History of Islamic InsuranceIslamic Perception on InsuranceWhat is Takaful?Chronology of EventsConventional Insurance vs. TakafulTakaful ProductsGlobal Takaful • Malaysia • GCC Countries (Bahrain, Kuwait, KSA, UAE, Oman & Qatar) • South East Asia (Singapore, Brunei & Indonesia) • Pakistan, Bangladesh and Sri Lanka • African Countries • Europe (Luxembourg & United Kingdom)
In the Islamic history, the idea of insurance was mainly reflected in the various schemes of mutual help and assistance whenever a calamity or misfortune struck a person. Insurance was therefore, not a business for profit-making but a means to help the needy on a voluntary gratuitous basis. ‘Aaqilah’ was a well-known pre-Islamic notion, which Islam also approved, where all the members of a family or tribe mutually pooled their resources to ransom a member of the family or tribe who had committed a murder. They helped to pay the diya (blood-money) to the next-of-kinS.K.of the person killed in order to save the Malaysia, Religion andretaliation.1 Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in culprit from Law Review, Vol-2, Issue-I, Yr- 1993, Pgs- 16-40
Merchants of Makkah used to have a scheme to compensate business-expedition losses and also those who suffered through natural hazards. Rasulullah Muhammad (s.a.w), who was trading with the capital of Khadijah, had also contributed to the fund from his profits2.1S.K. Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in Malaysia, Religion and Law Review, Vol-2, Issue-I, Yr- 1993, pp - 16-402Afzal-ur- Rahman (1979), Banking and Insurance (Economic Doctrines of Islam). Vol. IV, pp 32.
Daman khatr al-tariq (surety for hazards on highway). If one person asks another to take a particular route and says it is safe and he stands surety for any loss, then he would be so liable if some loss is incurred by the second person3. Some other ways in which the idea of mutual help and amity was realized were: 1. ‘Aqd muwalat (contract of mutual amity). 2. Hilf (confederate)- where all mutual help was guaranteed through an agreement between persons; and the acceptance of a person by a tribe or family as one its own class or community for every calamity that might come to him. 3. Sowkrah – It is recorded by Ibn Abidin that during the last century there was a marine insurance practiced in the Ottoman Empire (circa 1863)1S.K. Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in Malaysia, Religion and Law Review, Vol-2, Issue-I, Yr- 1993, pp - 16-403Mustafa Zarqa. Aqd al Tamin. pp. 32ff (Damascus. 1962). cited in Muslehuddin, Insurance and Islamic Law (NewDelhi 1982).
Colonization brought modern insurance to the-Islamic world. Gradually in about a centurys time insurance became generally available in the whole of the Arab world. It was not due to any popular or general acceptance of modern insurance by the Muslims who continued to reject it but because of the efforts of the western business interests to extend the facility of insurance to the Muslim world in order to cover their various risks. The generality of Muslims continued to remain aloof from insurance.
Riba• Generally the money collected through premiums is invested by the insurance company in interest- bearing deposits, un-Islamic business or dealings.Gharar• There is gharar in insurance as both the parties do not know their respective rights and liabilities till the occurrence of the insured event.Maisir• Insurance is sometimes equated with gambling, maisir or wagering.
Takaful literally means joint-guarantee, a pact among a group of persons to indemnify a member of this group if he suffers a specified calamity or loss. Theamount comes out of a common pool created with the individual contributions of participating members. Takaful is based on the Quranic concept of taawun (mutual assistance). Help you one another unto righteousness and pious duty. Help not one another unto sin and transgression, but keep your duty to Allah." [Al-Maida: 2]
Mudharabah – Profit Sharing • The sharing of profit and loss between the participant and operator is determined in advance and judged on the basis of company’s developmental stage and earnings. • The sharing ratio is approved by the Shariah committee on advance basis. Normally total expenses are charged to shareholder under Mudarabah.Wakalah – Agency • The participant pays the Wakalah fee from contributions that cover the total operator expenses of the business and operator salaries. • The Wakalah fee is determined by the Shariah Advisory Board of the company one year advance basis. • To give incentive to operator for good governance, management fee is paid as per the level of performance.Wakalah Waqf– Agency for a Waqf • A Waqf fund is created as separate legal entity with the contribution of the participant’s amount and the amount deposited to this fund is considered as a “tabarru” donation. The aim of this fund is to provide relief to participants against defined losses according to the terms and condition of the Waqf fund.
Family Takaful • Family Takaful • Investment-Linked Takaful • Child Education Takaful • Medical & Health TakafulGeneral Takaful • Home Takaful • Motor Takaful • Personal Accident Takafulhttp://www.islamicfinanceinfo.com.my/discover-takaful/know-your-takaful-products
Reinsurance of takaful business on Islamic principles is known as retakaful. Reinsurance is a form of insurance whereby an insurance company or a Lloyd’s syndicate can transfer to another insurer (the reinsurer) all or part of its liabilities in respect of claims arising under the contracts of insurance that it writes. This enables the an insurance company (reinsured or direct insurer) to protect itself against the risk that its total claims costs in any one year maybe so large wiping out its profits, or even cause it to be insolvent.
Conventional Insurance TakafulBased on compensation of Islamic financialloss in exchange of premium protection system whichwhich is paid by insured. involves a jointConventional insurance is guarantee scheme inbased on to take material gain providing possibleon behalf of other. indemnity or contingency. Takaful operation is based on the concepts of taawun (mutual helpM.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance TakafulIn conventional insurance one Takaful does notparty agrees to undertake the exchange riskrisk of other party in exchangeof premium and the other by way of contributionparty promises to pay fixed payments made tosum of money to the first party operator which meanson the happening of uncertain operator is not sellingevent with in a specific and participant is notduration. buying any risk coverage.M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance TakafulInvestment of Funds - Investment of Funds -Conventional insurers may Takaful companiesinvest in such type of assets invest funds in interestthat are strictly forbidden bythe Shariah such as alcohol, free avenues and withgambling or pork the concept of HalalM.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance TakafulConventional insurance Takaful under Shariahcompanies invest large amount law, interest isin fixed income securities on forbidden, which rulestheir balance sheet in order tominimize the risks and the out the investment invariability associated with the fixed income securities.equity.M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance TakafulUnder conventional Under Takaful contractinsurance, policyholder have every policyholder hasno right to know how the the right to know howpremium are invested andfrom where the claims their money isoriginates. used, how the surrender value is calculated, the origin of claim settlements to ensure it is Halal.M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance TakafulUnder conventional Under Takafulinsurance, the insured forfeits premiums arehis/her premiums on refundable along withtermination of a policy any corresponding surrender value less administrative feesM.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
1984 – 1992 o Enactment of Takaful Act o Establishment of Syarikat Takaful Malaysia 1993 – 2000 o Introduction of competition with establishment of Takaful Nasional o Formation of ASEAN Takaful Group and ASEAN Retakaful International Ltd. o Takaful Malaysia & Takaful Nasional (now known as Etiqa Takaful) jointly developed a Code of Ethics for Takaful Industry (2000). 2001 – 2010 o Introduction of Financial Sector Master Plan which include enhancing Takaful operators capacity and strengthen the legal, shariah and regulatory framework. o Malaysian Takaful Association was established in 2002. o New licenses issued.
Etiqa TakafulCIMB Aviva (formerly Takaful Nasional) HSBC AmanahHong Leong Tokio Takaful (Malaysia)Marine Takaful Bhd Sdn Bhd Prudential BSNMAA Takaful Berhad Takaful BerhadSyarikat Takaful Takaful IkhlasMalaysia Berhad Berhad
New Takaful licenses to joint-venturesbetween Foreign Insurance entities and local entities
Regulatory Bank Negara Authority Malaysia Takaful Law Takaful Act 1984 Shariah Shariah AdvisoryTakaful Industry Supervision Council (Regulatory) Shariah Shariah Supervision Committee (Operational) Product Notofication Product General (Launch and Guidelines File)
Takaful Assets expanded to reach USD3.9 billion between 2005 – 2009 Takaful Industry contributed 1.9% of the Malaysia’s GNI Family Takaful constituted 84.7% of total Takaful assets in 2009. Net contribution increase to USD1.1 billion between 2005 – 2009. Family Takaful contributions rose from USD11.70 in 2005 to USD30.60 in 2009. General Takaful contributions rose from USD4.30 to 9.00 in the same period.
Other Others Medical & Endowmen InvestmentTemporary 3% Health Linked t 12% 9% 17% (Education) 1% Mortgage 47% Other Endowmen tNew Business 11%
Malaysia’s Takaful industry is expected tocontinue to show strong growth underpinned bythe following factors:
Bahrain, Kuwait, UAE, Qatar, Oman & Saudi Arabia
The region has one of the lowest penetration and density in the world
GCC Premium Contribution by Country, 2010Source: Swiss Re, Alpen Capital (August 2011) Kuwait Bahrain Oman 5% 5% Qatar 6% 7% Saudi Arabia 34% UAE 43%
Percent Contribution, GCC vs. Global Markets, 2010Source: Swiss Re, Alpen Capital (August 2011) GCC Wor Regi ld on, 0 Life, Mar 13% ket, Non- 0 Life, 42% Non- Life, Life, 58% 87% GCC Region World Market
Large and young population, • with access to education, media and new technologies, will push the demand for financial products.Growing expatriate population • will drive health insurance.High and Rising GDP per Capita.Economic Diversification • GCC Countries have begun investing across varied sectors including manufacturing, retail, automobiles, tourism etc.Compulsory Insurance.High Savings Rate.Sharia Compliant Products.
1994 o Established PT Syarikat Takaful Indonesia 1995 o Established PT Asuransi Takaful Umum 2010 o Standardization of Takaful policy for fire and vehicles As of 2008 – Takaful penetration is only 0.04% of GDP Takaful premium rose 48 percent in Indonesia in 2010 to 4.5 trillion rupiah ($489 million), while Malaysias market expanded 17 percent in the first seven months of last year to more than 10 times that size (Bisnis Indonesia March 2012).
Hindu Catholics Others 2% 3% 3%Protestan ts Islamic Banking Deposit 6% Growth (USD billion) 5.8 6.2 Muslim 86% Religion 4 3.2 2.3 1.8 Median age: total: 28.2 years male: 27.7 years female: 28.7 years (2011 est.) Source: www.indexmundi.com
JAKARTA: Assets of Islamic insurance industry in Indonesia grew 32% in 2011, faster than that of conventional insurance, thanking to robust business growth in the segment. Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) recorded that assets of Islamic insurance in Indonesia was IDR9.2 trillion (USD1 billion) at end of last year. Meanwhile, conventional insurance including life and general insurance grew not more than 27% in 2011. Islamic-based insurance, or known as takaful, grew by 50% annually in average during the past five year. Takaful is insurance business holding to Islamic principles in its practices. Bisnis Indonesia - Islamic Insurance Assets Grow 32% On Strong Deman Oleh Anggi Oktarinda, Hanum KD March 22, 2012 08:41
Buddhi Religion Christi an st Others 10% 13% 10% Muslim 67%Median age:total: 28.4 yearsmale: 28.3 yearsfemale: 28.6 years (2011 est.)
Religion Hindu Catholic 5% 4%Takaful commenced in 1995 Christian Taoist 10% 8% BuddhistCurrently has 3 operators: HSBC 43% OthersInsurance, NTUC Income, United Overseas 15%Insurance. One retakaful – Tokio Marine Muslim 15%No separate set of regulations for TakafulOpportunities mainly in housing sectorHas plans to facilitate Takaful industry bytackling issues such as lack of Shariah-compliant assets and conflicting codes ofsupervision and tax treatments.
1983 1992 2000 • Review by • Report by the • Insurance Council of Council of Ordinance Islamic Ideology Islamic Ideology defined the term on takaful on Islamic Takaful and system in Insurance provided for Pakistan System establishments of Takaful Operators
2005 2006 2008 • Introduced • Established • Established Takaful Pak-Qatar Dawoood Rules Family Family • Established Takaful Ltd Takaful Pak-Kuwait and Pak- Takaful Co. Qatar General Takaful Ltd • Established Takaful Pakistan Ltd
Insurance penetration is only 0.8% of GDP SECP plans to promote microinsurance. Takaful opportunities, mostly in mortgage and auto insurance. Biggest challenge: o Poor market capitalization o Lack of awareness o Lack of skilled HR o Limited investment avenues and retakaful options
Takaful started with the establishment of Takaful operators in 2000. As of 2010, there are only 6 Religion Others Hindu 1% Takaful operators compared 10% to 13 conventional insurance companies Opportunities in housing loan insurance since many new housing projects and Muslim large young population. 89% Biggest challenge: o Lack of awareness o Low disposable income
Takaful started with the Population: 21,283,913 (July 2011 est.) establishment of Amana Takaful in 2002. Median age: total: 30.8 years male: 29.7 years In 2006, Ceylinco Takaful female: 31.8 years (2011 est.) was established. Others Muslim Upward trend in banking Christia 10% 8% n deposits and large young 6% population suggest good Hindu 7% growth opportunities. Biggest challenge: Buddhis t o Lack of awareness 69%
Sudan• Takaful started in 1979 when the Islamic Insurance Company of Sudan was formed.Egypt• Takaful began with the establishment of Egypt- Saudi Insurance House in 2002.Tunisia• Best Re was formed in 2008.Algeria• Salama Assurances Algerie was formed in 2007.
Senegal• Sosar Al Amane formed in 2005Gambia• Takaful Gambia Ltd. Was formed in 2008.South Africa• Takaful product were introduced in South Africa by Al-Noor Risk Solution in 2008, using the license of an existing insurance co.Kenya• There is also the Takaful Insurance of Africa established in Kenya but no further details can be acquired.
The Takaful industry is expected to grow in Africa underpinned by the large and relatively young Muslim population.Muslim population is estimated to make up approximately 52%* of African populationand the majority are within the 15-64 years Biggestgroup**. age Challenge: Lack of awareness and low disposable income *http://www.islamicpopulation.com/africa/africa_islam.html ** CIA The World Factbook
The biggest challenge in introducing and developing Islamic Financing is the creation of awareness. At present, countries only become interested in Islamic Financial products because they want to trade with the oil rich middle-east countries. In western countries, Islamophobia also poses a formidable challenge. Again, the spread of awareness on Islam’s true values and virtues. But, there is a huge potential for growth in the future. Malaysia, with its strong economic and political fundamentals, must ensure it stamps its mark in the world as the leader in Islamic financial products.