understanding takaful

7/29/2019 Understanding Takaful

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Takaful Islamic Insurance : An

Overview

By :

Abdullah Aboobucker

Manager Corporate Risk Management

Amana Takaful PLC.


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What is Insurance?

How Insurance Operates?

Why insurance is not permitted by Shariah ?

What is Takaful?

How Takaful operates?

Comparison on Takaful Vs Insurance

Takaful Basics

Takaful Worldwide

Question & Answer


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Insurance is a way of

protecting against

financial losses.For a payment

(premium), an insurance

company will take the

responsibility of

compensating financial

losses.


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Rs.1000/-each from

house owner

InsurancePremium

Rs. 100 Million

BalanceBelongs toInsuranceCompany

InsuranceCompany100,000 houses(eg: Rs. 30 Million)

Rs. 70 Million(100-30)

LessClaims Paid for

Losses

InsuranceCompany


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A Significant amount of insurance companys

portfolio is by interest based investments.

In life insurance, the insured, on his death or

maturity of the policy, is entitled to get much more

than he has paid which shall be from the interest

income of the company.

As the Contract is a Commercial Contract, theexcess on one side in the exchange between the

amount of premium and the insured sum.

Insurance is the sale of money for money, of a

greater or lesser amount, with a delay in one of the

payments.


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The insurance contract contains uncertainty due to:

whether a loss will occur or not is not known

the time it will occur is not known the claim amount to be paid is not known

When a claim is not made, the insurancecompany may acquire all the surplus whilst the

participant may not obtain any profit whatsoever.


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The element of gambling exist in

conventional insurance policies, whereinany of the two parties involved may win a

sum of money from the other, but one of

them is destined for total loss depending

on the happening of an uncertain future

event.


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Islamic Insurance is a process of agreement among a group of persons tohandle the injuries resulting from specific risks to which all of them are

vulnerable. A process, thus initiated, involves payment of contributions asdonations, and leads to the establishment of an insurance fund that enjoys thestatus of a legal entity and has independent financial liability. The resources ofthis fund are used to indemnify any participant who encounters injury, subjectto a specific set of rules and a given process of documentation. The fund ismanaged by either a selected group of policyholders, or a joint stock company

that manages the insurance operations and invests the assets of the fund,against a specific fee.

FROM AAOIFI

(Accounting and Auditing organization of Islamic Financial Institutes)


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TakafulContribution

Rs.1000/-each from

house owner

Rs. 100 Million100,000 houses

Balance willbe distributed

as Surplus

Fee for Managing the Fund(eg: 35% of Takaful Contribution)

Takaful Company

Rs. 35 Million

eg: Rs. 40 Million

Rs. 25 Million(65-40)

Rs. 65M

LessClaims Paid forLosses


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How

Takafulis different from

ConventionalInsurance ?


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100,000 houses

Rs.1000/- eachhouse owner

InsurancePremium

Rs. 100 Million

Belongs toInsurance Company

InsuranceCompany

100,000 houses

Rs.1000/- eachhouse owner

TakafulContribution

Rs. 100 Million

Takaful

Company

35Million

65Million

Rs. 100 Million


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Different Claims

ScenariosIncome for

Insurance Company

after paying claims

Income for

Takaful Company

After paying claims

If Claims for the year is

Rs. 50 Million

For the Insurance Company

= 100M

50M= Rs.50 Million

For Takaful Company - Rs.35 Million

Surplus for Participants - Rs.15 Million (65M-50M)

65 M100 M


Rs. 30 Million

For the Insurance Company= 100M 30M= Rs.70 Million



If NO Claims for theyear



Surplus for Participants

Rs.65 Million (65M-0M)


Rs. 40 Million




35 M

Even though Uncertainty on Claims Amountexist in both

Conventional Insurance & Takaful,it has NO big impact on the revenue of

Takaful


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Who owns theInvestment Returns

of the Insurance

Fund?


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Belongs toInsurance Company

InsurancePremium

InsuranceCompany

TakafulCompany

Investment Profits

Rs. 20 Million

Rs. 20 Million

InvestmentProfits

InvestmentProfits

Investment

Investment

Rs. 100 Million

Rs. 120 Million

45Million

75Million

TakafulCompany

35Million

65Million

TakafulFund

TakafulFund


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Differences on

Technical AspectTakaful

(Risk Pooling)Conventional Insurance

(Risk Trading)Contract

Ownership ofthe Fund

Company Role

Relationshipbetween company &policyholder

Surplus of theFund

A Combination of Donation &Indemnity contract between individualpolicyholder & the fund, representedby the Takaful Operator

A policy in the form of an exchangecontract (Sale & Purchase) betweeninsured & company; the subject matterproviding indemnity by the company

Fund has legal Personality(on Shariah Perspective)

Trustee and Entrepreneur of the fund

Operator / Participant

Will be distributed among theParticipants To Shareholders Account

Insurer / Insured

Owner of the Fund

Shareholders

ConsiderationParticipants make contributions tothe scheme

Policyholders pay premium to theinsurer


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Other

Differences


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In Takaful

Business is based onadl

& ehsan

(Justice & Goodness)

Example, takaful cover not provided forelements harming the society

Cigarettes &Manufactures

Casinos Liquor Shops /Alcohol

Manufactures


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Takaful

Does not Invest on elementsprohibited by SHARIAH


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Takaful World Wide

The first ever Takaful company was established in 1979

The Islamic Insurance Company of Sudan

100+ Takaful Companies in over 20 countries.

Average growth rate higher than conventional insurance

companies.

Non-Muslims increasingly opting for Takaful products.


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Essentials of Takaful

Intention (Niyyah)

Integration of Shariah Conditions

Presence of moral Value and ethics

No element of Prohibition (Haram)


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Basics of Takaful

Donation (Tabarru)

Partnership among the participants

Need of an operator

Management contract between participant and

operator

Investment in shariah compliant modes


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Key Features of Takaful Model

Cooperative risk sharing for protection

Clear segregation between Participant and Operator

Shariah compliant investment strategies

Avoid Interest (Riba) and Element of Gambling(Maysir)

Gharar is forgiven through Contract of Donation

(Tabarru)

Shariah Advisory oversight / Directives (Fatwa)


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Any Questions?

Email: [email protected]

Contact: 077-7383443
mailto:[email protected]:[email protected]


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Thank You

understanding takaful

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