surplus Distribution (if any) Wakala Fee for Operating Waqf Fund 1 23 4 5 6 7 How does it Function? Family Takaful
  16. 16. Takaful Funds • Income and expenses of Shareholder’s are managed Shareholder’s Fund • Income and expenses of Tabarru/Waqf pool are managed Participant Takaful Fund • Investments of Participants are managed. This fund is Only required in Family Takaful companies Participant Investment Fund
  17. 17. Participant Takaful Fund (PTF) - Income Income of PTF consists of following  Contributions received from the participants (other than the portion transferred to PIA under Family Takaful Policies)  Claims amount and commission received from the Re-Takaful operators  Investment profit attributable to participants in the PTF  Salvage/Recoveries  Qard-e-Hasna by the shareholder fund in case of a deficit  Any donation made by shareholders
  18. 18. Participant Takaful Fund (PTF)- Outgo The outgo of PTF shall consists of the following  Settlement of losses and expenses occurred therein  Re-Takaful cost  Takaful Operator’s fee – Wakalah fee  Share of investment profits of PTF as Mudarib  Surplus distributed to participants  Return of Qard-e-Hasna to the shareholder’s fund
  19. 19. Shareholder’s Fund (SHF)  Both, Family and General Takaful Companies will be maintained in a similar way under the guidelines of Shari’ah Board and Central Shari’ah Board.  The SHF will consist of :  the paid-up capital and  undistributed profits to the shareholders.  The income of the shareholder’s fund will consist of:  Takaful Operator’s Fee (Wakalah Fee)  Profit on the investment of the SHF and proportion of the investment profit generated by the investment of PTF as per PTF rules and the PMD.
  20. 20. Shareholder’s Fund (SHF)  Expenses of shareholder’s fund shall consist of:  All expenses related to Takaful Operator, including all marketing as well as administrative investment and operational expenses including commission and over riders paid to business intermediaries, benefit payments and related expenses as surveyors’ fee  The Shareholder must undertake to declare unconditionally all contracted liabilities of the PTF, but their liability in this regard shall not exceed the SHF
  21. 21. Participant Investment Account (PIA)  This account is maintained in Family Takaful companies where unit linking policies are offered to the customers.  Following are the investment avenues allowed by the Shari’ah  Shari’ah compliant Government Securities  Immoveable property  Joint Stock Companies  Redeemable Capital  Mutual Funds  Musharaka Certificates, Term Finance Certificates, Participation Term Certificates  Placement of excess funds with Banks and Islamic financial institutions
  22. 22. Surplus Distribution  After deducting the Wakalah Fees, Claims, Re-Takaful Contributions, Contingency Reserves and Charities etc. the remaining amount in the pool is to be distributed between the participants; it does not go to the shareholders  Surplus distribution is one of the major USP of Takaful, It differentiates between a very well managed company from a poorly managed company.  For example QIIC which is a better managed company is distributing surplus of 20% since last many year as opposed to many other companies who are not distributing surplus at all.
  23. 23. Conventional Insurance Vs. Takaful Conventional Insurance Takaful  Insurance is a compensatory contract  Takaful is a non-compensatory contract  Risk Transfer  Risk Sharing  Insurer is the owner of all the funds and have all the rights  Operator is just the manager of the fund and has limited rights  Underwriting Surplus of the fund is owned by the insurer  Surplus belong to the participants and distributed amongst them  No restriction on the management of investments  Investments are managed according to the guidelines given by Shariah
  24. 24. Jazaakum Allahu Khairan Pervais.Ahmed@qiib.com.qa www.qiib.com.qa