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Opportunities for Takaful (Islamic Insurance)
SP Media Pvt Ltd, Feb 2009, Pages: 40
This report, authored by Dr KC Mishra, Director, National Insurance Academy, and published by SP Media Pvt Ltd, examines the key markets for Takaful (Islamic) insurance globally.
The report includes an overview of Takaful, a description of the developing models such as Mudaraba, Wakala, Hybrid, Waqf, and the industry enablers.
The report covers an in-depth analysis of the following key markets for Takaful, i.e. Malaysia, Indonesia, Saudi Arabia, UAE, Bahrain and India. For each of these markets, the following areas are analysed - Regulatory Framework, Market, Takaful Models Used, and Distribution Channels.
Finally, the report covers the market potential and outlook for Takaful, as well as key opportunities, challenges and competition.
This report will be useful to insurance companies who are either planning to expand in these markets, or existing players who are considering the formation of a Takaful business in addition to conventional insurance, specifically in these countries.
Abstract:
'Takaful is an Islamic insurance concept which is grounded in Islamic muamalat (banking transactions). This concept has been practised in various forms for over 1400 years. Muslim jurists acknowledge that the basis of shared responsibility in the system of aquila as practised between Muslims of Mecca and Medina laid the foundation of mutual insurance.
Takaful is the Islamic counterpart of conventional insurance, and exists in both life and general forms. It is based on concepts of mutual solidarity, and a typical Takaful undertaking will consist of a two-tier structure that is a hybrid of a mutual and a commercial form of company. This in itself poses significant issues for regulation and supervision. In addition, all the functions of a Takaful undertaking should conform fully to Islamic Shari'a law and this has implications in other areas of regulation and supervision. Takaful is based on principles of Ta-awun or mutual assistance that is Tabarru or voluntarily. In a way Takaful is similar to conventional cooperative insurance whereby participants pool their funds together to insure one another.
The concept of mitigation of risks by adopting the law of large numbers was widely used in Islam and especially in the practice of 'al-aqilah'. Under the custom of 'al-aqilah', it is mutually agreed that if a person is killed unintentionally by another person, the paternal relatives will take the responsibility to make a mutual contribution for the purpose of paying the blood money to the victim's relatives. This practice of having a fund that pools contributions from a group of people to assist others in need is akin to insurance. However, to be acceptable to Islam, any form of insurance should avoid the elements of riba or interest payment, maisir or gambling and gharar or uncertainty, though elements of gharar may be forgivable depending on the circumstances.
Takaful is derived from an Arabic word which means solidarity, whereby a group of participants agree among themselves to support one another jointly against a defined loss. In a Takaful arrangement, the participants contribute a sum of money as wholly or partially tabarru meaning donation into a common fund, which will be used mutually to assist the members against a defined loss or damage. Takaful has evolved into a viable alternative to conventional insurance and is able to attract a wide range of customers, Muslim and non-Muslim alike.
'Principles of Takaful'. The principles of Takaful are as follows:
- Policyholders co-operate among themselves for their common good.
- Every policyholder pays his subscription to help those that need assistance.
- Losses are divided and liabilities spread according to the community pooling system.
- Uncertainty is eliminated in respect of subscription and compensation.
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