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Islamic Life Insurance. The World of Takaful By Shivash Bhagaloo. Contents. Market Overview What is Takaful Insurance? How is Takaful Insurance Different? Takaful Models Regulation Challenges. Market Overview. Market born in Sudan in 1979

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islamic life insurance

Islamic Life Insurance

The World of Takaful

By Shivash Bhagaloo

contents
Contents
  • Market Overview
  • What is Takaful Insurance?
  • How is Takaful Insurance Different?
  • Takaful Models
  • Regulation
  • Challenges
market overview
Market Overview
  • Market born in Sudan in 1979
  • Global Presence
    • Largest market in the GCC and South East Asia
    • Global contributions of $2-3bn (2006) (60% GI, 40% LA and Pensions)
    • Annual growth of 15-20% over the past 3 years
  • African Presence
    • Largest markets in Sudan, Egypt, Tunisia, Algeria, Senegal
    • Smaller presence in South Africa, Gambia
  • Industry driven
    • High economic growth
    • Increased awareness
    • Increase in Sharia compliant financing
what is takaful insurance
What is Takaful Insurance ?
  • Compliant with Sharia principles (Islamic law)
  • Literally translated means “ joint guarantee”
  • Similar to co-operative or mutual insurance
    • Policyholders underwrite the risk
    • Policyholders own the company
  • Allowance for a charitable donation of surplus
  • Terminology
    • General Takaful – general insurance
    • Family Takaful – life assurance and pensions
how is takaful insurance different
How is Takaful Insurance Different ?
  • Certain aspects of normal insurance conflict with Sharia principles

Maysir

(Gambling)

-

insurers make bets on the loss occurrence

and this is deemed to be gambling

Gharar

(Risk & Uncertainty)

  • timing and amount of the loss are uncertain

-

Riba

(Interest)

investments in interest bearing securities

and possible interest on loans

-

Haram

(Forbidden / Unlawful)

investments in commodities or involvement in activities that are forbidden (alcohol, pork etc).

-

how is takaful insurance different1
How is Takaful Insurance Different ?
  • Important Practical Implications of
    • Uncertainty – No term or endowment assurance products allowed
    • Interest – Bond investments not allowed, equity investments permissible since market risk replaces credit risk.
    • Haram – Trading in futures is forbidden
takaful models
Takaful Models
  • Differ in the way funds are shared between policyholders and the Takaful operator
  • Wakalah (Fee based) Model
    • Operator acts as an agent, administers funds on behalf of participants
    • Receives a fee for operating expenses
  • Mudharabah (Profit share) Model
    • Operator acts as Mudarib (entrepreneur) with participants as the capital providers
    • Losses paid by participants with a pre-agreed profit sharing agreement
  • Wakalah/Mudharabah (Fee based/Profit share) Hybrid
    • Wakalah for insurance activities and Mudharabah for investment profits
wakalah model
Wakalah Model

PARTICIPANTS

Management

Expenses

Contribution

Wakalah Fee (eg 30%)

Shareholders’

Fund

Takaful

Fund

Claims

Shariah compliant

Investments

Reinsurance/

Retakaful

Reserves

Qard

Hassan

Investment Profits

Underwriting Profit

Surplus/(Deficit)

100% surplus

Charitable Donation

mudharabah model
Mudharabah Model

PARTICIPANTS

Management

Expenses

Contribution

Shareholders’

Fund

Takaful

Fund

Claims

Shariah compliant

Investments

Reinsurance/

Retakaful

Qard

Hassan

(interest free loan)

In case of a deficit in the fund to be repaid from surpluses in future years

Reserves

Underwriting Profit

Investment Profits

Surplus/(Deficit)

X% of Surplus

100% - X% of Surplus

Charitable donation

wakalah mudharabah hybrid
Wakalah / Mudharabah Hybrid

PARTICIPANTS

Management

Expenses

Contribution

Wakalah Fee (eg 30%)

Shareholders’

Fund

Takaful

Fund

Claims

Shariah compliant

Investments

Reinsurance/

Retakaful

Reserves

Qard

Hassan

Investment Profits

Underwriting Profit

X% of Investment Profits

Surplus/(Deficit)

100% - X% of

Investment Profits

Charitable donation

100% of Surplus

regulation
Regulation
  • First set of regulation was 1984 Takaful Act, Malaysia
  • Mandatory compliance in certain countries (Saudi Arabia, Sudan)
  • Regulation is still in its infancy
  • Takaful compliance is overseen by a Sharia Advisory Board comprising Sharia scholars
  • Lack of fiscal involvement
  • Lack of harmonisation of rules globally
challenges
Challenges
  • Not as developed as conventional insurance
  • Lack of global awareness
  • Shortage of skilled resources in the Takaful market
  • Limited Shariah compliant investments
  • Lack of harmonised regulation of Takaful industry
summary
Summary
  • Takaful Insurance is based on Sharia principles
  • Market is developed in Far East and Middle East but less of a presence in Africa
  • Similar to a mutual or co-operative, where policyholders underwrite risk
  • Gambling, uncertainty, interest and forbidden activities are removed
  • Models differ in the way funds are shared between policyholders and the Takaful operator
  • Compliance is overseen by a Sharia Advisory Board
  • Still require a harmonised global regulatory framework
slide15

Aon named

2008 Best Takaful Reinsurance Intermediary

at the 2nd International Takaful Summit in London, recognised for its reinsurance and consultancy

work in the Takaful and Retakaful

sectors