Islamic insurance 2014 topic 1

Islamic Insurance
(Takaful)
Dr. Kamaru Salam Yusof
Lecturer, FBMS, Unissa
Negara Brunei Darussalam

Faculty of Business & Management Sciences,
UNISSA, Brunei Darussalam
Introduce yourself !
• Name (full and nick)
• Where from
• Previous school
• Hobby
• Your parent?
• Study takaful before? Know arabic?

Things to consider
1. Arabic term vs english term
2. Your role – to understand, lecturer role – to help
you understand.
– Don’t hesitate to ask, visit, talk, email, wasaping
etc.
3. On time – plssssss (lecture, tutorial, submit)
4. Your class – your home.
5. Attendance – must and record (maybe un-
noticed)
6. Switch off your fon and tablet (except..)
7. Eat and drink – if need and not disturb others!

Our course
• Lecture
• U can ask
• Group mail
• Reading material
• Library research
• quiz
• Presentation
• test
• exam

Aims
• Correct perspective on Islamic
Takaful
• Theory and application of IT
• Able to utilize the rules of takaful in
line with the Syariah Law

contents
• Origin & development of insurance practice
• Origin & development of takaful practice
• Governance principles in takaful policy.
• Formalities & considerations in insurance
contract – common law & syariah
• Practice of takaful – principles & methods.
• Practice of takaful in Sultanate State of Brunei
Darussalam.

Topics to cover
• Introduction to risk management
• Introduction to insurance & its history.
• Introduction to takaful & its history
• Relation between takaful, banking and other Islamic Financial
Systems
• Different between Insurance and takaful
• Detail discussion on riba, gharar & maysir in insurance
• Operational Framework of Takaful & Classification
• Contracts in Takaful
• Models of Takaful
• Mudarabah
• Wakalah
• How implement both contracts in takaful
• Hybrid

Topics (cont.)
• Brunei and Malaysia ; which model?
• Re-takaful
• Shariah Issues in Takaful
• FAQ about takaful from the Shariah view
• Regulatory Framework for Takaful
• Discussion on Brunei Act & Malaysia Act
• Takaful; opportunities & challenges
• Contemporary issues on takaful; from general
society

References & textbooks
1. Essential guide to takaful; Dr Engku Rabiah
Adawiyah Engku Ali & Hassan Scott P.
Odierno. CERT (Center for Research &
Training, KL)  EGTT

TOPIC 1
INTRODUCTION TO RISK
MANAGEMENT

What is risk management
..identification, assessment, and
prioritization of risks followed by
coordinated and economical application
of resources to minimize, monitor, and
control the probability and/or impact of
unfortunate events or to maximize the
realization of opportunities..

Risk.. From where?
• from uncertainty in:
1. financial markets,
2. threats from project failures
• design,
• development,
• production, or
• sustainment life-cycles
3. legal liabilities
4. credit risk, accidents
5. natural causes and disasters
6. deliberate attack from an adversary
7. events of uncertain or unpredictable root-cause.

type risk
1. pure
– 2 possible outcome (fire, cancer) no change for gain
Loss @ no loss
• personall / collective
• Direct OR Indir
– occurs naturally (not plan)
2. Speculative
– Loss @ profit @ no change
– often planned – ban manipulated (stock market, real
estate, venture in business, horse race)

How to manage the risks?
• The strategies to manage threats typically
include:
1. transferring the threat to another party,
2. avoiding the threat,
3. reducing the negative effect or probability of the
threat, or
4. accepting some or all of the potential or actual
consequences of a particular threat, and the
opposites for opportunities (uncertain future
states with benefits).

risk management concept
2 basic part of human
1. uncertaint regarding loss --> risk = change of loss
2. peril cause loss
– theft, accident, sickness, flood, premature death, fire
• why
– future unknown
– outcomes of human unpredictable
– how to mitigate?
HOW TO TACKLE?

Risk Options
Risk mitigation measures are usually formulated
according to one or more of the following major
risk options:
1. Design a new business process with adequate built-
in risk control and containment measures from the
start.
2. Periodically re-assess risks that are accepted in
ongoing processes as a normal feature of business
operations and modify mitigation measures.
3. Transfer risks to an external agency (e.g. an
insurance company)
4. Avoid risks altogether (e.g. by closing down a
particular high-risk business area).

5 concept to manage
the risk
• Prevent - house
• Assumption – save money
• spread mutually – same concern
• Transference – insurance co.
• buying policy - insurance

Definition of insurance
Device to reducing risk by combining a sufficient
number of exposure units to make their individual
losses collectively predictable. Then shared by or
distributed proportionately among all units in
combination.
2 mains
1. tool to reduce uncertainty
2. uncertainty losses reduced by distributed
financing techniq
protection agains lost

Conventional INSURANCE
who involve
• insurer
• insured
insurance contract connect
them

Islamic insurance 2014 topic 1

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