Class Lecture
Islamic Financial System
(Fin-5402)
Islamic Takaful Insurance
Islamic Takaful Insurance
can be defined as
“A Collective
Insurance contract, whereby its subscribers are committed to pay a specific
amount of money as a donation to indemnify the victims on the basis of
Cooperation and Takaful, when the risk actually occurs. Its Insurance
operations are run by a specialized Company, in their capacity as Agents (
Wakala Model ) on behalf of the policy Holders for a fixed fees.”
Contracts in
Takaful:
Islamic Insurance
includes a number of contracts which intertwine in a complementary way to
realize and fulfill the Insurance operation. They are: -
1. First : The
Collective Insurance Contract:
It is Represented by Takaful
Agreement which brings together The Insured. Through this Contract, a
Contractual Relationship is Established Among The Insured based on Cooperation,
Mutual Sacrifice, and Commitment to Giving and Receiving.
2. Second : The
Gift Contract:
Under this type
of contract the legal relationship, which is established among the Insured’s
because of the collective Insurance contract, is in the form of a donation.
Every Insured is a donator of the amount due from him for the indemnities which
are paid to the victim. When he has an accident or a contingent event occurs,
others donate to him because of the indemnity he gets when damage befalls him.
3. Third : The
Agency Contract ” Wakalah ” :
This contract has two forms. Under The First Form:
a legal relationship is established between the insurer as an agent on the one
hand and all the Insured’s as the principal party on the other hand. According
to this contract, The Insurance Company runs and manages Insurance operations
on behalf of the Insured’s. It accepts the subscriptions of new members it
collects premiums from the Insured’s; and it is responsible for paying
indemnities to the beneficiaries on behalf of the rest of the Insured’s. In
return for running the Insurance operations, the Company receives fees which
are agreed upon and specified before the beginning of every fiscal year.
The Second Form: of The Agency Contract serves as
an agent between the Insured’s on the one hand and those who represent them in
monitoring the work of The Insurance Company while it is carrying out its
functions on the other hand, whether those who represent the Insured’s are
selected from them or from others. In some countries in which The Companies act
does not allow the Insured’s to be members in the board of The Insurance
Company, the alternative is to assign another Company to carry out that
responsibility as an agency. In The Islamic Insurance Company in Jordan, for example, The Shari’ah Supervisory
Commission carries out this role by becoming a representative of those who do
not have a representative.
4. Fourth : The
Mudarabah Contract:
Under this form
of contracts The Insurance Company invests the available surplus from the
premiums as a Mudareb. The Insured are the employers, and profits are shared
among them at the percentage agreed upon on condition that the investment is
carried out in legitimate ways.After
the profits from Mudarabah have been distributed, The Company’s share is added
to the shareholders’ account. Also, the Insured’s share is added to the total Insurance
premiums which belong to them.
5. Fifth : The
Guaranty Contract:
This Contract applies when the total
shares of the Insured in the Insurance premiums is not sufficient to pay their
share of the indemnities due to the beneficiaries .The Company acts as a guarantor of the Insured and guarantees all
the financial commitments due to the beneficiaries from The Company’s money as
a free interest loan. The Company then collects the amount loaned to the
beneficiaries from the Insured at a later stage.
Takaful vs.
Conventional Insurance
There are a
number of significant differences between Takaful and conventional
insurance companies. Takaful companies not only follow the principles of
Shari’a, but also have distinctive features compared to conventional companies.
The following is a comparison between Takaful and conventional insurance companies:
The following is a comparison between Takaful and conventional insurance companies:
|
Takaful Companies
|
Conventional Insurance Companies
|
|
Takaful is based
on mutual cooperation.
|
Conventional insurance
is based solely on commercial factors.
|
|
Takaful is free
from interest (Riba), gambling, (Maysir), and uncertainty (Gharar).
|
Conventional insurance
includes elements of interest, gambling, and uncertainty.
|
|
All or part of the contribution paid by the
Participant is a donation to the Takaful
Fund, which helps other Participants by providing protection against
potential risks.
|
The premium is paid to conventional insurance companies and is owned by them in
exchange for bearing all expected risks.
|
|
Takaful companies
are subject to the governing law as well as a Shari’a Supervisory Board.
|
Conventional companies
are only subject to the governing laws.
|
|
There is a full segregation between the Participants
Takaful Fund account and the
shareholders' accounts.
|
Premium paid by the Policyholder is considered as income
to the company, belonging to the shareholders.
|
|
Any surplus in the Takaful Fund is shared among Participants only, and the
investment profits are distributed among Participants and shareholders on the
basis of Mudaraba or Wakala models.
|
All surpluses and profits belong to the shareholders
only.
|
|
In case of the deficit of a Participants’ Takaful Fund, the Takaful operator (Wakeel) provides
free interest loan (Qard Hasan) to the Participants.
|
In case of deficit, the conventional insurance company covers the risks.
|
|
The Plan Owners’ and shareholders’ capital is
invested in investment funds that are Shari’a compliant.
|
The capital of the premium is invested in funds and
investment channels that are not necessarily Shari’a compliant.
|
|
Takaful companies
have re-insurance with Re-Takaful
companies or with conventional
re-insurance companies that adhere to certain conditions of Shari’a.
|
Conventional insurance
companies do not necessarily have re-insurance with re-insurance companies
that abide by Shari’a principles.
|
1.
First: Regarding the parties to the contract and the
ownership of premiums :
In Conventional Insurance, The
Insurance Contract is between the Insured and The Insurance Company as the
Insurer on its own behalf. Premiums which the Insured’s pay belong to the
Company,which use the money in whatever way it desires.
But in Takaful Insurance the two
parties to the contract are the Insured and The Insurance Company in its
capacity as a representative of the Insured. The role of The Insurance in this
type of Insurance is to make contracts with the Insured’s and to manage
Insurance operations and Insurance money in The Cooperative Insurance Fund in a
legitimate manner on the basis of an agency for fixed fees. Premiums which are
collected from the Insured’s belong to them and not to The Insurance Company.
The available funds are invested for the interest of the Insured. The donated
part of the premiums is only the part allocated for the purpose of
compensation and establishing technical reserves.
2.
Second: Regarding its goal and aim :
In Conventional Insurance, The Main
Goal of The Insurance Company is to achieve the largest amount of profit.
Achieving security is a secondary aim and will come in consequence to achieving
profit.
But in Takaful Insurance The
Main Goal is to achieve security by means of cooperation among the Insured to
restore the results of risks which may befall any one of them on the basis of
donation. The motive for Insurance is cooperation with the Insured to minimize
or remove the damage which befalls any one of them when the insured disaster
occurs. Therefore, what the injured Insured gets as compensation, he gets it as
a donation from the rest of the Insured. The profit will come in consequence to
security.
3.
Third: Regarding its legitimacy:
According to most researchers in
Insurance, Conventional Insurance is prohibited while they permitted and
legitimized Takaful Insurance as was mentioned in chapter one. In his book “Islam
and Insurance“, Dr. Mohammed Shawqi Al-Fanjari Says: “Contemporary
jurisprudents are in agreement regarding the legitimacy of Cooperative
Insurance, but they are in disagreement regarding the legitimacy of Commercial
Insurance.”
4.
Fourth: Regarding the nature of the contract:
Conventional Insurance contracts
are compensation contracts, while Takaful Insurance contracts are donation
contracts. Conventional Insurance contains usury, Gharar, and ignorance,
while Takaful Insurance is void of them. Ignorance and Gharar will
vanish because Takaful Insurance contracts are donation contracts.
Dr. Mohammed Shawqi Al-Fanjari says:
“Cooperative Insurance is based on cooperation and donation; therefore, it is
void of compensation completely. If compensation is not included in it, then
ignorance, Gharar, and usury will vanish.
5.
Fifth: Regarding the mechanism of investing Insurance
money:
Insurance money in Conventional
Insurance is invested on the basis of usury. But in Takaful Insurance,
investing Insurance money is carried out only by legitimate ways which are void
of usury
CASE STUDY: T'azur at a
glance
t’azur Company b.s.c. (c) is a Bahraini closed joint stock
company incorporated under the laws of the Kingdom of Bahrain and
licensed and regulated by the Central Bank of Bahrain. t’azur was founded by Unicorn
Investment bank with an authorised capital of US$ 500,000,000, of which US$
58,000,000 is issued and paid up. t’azur provides Family and General Takaful
products for individuals and businesses. All t’azur products abide by
the principles of the Islamic Shari’a law and are under the supervision of t’azur’s
Shari’a Supervisory Board.
t’azur’s ambition is to become the first truly regional Takaful Company, serving clients across the GCC, MENA region and beyond. Consequently, t’azur counts many leading institutions from all across the GCC among its founding shareholders.
t’azur’s ambition is to become the first truly regional Takaful Company, serving clients across the GCC, MENA region and beyond. Consequently, t’azur counts many leading institutions from all across the GCC among its founding shareholders.
Takaful for
Individuals
t’azur
Islamic Savings and Takaful Protection Plans
These plans are designed to give you peace of mind that your future financial needs are taken care of through investments in a choice of Shari’a compliant funds, combined with a range of Takaful (Islamic insurance) protection benefits, to cater for a variety of unforeseen circumstances.
t’azur Target Accumulation Plan:
Shari’a compliant savings plan which allows you to plan and save for your future needs through investing into selected Shari’a compliant funds and choosing from a wide range of optional Takaful protection benefits.
t'azur Target Education Plan:
Shari’a compliant savings plan to meet the future education costs of your children, combined with a choice of Takaful protection benefits available for any unforeseen circumstances.
t’azur Target Retirement Plan:
Shari’a compliant retirement savings plan offering choice of Shari’a compliant investment funds and optional Takaful protection benefits.
t’azur Family Legacy Plan:
Flexible Shari’a compliant protection plan that will provide and protect your family’s financial security in the event of death as well as help you save for the future.
t’azur Harvest Plan (Single Contribution Plan):
Flexible Shari’a compliant savings plan gives you the opportunity to invest a lump sum into a choice of Shari’a compliant funds.
Sadaqah Plan:
Shari’a compliant savings plan aimed at encouraging charity within the community. The plan’s objective is that the accumulated capital resulting from regular saving donations will be paid out to the Charity of your choice. The plan provides protection benefits for any unforeseen circumstances.
t’azur Takaful Protection-only Plans
These plans are for protection only (no savings or investments), paying a fixed sum in the case of adverse events.
t’azur Mustaqbal Plan:
Shari’a compliant protection-only plan is a plan which you will pay a fixed lump sum in case of death with optional Takaful protection benefits.
t’azur Kafalah Plan (Mortgage Plan):
Shari’a compliant protection-only plan is a plan which pays your outstanding mortgage in case of death and includes optional Takaful protection benefits.
t’azur Accident and Health Plans
These plans are annually renewable and designed to provide for your family’s financial needs should you suffer from an accident or sickness, in which case a regular annuity will be paid to your selected beneficiaries.
t’azur Tawasul Education Plan:
Shari’a compliant protection plan which pays continuous allowance towards your child’s education in the event of accidental death or total & permanent disability.
t’azur Tawasul Income Plan:
Shari’a compliant protection plan which pays continuous income in the event of permanent & total disability or partial & permanent disability.
These plans are designed to give you peace of mind that your future financial needs are taken care of through investments in a choice of Shari’a compliant funds, combined with a range of Takaful (Islamic insurance) protection benefits, to cater for a variety of unforeseen circumstances.
t’azur Target Accumulation Plan:
Shari’a compliant savings plan which allows you to plan and save for your future needs through investing into selected Shari’a compliant funds and choosing from a wide range of optional Takaful protection benefits.
t'azur Target Education Plan:
Shari’a compliant savings plan to meet the future education costs of your children, combined with a choice of Takaful protection benefits available for any unforeseen circumstances.
t’azur Target Retirement Plan:
Shari’a compliant retirement savings plan offering choice of Shari’a compliant investment funds and optional Takaful protection benefits.
t’azur Family Legacy Plan:
Flexible Shari’a compliant protection plan that will provide and protect your family’s financial security in the event of death as well as help you save for the future.
t’azur Harvest Plan (Single Contribution Plan):
Flexible Shari’a compliant savings plan gives you the opportunity to invest a lump sum into a choice of Shari’a compliant funds.
Sadaqah Plan:
Shari’a compliant savings plan aimed at encouraging charity within the community. The plan’s objective is that the accumulated capital resulting from regular saving donations will be paid out to the Charity of your choice. The plan provides protection benefits for any unforeseen circumstances.
t’azur Takaful Protection-only Plans
These plans are for protection only (no savings or investments), paying a fixed sum in the case of adverse events.
t’azur Mustaqbal Plan:
Shari’a compliant protection-only plan is a plan which you will pay a fixed lump sum in case of death with optional Takaful protection benefits.
t’azur Kafalah Plan (Mortgage Plan):
Shari’a compliant protection-only plan is a plan which pays your outstanding mortgage in case of death and includes optional Takaful protection benefits.
t’azur Accident and Health Plans
These plans are annually renewable and designed to provide for your family’s financial needs should you suffer from an accident or sickness, in which case a regular annuity will be paid to your selected beneficiaries.
t’azur Tawasul Education Plan:
Shari’a compliant protection plan which pays continuous allowance towards your child’s education in the event of accidental death or total & permanent disability.
t’azur Tawasul Income Plan:
Shari’a compliant protection plan which pays continuous income in the event of permanent & total disability or partial & permanent disability.
Motor: Provides
coverage against accidental damage to the vehicle and the legal liability
towards third party property damages and injuries. It also provides optional
value added services like road side assistance, vehicle recovery service,
replacement of vehicle and more.
Home Compact: Provides full protection for all your assets at home and includes a range of optional benefits to choose from, including building insurance, theft of high value items, domestic servants’ liabilities and more.
Personal Accident: Provides protection against all accidental occurrences that might lead to the death or bodily injury of the Plan Owner. If the accident leads to the untimely death of the Plan Owner, this plan will provide complete financial security to the Plan Owner’s family members. The plan also covers eventualities where though the covered person survives an accident, he is disabled for the rest or part of his life.
Home Compact: Provides full protection for all your assets at home and includes a range of optional benefits to choose from, including building insurance, theft of high value items, domestic servants’ liabilities and more.
Personal Accident: Provides protection against all accidental occurrences that might lead to the death or bodily injury of the Plan Owner. If the accident leads to the untimely death of the Plan Owner, this plan will provide complete financial security to the Plan Owner’s family members. The plan also covers eventualities where though the covered person survives an accident, he is disabled for the rest or part of his life.
.
Takaful
for Businesses
Corporate
Protection Plan
Group Family (Takaful protection) cover for the employees of a company. In case of an employee’s death or disability, a lump sum equivalent to a multiple of salary is paid out.
Group Personal Accident
Provides for payment of compensation in the event of members of the group sustaining injury, disablement (permanent total, permanent partial and temporary total) or death arising out of accident.
Group Family (Takaful protection) cover for the employees of a company. In case of an employee’s death or disability, a lump sum equivalent to a multiple of salary is paid out.
Group Personal Accident
Provides for payment of compensation in the event of members of the group sustaining injury, disablement (permanent total, permanent partial and temporary total) or death arising out of accident.
Business
Compact/Office Compact
A flexible and simple alternative to the Fire Plan and designed to cover all the insurance needs of a small business, including loss of profit, loss of rent and business interruption.
Property All Risk Insurance (including burglary)
Provides comprehensive protection against loss of or damage to valuable property due to fire, riot fire, burglary, housebreaking, accidental loss or damage risk.
Fire and Additional Perils/Business Interruption
Provides coverage for physical assets (buildings, contents, stocks) against loss or damage due to some listed perils. It also covers loss of revenue/profit due to the inability to use all or part of a company’s assets that may affect its ability to trade.
Marine Cargo
Provides flexible and tailored coverage for goods which are in transit by sea, air, or land.
Motor Fleet
Provides coverage against accidental damage to the vehicle and the legal liability towards third party property damages and injuries. It also provides optional value added services like road side assistance, vehicle recovery service, replacement of vehicle and more.
Contractor’s All Risks (CAR) & Erection All Risks (EAR)
Provides coverage for construction and machinery installation projects from inception to completion against all risks.
Contractors Plant and Machinery Takaful
Comprehensive plan available for construction plants and machinery against unforeseen and sudden physical damage to the property/covered item whether at work or at rest, or being dismantled for the purpose of cleaning or overhauling or in cause of the aforesaid operations themselves or when being shifted within the premises, or during subsequent re-erection but in any case only after successful commissioning.
The Plan Owner can be the Owner/Contractor/User/ Banking Institution.
Boiler and Pressure Plant
Provides cover for physical loss or damage to all types of boilers and/or other pressure plants where steam is being generated against unforeseen and sudden physical loss of or damage due to an explosion or collapse of the covered items.
Machinery Breakdown
Provides coverage for accidental damage to industrial machinery at work, at rest, being dismantled/moved or re-erected within the covered premises.
Electronic Equipment (Breakdown)
All risk plan is designed for computers, medical, biomedical, microprocessor, and audio/visual equipment including the value of system software.
Employer’s Liability
Provides coverage for employers from liabilities arising from disease, fatality, or injury to employees resulting from workplace conditions or practices.
Workmen’s Compensation
Provides coverage for Plan Owner’s legal obligations to their employees under the Labour Law, including a GOSI ‘top-up’ cover and employer’s liability.
Public Liability Takaful
Provides protection for businesses for legal liability against compensation to third party injuries and property damage arising out of, and in the course of, business operations.
Fidelity Guarantee/Employee Dishonesty
Provides coverage for employers against any direct financial loss, including loss of goods caused by fraud or dishonesty of employees.
Money
Provides protection for loss of business money at the business premises or whilst in transit.
A flexible and simple alternative to the Fire Plan and designed to cover all the insurance needs of a small business, including loss of profit, loss of rent and business interruption.
Property All Risk Insurance (including burglary)
Provides comprehensive protection against loss of or damage to valuable property due to fire, riot fire, burglary, housebreaking, accidental loss or damage risk.
Fire and Additional Perils/Business Interruption
Provides coverage for physical assets (buildings, contents, stocks) against loss or damage due to some listed perils. It also covers loss of revenue/profit due to the inability to use all or part of a company’s assets that may affect its ability to trade.
Marine Cargo
Provides flexible and tailored coverage for goods which are in transit by sea, air, or land.
Motor Fleet
Provides coverage against accidental damage to the vehicle and the legal liability towards third party property damages and injuries. It also provides optional value added services like road side assistance, vehicle recovery service, replacement of vehicle and more.
Contractor’s All Risks (CAR) & Erection All Risks (EAR)
Provides coverage for construction and machinery installation projects from inception to completion against all risks.
Contractors Plant and Machinery Takaful
Comprehensive plan available for construction plants and machinery against unforeseen and sudden physical damage to the property/covered item whether at work or at rest, or being dismantled for the purpose of cleaning or overhauling or in cause of the aforesaid operations themselves or when being shifted within the premises, or during subsequent re-erection but in any case only after successful commissioning.
The Plan Owner can be the Owner/Contractor/User/ Banking Institution.
Boiler and Pressure Plant
Provides cover for physical loss or damage to all types of boilers and/or other pressure plants where steam is being generated against unforeseen and sudden physical loss of or damage due to an explosion or collapse of the covered items.
Machinery Breakdown
Provides coverage for accidental damage to industrial machinery at work, at rest, being dismantled/moved or re-erected within the covered premises.
Electronic Equipment (Breakdown)
All risk plan is designed for computers, medical, biomedical, microprocessor, and audio/visual equipment including the value of system software.
Employer’s Liability
Provides coverage for employers from liabilities arising from disease, fatality, or injury to employees resulting from workplace conditions or practices.
Workmen’s Compensation
Provides coverage for Plan Owner’s legal obligations to their employees under the Labour Law, including a GOSI ‘top-up’ cover and employer’s liability.
Public Liability Takaful
Provides protection for businesses for legal liability against compensation to third party injuries and property damage arising out of, and in the course of, business operations.
Fidelity Guarantee/Employee Dishonesty
Provides coverage for employers against any direct financial loss, including loss of goods caused by fraud or dishonesty of employees.
Money
Provides protection for loss of business money at the business premises or whilst in transit.
