2. History of Islamic Insurance
Islamic Perception on Insurance
What is Takaful?
Chronology of Events
Conventional Insurance vs. Takaful
Takaful Products
Global 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)
4. 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-kin
S.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
5. 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 - 16-40
2Afzal-ur- Rahman (1979), Banking and Insurance (Economic Doctrines of Islam). Vol. IV, pp 32.
6. 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 - 16-40
3Mustafa Zarqa. 'Aqd al Tamin. pp. 32ff (Damascus. 1962). cited in Muslehuddin, Insurance and Islamic Law (New
Delhi 1982).
7. Colonization brought modern insurance to the-Islamic
world.
Gradually in about a century's 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.
9. 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.
11. 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. The
amount 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]
12. 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.
13. Family Takaful
• Family Takaful
• Investment-Linked Takaful
• Child Education Takaful
• Medical & Health Takaful
General Takaful
• Home Takaful
• Motor Takaful
• Personal Accident Takaful
http://www.islamicfinanceinfo.com.my/discover-
takaful/know-your-takaful-products
14. 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.
16. Conventional Insurance Takaful
Based on compensation of Islamic financial
loss in exchange of premium protection system which
which is paid by insured. involves a joint
Conventional insurance is guarantee scheme in
based on to take material gain
providing possible
on behalf of other.
indemnity or
contingency.
Takaful operation is
based on the concepts
of taawun (mutual help
M.M Hussain (2011), Conceptual And Operational Differences Between General
Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
17. Conventional Insurance Takaful
In conventional insurance one Takaful does not
party agrees to undertake the exchange risk
risk of other party in exchange
of premium and the other by way of contribution
party promises to pay fixed payments made to
sum of money to the first party operator which means
on the happening of uncertain operator is not selling
event with in a specific and participant is not
duration.
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]
18. Conventional Insurance Takaful
Investment of Funds - Investment of Funds -
Conventional insurers may Takaful companies
invest in such type of assets
invest funds in interest
that are strictly forbidden by
the Shariah such as alcohol, free avenues and with
gambling or pork the concept of Halal
M.M Hussain (2011), Conceptual And Operational Differences Between General
Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
19. Conventional Insurance Takaful
Conventional insurance Takaful under Shariah
companies invest large amount law, interest is
in fixed income securities on
forbidden, which rules
their balance sheet in order to
minimize the risks and the out the investment in
variability 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]
20. Conventional Insurance Takaful
Under conventional Under Takaful contract
insurance, policyholder have every policyholder has
no right to know how the
the right to know how
premium are invested and
from where the claims their money is
originates. 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]
21. Conventional Insurance Takaful
Under conventional Under Takaful
insurance, the insured forfeits premiums are
his/her premiums on
refundable along with
termination of a policy
any corresponding
surrender
value less
administrative fees
M.M Hussain (2011), Conceptual And Operational Differences Between General
Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
23. 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.
24. Etiqa Takaful
CIMB Aviva (formerly Takaful
Nasional)
HSBC Amanah
Hong Leong Tokio
Takaful (Malaysia)
Marine Takaful Bhd
Sdn Bhd
Prudential BSN
MAA Takaful Berhad
Takaful Berhad
Syarikat Takaful Takaful Ikhlas
Malaysia Berhad Berhad
25. New Takaful licenses to joint-ventures
between Foreign Insurance entities and
local entities
26. Regulatory Bank Negara
Authority Malaysia
Takaful Law Takaful Act 1984
Shariah
Shariah Advisory
Takaful Industry Supervision
Council
(Regulatory)
Shariah
Shariah
Supervision
Committee
(Operational)
Product
Notofication Product General
(Launch and Guidelines
File)
27. 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.
28. Other Others Medical & Endowmen
Investment
Temporary 3% Health Linked
t
12% 9% 17%
(Education)
1%
Mortgage
47%
Other
Endowmen
t
New Business
11%
29. Malaysia’s Takaful industry is expected to
continue to show strong growth underpinned by
the following factors:
31.
Bahrain, Kuwait, UAE, Qatar, Oman &
Saudi Arabia
32. The
region has one of the lowest
penetration and density in the world
33. GCC Premium Contribution by Country, 2010
Source: Swiss Re, Alpen Capital (August 2011)
Kuwait Bahrain
Oman 5% 5%
Qatar 6%
7%
Saudi Arabia
34% UAE
43%
34. Percent Contribution, GCC vs. Global Markets, 2010
Source: 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
37. 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.
41. 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 Malaysia's market
expanded 17 percent in the first seven months of last
year to more than 10 times that size (Bisnis Indonesia
March 2012).
42. 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
43. 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
44. Buddhi Religion Christi
an
st Others
10%
13% 10%
Muslim
67%
Median age:
total: 28.4 years
male: 28.3 years
female: 28.6 years (2011 est.)
45. Religion Hindu Catholic
5%
4%
Takaful commenced in 1995 Christian
Taoist 10%
8%
Buddhist
Currently has 3 operators: HSBC 43% Others
Insurance, NTUC Income, United Overseas 15%
Insurance. One retakaful – Tokio Marine
Muslim
15%
No separate set of regulations for Takaful
Opportunities mainly in housing sector
Has plans to facilitate Takaful industry by
tackling issues such as lack of Shariah-
compliant assets and conflicting codes of
supervision and tax treatments.
47. 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
48. 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
49. 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
50. 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
51. 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%
53. 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.
54. Senegal
• Sosar Al Amane formed in 2005
Gambia
• 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.
55. 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 population
and 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
60. 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.