1. Islamization of Insurance

2. History of Islamic InsuranceIslamic Perception on InsuranceWhat is Takaful?Chronology of EventsConventional Insurance vs. TakafulTakaful ProductsGlobal 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) 3. 4. In the Islamic history, the idea of insurance was mainlyreflected in the various schemes of mutual help andassistance whenever a calamity or misfortune struck aperson. Insurance was therefore, not a business for profit-makingbut a means to help the needy on a voluntary gratuitousbasis. Aaqilah was a well-known pre-Islamic notion, which Islamalso approved, where all the members of a family or tribemutually pooled their resources to ransom a member of thefamily or tribe who had committed a murder. They helped to pay the diya (blood-money) to the next-of-kinS.K.of the person killed in order to save the Malaysia, Religion andretaliation.1Rashid (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 - 16-402Afzal-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 anagreement between persons; and the acceptance of a person by a tribeor family as one its own class or community for every calamity that mightcome to him.3.Sowkrah It is recorded by Ibn Abidin that during the last century therewas 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 - 16-403Mustafa Zarqa. Aqd al Tamin. pp. 32ff (Damascus. 1962). cited in Muslehuddin, Insurance and Islamic Law (NewDelhi 1982). 7. Colonization brought modern insurance to the-Islamicworld. Gradually in about a centurys time insurance becamegenerally available in the whole of the Arab world. It was not due to any popular or general acceptance ofmodern insurance by the Muslims who continued toreject it but because of the efforts of the westernbusiness interests to extend the facility of insurance tothe Muslim world in order to cover their various risks. The generality of Muslims continued to remain aloof frominsurance. 8. 9. Riba Generally the money collectedthrough premiums is invested by theinsurance company in interest-bearing deposits, un-Islamicbusiness or dealings.Gharar There is gharar in insurance as boththe parties do not know theirrespective rights and liabilities tillthe occurrence of the insured event.Maisir Insurance is sometimes equated withgambling, maisir or wagering. 10. 11. Takaful literally means joint-guarantee, a pact amonga group of persons to indemnify a member of this group if he suffers a specified calamity or loss. Theamount comes out of a common pool created with theindividual contributions of participating members. Takaful is based on the Quranic concept of taawun(mutual assistance).Help you one another untorighteousness 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 companys 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 participants 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 TakafulGeneral Takaful Home Takaful Motor Takaful Personal Accident Takafulhttp://www.islamicfinanceinfo.com.my/discover-takaful/know-your-takaful-products 14. Reinsurance of takaful business on Islamic principles is known asretakaful. Reinsurance is a form of insurance whereby an insurance companyor a Lloyds syndicate can transfer to another insurer (thereinsurer) all or part of its liabilities in respect of claims arisingunder 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 anyone year maybe so large wiping out its profits, or even cause it to beinsolvent. 15. A COMPARISON 16. Conventional Insurance TakafulBased on compensation ofIslamic financialloss in exchange of premium protection system whichwhich is paid by insured. involves a jointConventional insurance is guarantee scheme inbased on to take material gainproviding possibleon behalf of other.indemnity orcontingency.Takaful operation isbased on the conceptsof taawun (mutual helpM.M Hussain (2011), Conceptual And Operational Differences Between GeneralTakaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28] 17. Conventional InsuranceTakafulIn conventional insurance one Takaful does notparty agrees to undertake the exchange riskrisk of other party in exchangeof premium and the otherby way of contributionparty promises to pay fixed payments made tosum of money to the first party operator which meanson the happening of uncertain operator is not sellingevent with in a specificand participant is notduration.buying any riskcoverage.M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28] 18. Conventional InsuranceTakafulInvestment of Funds - Investment of Funds -Conventional insurers may Takaful companiesinvest in such type of assetsinvest funds in interestthat are strictly forbidden bythe Shariah such as alcohol,free avenues and withgambling or porkthe concept of HalalM.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28] 19. Conventional InsuranceTakafulConventional insuranceTakaful under Shariahcompanies invest large amount law, interest isin fixed income securities onforbidden, which rulestheir balance sheet in order tominimize the risks and theout the investment invariability 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 InsuranceTakafulUnder conventionalUnder Takaful contractinsurance, policyholder haveevery policyholder hasno right to know how thethe right to know howpremium are invested andfrom where the claims their money isoriginates. used, how the surrendervalue is calculated, theorigin of claimsettlements to ensure itis Halal.M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28] 21. Conventional InsuranceTakafulUnder conventionalUnder Takafulinsurance, the insured forfeits premiums arehis/her premiums onrefundable along withtermination of a policyany correspondingsurrendervalue lessadministrative feesM.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28] 22. A Takaful Success Story 23. 1984 1992o Enactment of Takaful Acto Establishment of Syarikat Takaful Malaysia 1993 2000o Introduction of competition with establishment of Takaful Nasionalo Formation of ASEAN Takaful Group and ASEAN RetakafulInternational Ltd.o Takaful Malaysia & Takaful Nasional (now known as Etiqa Takaful)jointly developed a Code of Ethics for Takaful Industry (2000). 2001 2010o Introduction of Financial Sector Master Plan which includeenhancing Takaful operators capacity and strengthen thelegal, shariah and regulatory framework.o Malaysian Takaful Association was established in 2002.o New licenses issued. 24. Etiqa TakafulCIMB Aviva (formerly Takaful Nasional) HSBC AmanahHong Leong Tokio Takaful (Malaysia)Marine Takaful Bhd Sdn Bhd Prudential BSNMAA Takaful Berhad Takaful BerhadSyarikat Takaful Takaful IkhlasMalaysia BerhadBerhad 25. New Takaful licenses to joint-venturesbetween Foreign Insurance entities and local entities 26. RegulatoryBank Negara AuthorityMalaysia Takaful Law Takaful Act 1984 Shariah Shariah AdvisoryTakaful Industry Supervision Council (Regulatory) ShariahShariahSupervision Committee (Operational) Product NotoficationProduct General (Launch andGuidelines File) 27. Takaful Assets expanded to reach USD3.9 billionbetween 2005 2009 Takaful Industry contributed 1.9% of the Malaysias GNI Family Takaful constituted 84.7% of total Takaful assetsin 2009. Net contribution increase to USD1.1 billion between2005 2009. Family Takaful contributions rose from USD11.70 in 2005to USD30.60 in 2009. General Takaful contributions rose from USD4.30 to 9.00in the same period. 28. Other Others Medical & EndowmenInvestmentTemporary3% HealthLinkedt12%9%17% (Education) 1% Mortgage 47% Other EndowmentNew Business11% 29. Malaysias Takaful industry is expected tocontinue to show strong growth underpinned bythe following factors: 30. 31. Bahrain, Kuwait, UAE, Qatar, Oman &Saudi Arabia 32. Theregion has one of the lowest penetration and density in the world 33. GCC Premium Contribution by Country, 2010Source: Swiss Re, Alpen Capital (August 2011)Kuwait Bahrain Oman5%5%Qatar 6% 7% Saudi Arabia34%UAE 43% 34. Percent Contribution, GCC vs. Global Markets, 2010Source: Swiss Re, Alpen Capital (August 2011)GCC WorRegi ldon, 0Life,Mar 13%ket, Non- 0 Life, 42%Non- Life,Life,58%87% GCC RegionWorld Market 35. GCC Premium & Premium Growth (2006-2010)Source: Swiss Re, Alpen Capital (August 2011) Non-LifeLife Growth 16,000 35.00% 32.80% 14,000 30.00% 1,787 12,000 26.50%25.00%1,595 10,000 22.10%1,31420.00%8,0001,20314.30%13.60%15.00%6,000 78311,845 10,3294,0009,186 10.00% 7,099 5,4705.00%2,000 -0.00%2006 200720082009 2010 36. GCC Premium Growth Forecast, 2010-15Source: Swiss Re, Alpen Capital (August 2011)Non-Life Life Growth 40,000 25.00% 35,00020.90% 20.20%19.40% 19.60%18.90%20.00% 30,000 5,179 4,093 25,00014.30% 15.00%3,262 20,000 2,60910.00% 15,000 2,112 28,454 1,787 23,882 10,000 20,137 17,073 5.00% 14,3725,00011,845 -0.00%2010 2011 2012 2013 20142015 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. 38. Indonesia, Singapore & Brunei 39. 1994o Established PT Syarikat Takaful Indonesia 1995o Established PT Asuransi Takaful Umum 2010o 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 to4.5 trillion rupiah ($489 million), while Malaysias marketexpanded 17 percent in the first seven months of lastyear to more than 10 times that size (Bisnis IndonesiaMarch 2012). 40. Hindu Catholics Others2% 3% 3%Protestants Islamic Banking Deposit 6% Growth (USD billion) 5.8 6.2Muslim 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 41. JAKARTA: Assets of Islamic insurance industry in Indonesiagrew 32% in 2011, faster than that of conventionalinsurance, thanking to robust business growth in the segment.Capital Market and Financial Institution Supervisory Agency(Bapepam-LK) recorded that assets of Islamic insurance inIndonesia was IDR9.2 trillion (USD1 billion) at end of lastyear. Meanwhile, conventional insurance including life andgeneral 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 isinsurance business holding to Islamic principles in itspractices.Bisnis Indonesia - Islamic Insurance Assets Grow 32% On Strong DemanOleh Anggi Oktarinda, Hanum KDMarch 22, 2012 08:41 42. Buddhi Religion Christi anstOthers10% 13% 10%Muslim 67%Median age:total: 28.4 yearsmale: 28.3 yearsfemale: 28.6 years (2011 est.) 43. Religion Hindu Catholic 5%4%Takaful commenced in 1995 Christian Taoist10%8%BuddhistCurrently has 3 operators: HSBC 43% OthersInsurance, NTUC Income, United Overseas15%Insurance. One retakaful Tokio MarineMuslim 15%No separate set of regulations for TakafulOpportunities mainly in housing sectorHas plans to facilitate Takaful industry bytackling issues such as lack of Shariah-compliant assets and conflicting codes ofsupervision and tax treatments. 44. Pakistan, Bangladesh & Sri Lanka 45. 198319922000 Review by Report by the Insurance Council ofCouncil ofOrdinance Islamic IdeologyIslamic Ideologydefined the term on takafulon IslamicTakaful and system in Insurance provided for PakistanSystemestablishments of Takaful Operators 46. 2005 2006 2008 Introduced Established Established TakafulPak-QatarDawoood RulesFamily Family EstablishedTakaful LtdTakaful Pak-Kuwait and Pak- Takaful Co.QatarGeneralTakaful Ltd EstablishedTakafulPakistanLtd 47. Insurance penetration isonly 0.8% of GDP SECP plans to promotemicroinsurance. Takafulopportunities, mostly inmortgage and autoinsurance. Biggest challenge:o Poor market capitalizationo Lack of awarenesso Lack of skilled HRo Limited investmentavenues and retakafuloptions 48. Takaful started with theestablishment of Takafuloperators in 2000. As of 2010, there are only 6 Religion Others Hindu 1%Takaful operators compared 10%to 13 conventionalinsurance companies Opportunities in housingloan insurance since manynew housing projects andMuslimlarge young population.89% Biggest challenge:o Lack of awarenesso Low disposable income 49. Takaful started with thePopulation: 21,283,913 (July 2011 est.)establishment of AmanaTakaful in 2002.Median age: total: 30.8 yearsmale: 29.7 years In 2006, Ceylinco Takaful female: 31.8 years (2011 est.)was established. OthersMuslim Upward trend in banking Christia 10%8%ndeposits and large young 6%population suggest goodHindu 7%growth opportunities. Biggest challenge:Buddhis t o Lack of awareness 69% 50. 51. Sudan Takaful started in 1979 when the IslamicInsurance 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. 52. Senegal Sosar Al Amane formed in 2005Gambia Takaful Gambia Ltd. Was formed in 2008.South Africa Takaful product were introduced in South Africaby Al-Noor Risk Solution in 2008, using thelicense of an existing insurance co.Kenya There is also the Takaful Insurance of Africaestablished in Kenya but no further details can beacquired. 53. 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 populationand the majority are within the 15-64 yearsBiggestgroup**.age Challenge:Lack of awareness and low disposableincome*http://www.islamicpopulation.com/africa/africa_islam.html** CIA The World Factbook 54. United Kingdom & Luxembourg 55. Religions in the UK Hindu1%Others 2%Christian 71% None 23% Muslim3% 56. 57. The biggest challenge in introducing and developingIslamic Financing is the creation of awareness. At present, countries only become interested in IslamicFinancial products because they want to trade with theoil rich middle-east countries. In western countries, Islamophobia also poses aformidable challenge. Again, the spread of awareness onIslams true values and virtues. But, there is a huge potential for growth in the future. Malaysia, with its strong economic and politicalfundamentals, must ensure it stamps its mark in theworld as the leader in Islamic financial products.