Archive for Takaful

Islamic finance accelerates into motor policies

February 15, 2009 at 5:42 am · Filed under BIIH, Islamic Insurance, Principle Insurance, Takaful, UK ·Tagged ,

Islamic finance accelerates into motor policies

Muslim insurance could prove popular with other drivers too, says Chiara Cavaglieri

Sunday, 15 February 2009

First it was Islamic current accounts, then mortgages and investment funds, and now we have a motor insurance product that conforms to Islamic law, or sharia.

This move will be welcomed by many of the two million British Muslims looking to buy insurance cover aligned with their faith. But it could also prove popular for non-Muslims who find the notion of an ethical or co-operative insurance product appealing.

Unlike conventional insurance, where risk is transferred from the policyholder to the insurance company, halal [permissable] insurance, or takaful (“guaranteeing each other”), requires all participants to share risk equally. Instead of premiums, participants pay contributions which, as with ordinary insurance, are calculated on the presumed risk of the individual and how likely they are to claim. These contributions are then pooled in a takaful fund which is invested in strictly halal activities. There is also a Shariah Supervisory Committee, made up of sharia scholars, to oversee all activities and to ensure that the whole process is consistent with Islamic principles.

Interestingly, once the fund has been used to pay for any valid claims, any surplus money is redistributed to participants at the end of the year in the form of discounted premiums, which come in addition to any no-claims bonuses.

“What is unique is the ethical nature of what we do,” says Bradley Brandon-Cross, the chief executive of Salaam Halal Insurance. “It’s a transparent process and the opportunity to get something back is attractive to customers, both Muslims and non-Muslims alike.”

But there is no guarantee that there will be any surplus money to share out. Motor insurance firms have been making underwriting losses in recent years: there was a recorded deficit of £267m in 2007 and £204m in 2006.

At Salaam Halal, if claims outweigh contributions, shareholders advance the money to pay for any excess claims. Shareholders then recover that cash in times of profit. This could mean that even in years in which there are surplus funds, there will be little or no money left to share out among participants after the retrieval of shareholders’ contributions.

Sharia prohibits usury – the receiving of interest – as well as the undertaking of haram activities (those that are forbidden to Muslims, such as gambling and dealing in alcohol or arms). This leaves many financial products, including conventional insurance, in opposition to sharia, and so many Muslims have few options when shopping for products that conform to their faith. Standard insurance falls down because it involves the taking of a financial risk that the policyholder will make a loss if a claim does not occur, which to many Muslim scholars constitutes a gamble.

Insurance is just the latest of Islamic financial products to become available in the UK. In comparison with mortgages, the insurance sector has been slow on the uptake. Islamic mortgages have grown from having a 0.3 per cent market share in 2003, to 0.8 per cent in 2009 with a value of £429m, according to the research company Datamonitor.

Salaam Halal’s motor insurance has just become available through price- comparison site Moneysupermarket. com and the indications are that it’s both popular and competitive. “There has been a lot of interest,” says Kaye Pimblett, motor insurance manager at the site. “During its first seven days on Moneysupermarket.com, Salaam Hall returned more than 37,000 quotes. And when they returned a quote, they appeared in the top three positions on over a third of occasions,” she adds. Already, the insurer has plans to take its co-operative model of doing business into the home insurance sector.

Lloyds Banking, which has pioneered Islamic finance products in the UK, is not surprised at the popularity of any sharia-compliant launch. “Although as a market, UK Islamic finance is in its infancy, it’s still set to become big business,” says Emile Abu-Shakra, a spokesman for the bank. “We offer Islamic current and business accounts, mortgages and investment funds.”

Mr Abu-Shakra adds: “We piloted these in just five branches in 2005 but that quickly expanded to all 2,000 the following year.”

Source: http://www.independent.co.uk/money/insurance/islamic-finance-accelerates-into-motor-policies-1622160.html

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Asia’s Pru people come knocking

November 23, 2008 at 3:43 pm · Filed under Insurance, Prudential, Takaful ·Tagged ,

Asia’s Pru people come knocking

The insurer is making great strides in Malaysia and the rest of the region, reports Iain Dey in Kuala Lumpur

Prudential Road Advertising in Malaysia 2008
ANDREW LIAO is pleased with himself. It’s 5pm on a Monday afternoon in a gleaming branch office of Prudential in Petaling Jaya, a smart suburb of Kuala Lumpur. After two hours of negotiations, the 37-year-old salesman has just closed his first big sale of the week.

Liao has two business degrees from universities in Switzerland and New Zealand. Until three years ago he was running bars and restaurants in some of Malaysia’s finest hotels. Selling insurance to the country’s rapidly expanding middle classes, however, has proved much more lucrative.

“I’m making at least four or five times more money than I used to,” he said, as he packed away his Prudential-branded laptop. Liao is one of the new “Men from the Pru” – a modern-day incarnation of the salesmen who used to knock on doors across the length and breadth of Britain.

These direct-sales agents accounted for the lion’s share of the £1 billion in new business generated by the Pru’s Asian division in the first nine months of the year – almost half the group’s total sales. In Malaysia more than 90% of sales came from agents, who all work on commission.

Across Asia there are more than 430,000 men and women selling life assurance, pensions and protection for Prudential. This salesforce is growing at roughly 30% a year, and with Prudential eyeing a bid for parts of AIG’s $15 billion (£10 billion) Asian business it could be about to grow even faster.

“In Asia everything comes down to personal relationships,” said Bill Lisle, the chief executive of Prudential’s Malaysian business.

“When I was growing up in Northumberland, Eddie, our man from the Pru, came round and knocked on the door every Friday at 6pm. That’s all in the past now in the UK, but across Asia it’s still very important to be able to look someone in the eye and shake their hand when you are doing business.”

Pru salesmen are beginning to find it a little harder to shake hands on a deal with their Asian clients. In its third-quarter results last month, the group revealed that it was pushing back its ambitious growth targets by one year in response to the economic situation.

AIG’s collapse has been a double-edged sword. While the Pru’s biggest competitor has been damaged, in some areas, such as Singapore, consumers have tarred all foreign financial firms with the same brush.

On the road from Kuala Lumpur’s international airport all the evidence points to a booming economy. Advertising hoardings are everywhere, pushing Japanese cars alongside Korean mobile phones and flat-screen televisions.

In the shadow of the Petronas towers, briefly the world’s tallest building, construction work continues into the night. Yet many of the offices already built lie empty. And while the shopping centres are filled with designer names, customers are thin on the ground.

Inflation is running at 8.3%, with food-price inflation at 12%. The central bank has just scaled back forecasts for growth from 5.3% to between 3.5% and 4%. Politically, the situation is also evolving, with the government facing its first credible opposition since it gained independence from Britain 52 years ago.

Nonetheless, with no national health service and a retirement timebomb about to explode, there is a clear market for insurance and pensions.

“There’s a mandatory retirement age of 56 in Malaysia and a life expectancy of 72 for men and 76 for women,” said Lisle.

“While there is a state pension system, it’s paid out in a lump sum at retirement and typically runs out in the first three years. So people here are trying to work out how to pay for almost 20 years of retirement.”

Lisle’s other growth driver is takaful – insurance products compliant with Islamic law. Roughly 66% of Malaysia’s population of 27m are Muslims. Historically most of the wealth has resided with the ethnically Chinese population, but as earnings rise across the board that is beginning to change.

After our interview, Lisle headed to an auditorium in the Prudential tower in downtown Kuala Lumpur to address 200 headquarters staff. Microphone in hand, he led a karaoke version of the corporate song Prudential: We Are No 1.

It’s the first time the song’s title has been true: Prudential has only just become the biggest insurer in Malaysia, overtaking Singapore’s Great Eastern. Lisle now has a 21% market share, against Great Eastern’s 16%. If AIG’s Malaysian operations were to fall into his hands, Pru would have 31%.

In the Kuala Lumpur office, it was staff charity week, themed round the environment. After showing a video on climate change featuring Leonardo di Caprio and Harrison Ford, Lisle led his troops in a rendition of Michael Jackson’s Heal the World.

Among the new men and women from the Pru, such enthusiasm is commonplace. Lisle has just booked out the 5,000-seat Genting Arena of Stars for a sales conference in the new year. All places are taken with a waiting list forming. They will all be singing Prudential: We Are No 1 there, too.

Lisle has also just approved the construction of a seven-storey academy an hour’s drive from Kuala Lumpur to house his training programme. When it opens in 14 months it will be able to hold about 150 trainees.

All his sellers have to pass the standard US insurance-sales exams. Many are now being put through further qualifications to become wealth planners – a move that would allow them to sell unit trusts.

In Malaysia, the typical Pru insurance agent earns about 55,000 ringgit (£10,200) a year. It may not sound much, but it’s roughly twice the national wage and pay surveys suggest it is about 20% more than an engineer or a computer programmer can expect to receive.

It also amounts to significant buying power in a country where a new car made by local manufacturer Proton can be yours for an initial £85 deposit.

The Pru’s recruitment brochures claim it is possible for a new agent to make almost 249,500 ringgit after only four years. The best are making millions in sterling terms.

Jennifer Yap is one of the rising stars. Her crisp, white business suit oozes affluence. Six years ago she was working as a secretary. Now she has a team of 60 agents, including her husband, Cheah, working out of a marble-and-steel office block.

“Someone tried to sell me insurance, but I couldn’t even afford the most basic protection policy,” said Yap. “By the end of the conversation I was asking how to sign up to sell it.”

Last year Yap’s new-business sales topped 5.7m ringgit. “It’s good, but you can be better, guys,” she barked at her agents.

About 80% of her customers are aged 35 to 40. Local custom dictates that children look after their parents, which is pushing the retirement problem on to the younger generation. “They are everyone from executives and business owners to factory workers,” she said.

One of her customers has just inquired about becoming an agent. “We are attracting people who have been working for the banks, or for big companies. We have a former regional manager from IBM. We have law graduates, accountants.

“We offer a very structured timetable here, where everyone knows what they will be doing every day of the week at what time. Having the structure makes it easier for people to make the transition from a job with a steady salary to working on commission.”

As for commission, she insists her agents are transparent about what they charge – though it’s not required by law. “When people ask for a discount I say, okay, well this part is to pay for my children’s health insurance, this part is for my insurance, this part pays my house – which bit do you not want me to have?”

The array of sales awards certificates on her office wall suggests it’s a tactic that works.

Liao is hoping to follow in her footsteps by setting up his own agency in 2010. For the Pru’s Asian strategy to work, many more will have to follow.

Pru facts

THE Pru was formed in London’s Hatton Garden in 1848 to provide life assurance and loans to the middle classes. It expanded rapidly by selling policies to the working classes, women and companies.

It moved into its landmark terracotta headquarters, Holborn Bars, in 1879. Those offices closed in 2006.

In 1949 it launched its “man from the Pru” advertising campaign.

The company employs more than 28,000 people full time and has attracted more than 21m customers worldwide. In June 2008 the group had £256 billion of funds under management.

Source: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5212659.ece

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Takaful: A new and viable insurance business model or just a marketing opportunity?

July 7, 2008 at 6:45 pm · Filed under GCC, Life Takaful, Saudi Arabia, Takaful ·Tagged ,

Takaful: A new and viable insurance business model or just a marketing opportunity?

Cultural and religious reasons are commonly cited for the underdevelopment of insurance markets in the Gulf Cooperation Council (GCC) region.

Takaful could be the key to increasing insurance awareness and delivering on customer expectations, capitalizing on the positive economic dynamics of the region.

The opportunities for increased uptake of takaful insurance in the GCC are positive. The considerable economic growth in the region, coupled with a sizable, underinsured population, means that there are substantial prospects for further development of personal lines cover. The ability of the industry to demonstrate the need for and benefits of insurance, as well as to successfully meet customer demands, remains unproven, however.

Over time, if the world average insurance premium of $550 per capita is achieved and applied to the Gulf states, the GCC insurance market has a potential size of $20 billion(currently $4.6 billion). Taking as an example Malaysia, where the takaful market is expected to contribute 20% to the overall market in the medium term, the GCC takaful market has the potential to reach $4 billion at the current level of development (currently $170 million). How much actual premium the takaful sector generates and how quickly it will do so remains to be seen, however, and will depend on the industry’s ability to deliver on policyholder expectations.

In terms of credit ratings for the takaful sector, Standard & Poor’s Ratings Services will apply the same analytical process as for the traditional market, but will also take into account the sector’s positive growth dynamics and high execution risk.

GCC Insurance Markets

The insurance markets in the region are recognized as being underdeveloped, as is shown by the relatively low level of insurance penetration relative to Western or even Eastern Europe.

The economic boom in the GCC, driven by high oil prices, has led to substantial infrastructure investments across the region, with the corresponding need to insure these sizable risks. There are a number of established insurers in each of the GCC markets who are able capable of participating on the new risks arising. Certainly, the development of the non-life insurance market in the region is strong, with premium growth of about 10%-15% on average since 2004. The proportion of personal lines insurance cover, however, and in particular life insurance, remains low.

Opportunities For Takaful

Increasing insurance penetration, raising awareness

Takaful is not a new concept. The idea of cooperative risk sharing is the oldest form of insurance. The Grand Council of Islamic Scholars, Maja-al-Fiqh, only approved takaful as a Sharia-acceptable alternative to traditional insurance in 1985, however. The real opportunity for takaful in the longer term is substantial in our view, as it is able to reach the specific segments of the market that traditional insurance has been unable to attract.

Strong growth relative to traditional insurance market

The GCC takaful market is currently growing at about 40% per year, and gross contributions (equivalent to gross premiums written) amounted to nearly US$170 million in 2005.

This appears impressive relative to the expansion of the world markets, with average premium growth at 2.5% in 2005 (Swiss Re sigma No. 5/2006). It is, however, important to remember that this is a new segment of the market and growth at this level is not unexpected. At the same time, this growth is not purely driven by the personal lines market–one which we consider to be a natural market for takaful–but to a large extent also by general commercial lines. The main challenge for takaful still remains: to increase awareness of the benefits (social as well as individual) of insurance among retail customers. Still, the future success and sustainability of this pace of development will be dependent on a number of factors that, within personal lines, are just as relevant to the traditional as to the takaful regional markets.

The Success Factors

Product innovation and service quality

Although compulsory lines of business (motor and, in some cases, medical for expatriates) have driven much of the growth in the retail sector across the GCC, personal lines products are far from developed. This is as true of the traditional as of the takaful market. We view the recent announcements by international insurers that they will be entering the family takaful segment as positive, whether this is done as a joint venture with local companies, a greenfield operation, or through a branch.

The takaful market faces some unusual challenges. It has to match the service quality of the traditional insurance market and persuade an uninsured market to use the facilities of the takaful market. But across the Gulf region we are now seeing traditional insurers accept risks into new takaful divisions or subsidiaries of the mainstream company. Although the takaful division is operated as a wholly Sharia-compliant unit, it is fully complementary to the noncompliant business. If this model achieves the three key requirements of meeting Sharia council approval, being accepted by the Islamic community and policyholders, and passing regulatory requirements, the probable benefits of economies of scale to the traditional company will prove a real challenge to the nascent takaful sector. Each of the approaches has its own merits, but Standard & Poor’s is unable to comment on their relative Sharia compliance and acceptance in policyholders’ eyes.

The role of foreign insurers is also important, as they bring pockets of expertise in designing, for example, life products suited to local customers. This is gradually improving product choice, but the success of the takaful business model will depend on its ability to offer the same choice, range of products, level of cover, cost effectiveness, and, ultimately, quality of policyholder security, as traditional insurers. The challenge for takaful operators in developing family takaful will be to structure the products in such a way as to meet any religious and cultural obligations and still offer comprehensive cover.

In our opinion, it will also be crucial for takaful operators to demonstrate their ability to offer a comparable, if not better, level and quality of service than the traditional market when dealing with retail policyholders. The use of improved technology in automating processes (ease of buying a policy, speed of claims handling) to directly benefit the consumer will also benefit the takaful operators’ long-term competitive standing and prospects in the market.

Promotion and distribution capabilities

Even with the best products and service, future development will be constrained without the creation of demand and an increased awareness of the need for insurance. The onus still remains on the takaful operators to emphasize the broad appeal of Islamic insurance. In fact, takaful can be marketed as the ‘ethical’ alternative to insurance contracts due to its rigorous screening of investments. Additionally, in our view, expansion of independent financial adviser networks in all the Gulf states is essential. At the same time, some form of regulation is necessary to ensure adequate training of advisers and quality of advice to protect policyholders. The growth of Islamic finance, and in particular retail Islamic banking solutions including Islamic mortgages and credit cards, is certainly encouraging.

We also see bancassurance as providing the right additional distribution mechanism to reach the right retail customer. In the more established Malaysian takaful market, contributions from bancassurance constitute slightly more than 20% of all takaful contributions, second only to direct marketing (about 45%). In comparison, this distribution channel remains underutilized in the GCC, and generally contributes only a small amount to the overall contributions generated, as there are few bank-owned takaful operators.

Policyholder security, enterprise risk management, and profitability

Many family takaful contracts, and some general takaful contracts, will be more long-term in nature than the policies currently prevailing in the market (such as term life assurance or mortgage protection products). Therefore, the ability of a relatively new takaful operator to service claims and ensure policyholder security over the next 10-20 years is crucial. This is where a strong regulatory environment
comes into its own–to protect the policyholder and encourage healthy development of the industry, for both the traditional and the takaful segments. Specifically for takaful, the role of the Sharia board in overseeing the proper management of policyholder funds should help to increase transparency and improve corporate governance. Participants can increasingly benefit from the scrutiny of takaful operators by rating agencies such as Standard & Poor’s.

Generally, capitalization is strong given the underwriting risk base, and is expected to remain so for the medium term for both traditional and takaful insurance providers. Few insurers, however, have developed a more comprehensive, holistic approach to capital and risk management, and many appear to face high investment risk in their portfolios. Although traditional insurers currently have more investment opportunities open to them, they don’t always take them. In fact, a lot of the regional companies have a high percentage of equities in their investment portfolio. In the recent market corrections, companies have faced substantial volatility in earnings and shareholders’ funds, and have experienced reduced investment liquidity. There has been a high level of liquidity for policyholders’ funds, however, as cash deposits typically generously cover technical reserves. For takaful providers, as Islamic financial markets are developing rapidly, we expect that investment concentration risk, subject to management asset allocation choice, will be diversifiable in the medium term. Nevertheless, quantification of the risks undertaken throughout all operations, whether investments or underwriting, still requires development to ensure controlled earnings over time.

To date, takaful has not necessarily been the more profitable approach, as the general concept of mutualization of risks is applied. Average combined ratios have been higher than for traditional, regional peers.

Although the essence of takaful is cooperative risk sharing and community well being, rather than profit optimization, continued underwriting profitability will be important in order to invest in future growth. At the same time, takaful operators are currently suffering from a lack of economies of scale and an inability to more effectively diversify their risks. Hence, the management fees and contributions charged appear high in light of the true costs incurred by the operator. Although it is up to the individual Sharia boards to look more closely at this, we expect fees to decline and premiums charged to be more reflective of the level of cover provided as competition and scale in the takaful segment increase. The key benefit for policyholders over time, however, will be the distributable surplus more closely reflecting actual performance.

Source: http://www.ameinfo.com/116316.html
United Arab Emirates: Tuesday, April 10 – 2007 at 15:19

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First British takaful firm approved

May 17, 2008 at 8:23 am · Filed under Life Takaful, News, Principle Insurance, Takaful, UK, United Kingdom ·Tagged ,

First British takaful firm approved
by Daniel Stanton on Thursday, 01 May 2008

Britain’s first independent Islamic insurance company has received regulatory approval from the Financial Services Authority (FSA), it was announced on Thursday.

Principle Insurance, formerly known as British Islamic Insurance Holdings, will offer Shariah compliant home and car insurance from later this year.

Abdulaziz Hamad Aljomaih, chairman of Principle, said in a statement: “I believe Principle will go some way in altering the perception of Islamic finance in the UK by showing that progressive, sensible and profitable businesses can be established in accordance with Islamic law.

“Achieving FSA authorisation is a clear vindication of my belief that Shariah compliant financial products are not only equitable and profitable but also conform to the modern day principles of international finance, especially from a regulatory standpoint.”

All of Principle Insurance’s products and services will be approved by the company’s Shariah supervisory committee. This comprises Shaikh Nizam Yaquby of Bahrain; Dr Mohammad Elgari of Saudi Arabia; and Mufti Abdul Kader Barkatulla, who is based in Britain.

Principle will have around US$120 million in capital from institutional and private investors in the Gulf and Asia. Saudi Arabian investors account for 45.7% of the capital.

It aims to focus first on the UK, before looking at entering other European countries and the GCC.

Source: http://www.arabianbusiness.com/518184-first-british-takaful-firm-approved

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Growth of the Islamic Takaful Market in Malaysia

April 23, 2008 at 2:56 pm · Filed under Islamic Insurance, Takaful ·Tagged ,

Growth of the Islamic Takaful Market in Malaysia
Kevin Willis, Standard & Poor’s – 22 Jan 2008

Malaysia’s well established regulatory and legal environments give its takaful market the edge over those being developed throughout the Gulf countries. However, this article argues that competition will hit Malaysian firms earlier than their neighbours.

Standard & Poor’s views the industry risk in the more established Malaysian takaful, or insurance, market as comparatively lower than in the Gulf Cooperation Council (GCC), due to the country’s more developed regulatory and legal environment. Growth potential for Islamic finance in Malaysia overall is still strong, particularly if it is to reach the level outlined in the Financial Sector Masterplan by Bank Negara Malaysia, the central bank of Malaysia.

The historical stability and profitability of the takaful market is attracting an increasing number of takaful operators to Malaysia. The market expectations of growth in gross contributions of about 15-20% per year are broadly in line with our expectations. At the same time, however, competitive pressures are likely to affect the Malaysian market earlier than the GCC takaful market, particularly in the general takaful segment. This may place pressure on pricing as companies begin to more aggressively compete for policyholders through a broader range of distribution channels.

In terms of credit ratings on the takaful sector, Standard & Poor’s applies the same analytical process to the traditional insurance market. Less than 45% of the Malaysian population have life or family takaful policies (these being long-term savings, investment, and/or protection plans) but this is relatively high when compared with statistics for the GCC. More significant is the proportion of life insurance penetration relative to non-life, which shows a higher level of development for the Malaysian market relative to the world average.

This is based on our view that in a wealthier and more insurance-aware market, life premiums outstrip non-life premiums per capita. Nevertheless, the relatively low level of total premiums per capita supports strong growth potential, with market expectations of growth of 20% a year being broadly in line with our expectations.

The more developed regulatory and legal framework for takaful in Malaysia compared to the GCC supports this potential for growth. The regulatory focus on the introduction of a risk-based capital framework promotes better risk management by takaful players. Also, the compulsory takaful sales agent qualification, as introduced by the Malaysian Takaful Association, is encouraging as it enhances product recognition and the advice available to consumers. The local regulator has also been supportive in raising consumer awareness about the need to insure (through consumer education programmes) and in encouraging bancassurance (the distribution of an insurance company’s products via a bank’s branch network) and broader distribution channels to improve the availability and proximity of takaful to the consumer.

The broader Islamic capital markets in Malaysia allow for a greater depth of instruments to aid better risk management and asset-liability management. This ultimately improves product choice, particularly in the family takaful segment, where a broader range of products has gradually been rolled out. From the mainly mortgage-backed portfolio of family takaful products, investment-linked products have grown rapidly in line with a stronger marketing strategy, and will be further boosted by stronger stock market performance in 2006 and 2007.

In the general takaful segment, much of the 2006 growth was driven by the motor line of business. This was not just due to an increase in the compulsory motor segment, but also as a result of a greater volume of business written in comprehensive and third-party liability, reflecting an increased use of broader distribution channels (including banking institutions).

Other lines of business, in particular commercial, showed growth potential, although this may be constrained by a relatively limited availability of retakaful (the Islamic insurance equivalent of reinsurance, or
risk protection taken by takaful companies) capacity for large, specialised risks. Nevertheless, with new retakaful operators in Malaysia’s offshore financial centre of Labuan, a Malaysian island off the coast of Borneo, these concerns seem to be easing somewhat.

Source: http://www.gtnews.com/article/7058.cfm

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Insurance: Takaful gaining ground

April 23, 2008 at 2:40 pm · Filed under Analysis, Islamic Insurance, Mudharabah, Takaful ·Tagged ,

Insurance: Takaful gaining ground

Hussein Mahmoud traces the origins of Takaful insurance and looks at why it is one of the fastest growing parts of the market

Takaful originates from the Arabic word ‘Kafalah’, which means ‘guaranteeing each other’ or ‘joint guarantee’. The Takaful market started in Sudan in 1979 and then spread to Asia, with Malaysia being one of the most mature markets in the Islamic Asian region. The Takaful concept reached the Gulf regional market in 2002, and gained ground in 2005.

The principles of Takaful are similar to those that underpin mainstream mutual insurance, as the Takaful system is based on mutual cooperation, responsibility, assurance, protection and assistance between groups of participants. In addition, however, a Takaful-branded product has to strictly follow the Muslim business norms of Islamic contracts for clients and Boards of Islamic Sharia scholars whose role is to vet business decisions.

Major international companies moving into the Takaful segment include AIG, Allianz, HSBC, Aviva, and Prudential. Further in 2008, the second largest Takaful company in the world, British Islamic Insurance Holding, is due to launch a UK base with the intention of raising more than $350m (£174m) of capital. As well as targeting the UK market, the company is also setting its sights on other European countries, especially France and Germany, the Gulf States and some Asian countries.

Why the demand?
Islamic banking institutions providing capital and Islamic financial instruments for asset management and investment have already developed successfully and there is now a strong demand, due to religious beliefs, for a Shariacompliant insurance product.

Takaful is one of the fastest-growing segments in insurance, with an average growth of 20% per annum. In 2006, worldwide Takaful contributions were estimated at around $3bn. Approximately 60% comes from general Takaful (general insurance) and 40% from family Takaful (life insurance and pensions).

According to Moody’s Global Credit Research service, total Takaful premiums were worth more than $2bn in 2005 and it is predicted that this will rise to $7bn by 2015.

In addition, consumer surveys have shown a high willingness for Muslims to switch their conventional savings, health and education plans to a Takaful product, given the same level of customer service, quality and profitability.

Defining a Takaful system
There are five elements that must co-exist to establish a proper framework for a Takaful system:

1. Ne’aa or utmost sincerity of intention — for knowingly following the guidance of, and adhering to the rule and purpose of, Takaful — co-operative risk sharing and mutual assistance.
2. Integration of Sharia principles — in particular, risk sharing under Ta’awuni principles, coincidence of ownership, participation in management by policyholders, avoidance of riba (an agreement in which the policyholder expects to receive a predetermined/ fixed amount that is greater than that invested), gambling (referred to as ‘qimar’ or ‘maisir’ in Arabic, which means any activity that involves an arrangement between two or more parties, each of whom undertakes the risk of a loss where a loss for one means a gain for the other), and al Gharar (activities that have elements of uncertainty, ambiguity or deception. In a commercial transaction, it refers to either the uncertainty of the goods or price of goods, or deceiving the buyer on the price of goods), and inclusion of the al Mudharabah (profitsharing arrangements) and/or al Wakalah (agents) principles for management practices.
3. Presence of moral value and ethics — whereby business is conducted openly in accordance with utmost good faith, honesty, full disclosure, truthfulness and fairness in all dealing.
4. No unlawful element — that contravenes Sharia and strict adherence to Islamic rules for commercial contract, namely:

  • Parties have legal capacity and are mentally fit n Insurable interest n Principle of indemnity prevails
  • Payment of premium is consideration (offer and acceptance)
  • Mutual consent, which includes voluntary purifi cation
  • Specific time period of policy and underlying agreement.

5. Appointment of a Sharia Advisory Council or Committee — to oversee the development and Islamic auditing of the Takaful operation and to make sure the investments are made in eligible areas that are allowed and approved by the Sharia board.

Two areas of business
Most Takaful products fall into two main areas.

General Takaful
General Takaful refers to schemes designed to meet the protection needs of individuals and corporate bodies in relation to material loss or damage resulting from a catastrophe or disaster infl icted upon properties, assets or belongings.

Participants (policyholders) pay their premiums (calculated by actuaries) into the Takaful fund as a Tabarru’ (donation). This will eliminate the elements of al Gharar and gambling. That is, the participant agrees to donate their contribution (premium) to the fund with a mission to help other participants covered under the various Takaful schemes when in distress. Therefore, it is the members who carry the risk and the Takaful operator is merely a custodian. Mudharabah, Musharakah and Wakalah models (see Takaful models box) can be implemented under this approach.

Family Takaful
The range of Takaful products offered falls into two categories: risk-type products that are provided for the protection of the participants; and investmenttype products with an element of risk. These products tend to be regular savings plans where a participant indicates his need to achieve a target lump sum by a specifi ed time in the future. Under this scheme the participants pay their premiums into the Takaful fund. A portion of the premium is allocated purely for saving and investment, and the balance goes as a Tabarru’ to build up reserves (claims reserves, unearned premium reserves and so on), to direct expenses, and to pay for Retakaful (reinsurance). Again, Mudharabah, Musharakah and Wakalah models can be implemented under this approach.

Beyond these two main areas, Takaful products are also available for health and pensions needs. It should be noted that Takaful insurance is not just for Muslims but also for non-Muslims, as it is seen by them as an ethical form of insurance.

Takaful models
» Mudharabah model (profit and loss sharing) This is a contract between capital providers with management, where any profi t is shared according to ratio or percentage agreed by both parties but any losses are borne entirely by the capital provider. In practice, participants provide capital to the Takaful operator.
» Musharakah model (joint venture) Both parties provide capital and/or management. Profi t is split either based on capital or upon negotiation, and any loss is distributed in proportion to capital contributions.
» Kafalah model (surety) A guarantor to become the surety in the event the debtor fails to honour his obligation. This type of contract can be used for the development of the Takaful scheme for bonds products.
» Wakalah model (agency) The principal appoints and authorises someone to act on his behalf. The authorisation could be either specific or general. The Wakeel (agent) could then charge a fee to the principal. This model is suitable for most Takaful products including products for corporate risks such as a ‘Rent-a-Captive’ concept.
» Ju’alah model (commission) Similar to the Wakalah contract except that the payment to the agent is measured on his output and performance. This contract could be used to develop distribution channels for Takaful. The most important element of a Takaful model is that there must be a subject matter of contract upon which contracting parties mutually agree by an ijab (proposal) and a qabul (acceptance).

Takaful structures
A Takaful operation in a non-Muslim country can be established in any one of the followings ways:
» A Takaful operator set up under the local Company’s Act with a distinct legal entity
» A Takaful window with any of the existing insurance companies
» A branch of any established Takaful company under a franchise agreement or other understanding
» Establishment of marketing facilities for Takaful products as part of an existing Takaful company with an agency agreement.

Hussein Mahmoud is a Senior Actuarial Analyst at ACE European Group

Source: http://www.the-actuary.org.uk/695085

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Capita to support Sharia-compliant insurance

April 16, 2008 at 12:25 am · Filed under BIIH, Islamic Insurance, News, Takaful, United Kingdom ·Tagged , , ,

Capita to support Sharia-compliant insurance
February 29, 2008

” Sharia policies will comply with strict Islamic beliefs, which are in conflict with conventional insurance products.” by Angela Jameson

Outsourcing giant Capita, best known for running London’s congestion charge, is providing backoffice functions for a new insurance business tailored to comply with Islamic beliefs.

The initiative, due to launch in April, will see Capita initially sell car and home insurance by working with British Islamic Insurance Holdings. Life insurance, investments, savings and ethical financial products are to be launched later this year.

Capita, also known for collecting the BBC licence fee, will sell the policies as well as process claims and run the company’s back office. The deal should be worth £87 million to Capita over eight years.

Conventional UK insurance products are in conflict with Islamic beliefs as the Koran prohibits “riba”, loosely translated as interest but interpreted by many progressive Muslims as usury or extortionate interest. Insurance also contains elements of uncertainty and gambling that make it unsuitable for devout Muslims.

Bradley Brandon-Cross, chief executive of British Islamic Insurance Holdings, said: “The Muslim faith states that, because of various product features, conventional UK insurance options are in conflict with Islam and this creates a dilemma for British Muslims. We are planning to create a British insurer that operates in a way that removes this dilemma and creates an exciting new sector in the British insurance market.”

The insurance product will comply with “Takaful” principles. Takaful is an Islamic insurance concept which has been practised in various forms for more than 1400 years. It originates from the Arabic word Kafalah, which means guaranteeing each other or joint guarantee. The Takaful system is a form of mutual insurance based on co-operation and responsibility. The principles of Takaful are that policyholders co-operate among themselves for their common good; each pays a subscription, which eliminates uncertainty and losses are divided and liabilities spread across a community pool. No individual should derive advantage at the expense.

Capita has been operating in the financial services market since 2000, first in the general insurance market and latterly in the life and pensions arena. The insurance sector has provided some of its biggest contract wins in the past year, when it began a £722 million contract with Prudential to administer 7 million mature life and pensions policies. The contract win has seen 1,750 Prudential UK staff transfer to Capita and a further 1,250 staff in Bombay have also joined Capita.

Since the turn of the year it has been taken on to run back office in Norwich of Marsh, the US-based insurance broker, in deal which is expected to be worth £200 million over 10 years.

Capita said yesterday that pre-tax profits had risen in the year to December 31 by 19 per cent to £238.4 million on turnover up 19 per cent to £2.07 billion. The company has all of its 2008 revenue of £2.3 billion in the bag and said that it has very good visibility on 2009 and 2010 earnings.

Paul Pindar, chief executive, said that any economic downturn was likely to be good for Capita as other companies looked to outsource their back offices.

Increasingly, Capita is also running other companies’ front office and sales operations. For instance, it runs customer contact centres for DSG, formerly Dixons, and eircom, the Irish telecoms operator.

Capita has said that it will increase its dividend by 33 per cent, in line with a five-year average of 32 per cent increases. It has also proposed to return 25p a share through a special dividend.

Source: http://business.timesonline.co.uk/tol/business/industry_sectors/support_services/article3458486.ece

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Takaful-Islamic insurance set for strong growth

April 15, 2008 at 11:19 pm · Filed under Analysis, Islamic Insurance, News, Retakaful, Takaful ·Tagged ,

Islamic insurance set for strong growth

Written by Adrie van der Luijt
Monday, 14 April 2008

Takaful growth has outpaced that in conventional insurance in most countries of the Middle East.

Takaful is an Islamic insurance concept which is grounded in Islamic muamalat (banking transactions), observing the rules and regulations of Islamic law.

Gulf cooperative countries (GCC) represented over 50 per cent of the value of global Takaful contributions of $2 billion in 2006.

Ernst & Young’s inaugural World Takaful Report 2008, launched at the Annual World Takaful Conference 2008, shows that 59 of the 133 Takaful operators worldwide are within the GCC countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

The report also forecasts that accepted contributions globally would rise to more than $4.3 billion in 2010 and that the 20 per cent annual growth rate of the industry would be maintained for the foreseeable future.

General Takaful, which includes Property & Miscellaneous Accident Takaful, currently accounts for approximately 50 per cent of written business globally and in the region.

Key challenges and drivers

While current growth rates indicate a future Takaful industry of $10-15bn within the next ten years, there are critical factors that must be addressed to maintain this expansion.

Key challenges facing Takaful, as outlined by the report, include a fragmented and undercapitalised landscape, limited re-Takaful capacity, problematic asset management and lack of local solution offerings and local distribution channels.

The drivers of Takaful demand include high economic growth and increase in per capita GDP, a youthful demography, increasing awareness, a greater desire for shari’a compliant offerings and increasing asset based, shari’a compliant financing.

Noor Ur Rahman Abid, managing partner of audit and assurance business services at Ernst & Young Middle East, said that it is clear that there are significant growth opportunities for the Takaful industry, especially when the estimated global insurance premiums are as high as US$3.7 trillion.

Most Organisation of Islamic Conference (OIC) countries have underdeveloped insurance sectors. Premiums in the Middle East are at 1 per cent of nominal GDP compared to 8 per cent in North America.

In addition, high levels of market liquidity and with income levels rising in the region, should contribute to a future rise in the global Takaful industry.

Takaful used to underwrite risk

Despite significant challenges, the outlook for the Takaful industry has excited the Islamic finance world, according to Sameer Abdi, head of Ernst & Young’s Islamic finance services group.

He explains that assets held and financed by the Islamic financial services industry are increasingly motivated to use Takaful to underwrite risk.

Existing Takaful capacity is slowly replacing conventional insurance in the industry.

“The challenge for Takaful operators lies not only in tapping extrinsic demand but also in developing their capacity and expertise to provide a competitive alternative to conventional insurance,” Abdi concluded.

Source: http://www.dofonline.co.uk/economy/islamic-insurance-set-for-strong-growth2568.html

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Gulf Re and Islamic reinsurance services

April 13, 2008 at 10:02 pm · Filed under Islamic Insurance, Retakaful, Takaful ·Tagged ,

Gail Norstrom, CEO of Gulf Re, answering question about re-Takaful during interview with Emirates Business 24:7 emagazine

Do you have plans for Islamic reinsurance services?

The re-Takaful products are growing by 20 per cent annually and reached $2.5bn last year. The Islamic insurance and re-insurance sector, Takaful and re-Takaful, started gathering momentum. It is based on the principle of co-operative insurance and mutuality.

As the Shariah compliant alternative to conventional insurance, the market for re-Takaful is making progress and looks set to continue this growth as more Islamic finance instruments become available.

We are just starting but we may think about creating a re-Takaful organisation to offer Islamic reinsurance services to our clients. This needs very precise evaluation and requires the recruitment of very highly specialised staff.

Source & full interview about overall insurance industry: http://www.business24-7.ae/cs/article_show_mainh1_story.aspx?HeadlineID=5490

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Origins and Operations of Takaful System

April 13, 2008 at 8:34 pm · Filed under Islamic Insurance, Saudi Arabia, Shariah, Takaful ·Tagged , ,

Note: I’ve found this explanation on Takaful as one of the best and comprehensive from Takaful Taawuni website.

Origins and Operations of Takaful System

Background Elements to Takaful

Four fundamental factors must co-exist to establish the proper framework for a Takaful system:

A. Nea’a, or utmost sincerity of intention for knowingly following guidance and adhering to the rules of a Takaful system.

B. Integration of Shariah Conditions, namely: risk protection sharing under ta’awuni principle, coincidence of ownership, participation in management by policyholders, avoidance of Riba and prohibited investments, and inclusion of al Mudharabah or Wakalah principles for Takaful management.

C. Presence of Moral Values and Ethics, business is conducted openly in accordance with utmost good faith, honesty, full disclosure, truthfulness and fairness in all dealings.

D. No Unlawful Element that contravenes Shariah and strict adherence to Islamic rules for commercial contracts; namely the key elements present are:

* Parties have Legal Capacity (ie. +18 years old) and are mental fit

* Insurable Interest

* Principle of Indemnity prevails

* Payment of Premium is consideration (offer and acceptance)

* Mutual Consent (which includes voluntary purification)

* Specific Time Period of Policy and underlying Agreement

Main Objections against Conventional Insurance

While there a number of objectionable elements existing with conventional insurance, three main ones stand out.

Qard Al Hassan

According to Islamic principles, only one type of loan, Qard el Hasan (lit. good or benevolent loan) is allowable. Under the concept of Qard el Hassan, the lender may not charge interest or any premium above the actual loan amount. Some Muslim jurists state that this restriction includes directly or indirectly any benefits associated with the loan: “…this prohibition applies to any advantage or benefits that a lender might secure out of the qard (loan), such as riding the borrower’s mule, eating at his table, or even taking advantage of the shade of his wall.”

Muslims are encouraged to invest actively in ventures with an intent to share profits or losses that may result, rather than becoming a passive creditor. Unlike conventional commercial banking (largely based upon fixed, guaranteed rates of return-interest), this mutual sharing of risk promotes communal enterprises, risk-taking and productive activities. Monies are not sitting idle or invested at nominal, fixed rates of return. Instead, monies are applied to commercial transactions or agarian cultivation where risks and rates of return are balanced. A higher degree of risk in investment attracts a concomitant high rate of return to investors, provides stimulus to an economy and creates an environment for entrepreneurs to maximize their productive efforts.

By contrast, most conventional insurers invest premiums in bonds/loans (corporate and municipal) as well as other interest generating investments (involving Riba from Islamic perspective).

Riba (Interest/Premium/Usury)

The single most important aspect that differentiates Islamic finance from conventional finance and banking is the absence of interest. As discussed earlier, the Sharia prohibits both the taking and paying of interest (Riba) no matter what the purpose of the transaction, or the amount of interest charged. Apart from a minority interpretation of Sharia by a few Scholars, the consensus among Islamic jurists is that Riba and interest are the same.

There are four occasions in the Holy Quran where Riba is clearly prohibited. Refer to V.30:39; V.4:161; V.3:130 and V.2:275-276.

In the Yusuf Ali translation, Riba is described in commentary as “undue profit made, not in the way of legitimate trade, but out of loans of gold and silver, and necessary articles of food, such as wheat, barley, dates and sale…including profiteering of all kinds, but exclude economic credit, the creator of modern banking and finance…” He goes on to comment on the relationship of debitor-creditor in the four verses that follow: “…on behalf of debtors, as creditors are asked to (a) give up even claims arising out of past on account of usury, and (b) to give time for payment of capital if necessary, or (c) to write off the debt altogether as an act of charity.”

The use of Riba is clearly prohibited by Prophet Muhammed (PBUH) in a Hadith, where the Prophet (PBUH) condemned those who accept interest, as well as those who pay it or are witness to such a transaction.

Riba, however, circumscribes other aspects that makes commercial transactions suspect as well: “The Prophet (PBUH) forbade indeterminent, doubtful or speculative transactions or selling something before having possession of it.” “The Prophet (PBUH) forbade purchases from needy people and purchases involving uncertainty such as the sale of fruit before its maturity. “

Al Gharar (Uncertainty)

All commercial transactions must contain full disclosure. In other words, any transaction entered into should be free of uncertainty, deception and unknown elements or speculation. Al parties involved should have “full disclosure” or knowledge of the “counter values intended to be exchanged as a result” of the transaction, including the fact that “profits” cannot be guaranteed. The purpose of this prohibition is to avoid exploitation and injustice, especially on the part of the holder of capital.

Examples of prohibited transactions include: options, futures, derivatives, short sales and forward foreign exchange transactions (rates are determined by interest differentials). A number of transactions are treated as exceptions to the rule of Gharar. Such commercial transactions contain special treatments to assure they are organized to minimize harm and risk to both parties. Such transactions are:

1. Sales with payment in advance (bai’bithaman ajil)

2. Contract to manufacture (Istisna)

3. Hire contract (Ijara).

Specifically, Takaful transactions are design to minimize Al Gharar since the risk of future events can neither be known in advance nor influenced in any way. Note that the mere fact of purchase of a Takaful Contract in no manner affects future events nor does it guarantee that any specific outcome will/will not occur. Obviously, nothing in a Takaful operations can influence Al Qadar (Allah’s swt destiny).

Precedents for Islamic Insurance (Takaful)

An Islamic alternative to contemporary insurance is known as Takaful, and is based on the concept of Ta’awun, or mutual assistance. Ta’awun forms the basis of many Islamic practices. The teaching of Islam in regard to the equality and brotherhood of believers, and their responsibilities toward one another and all humanity led to several forms of mutual assistance both social and economic. Takaful as practiced in the sixth century (Christian Era A.D. and +50 Hijrah) actually evolved from tribal practices of mutual assistance dating back to pre Islamic times. There are several examples in pre-Islamic history whereby families, tribes or related members throughout the Arabia peninsula pooled their resources as a mean to help the needy on a voluntary and gratuitous basis. There practices were validated by Prophet Muhammed (PBUH) and incorporated into the institutions of the early Islamic State in Arabia around 650 C.E.

Examples of these early Islamic practices include the following:

* Merchants of Mecca formed funds to assist victims of natural disasters or hazards of trade journeys.

* Surety called daman khatr al-tariq was placed on traders against losses suffered during a journey due to hazards on trade routes.

* Assistance was provided to captives and the families of murder victims through a grouping known as a’qila.

* Contracts, called ‘aqd muwalat, were entered into for bringing about an end to mutual amity or revenge.

* Confederation were brought about by means of a hilf, or an agreements for mutual assistance among people.

Origins of Bloodrite in Islam

Before the time of the Prophet Muhammad (PBUH) , raids, looting, and traditions to revenge those killed were a common fact of nomadic Arab life. The hardships of desert life and a war-like vigilance forged a unity amongst groups wherein a group would act as a social unit .

In the words of Dr. M. Muslehuddin: “..not only does the unit consider the loss of its individual member as its own, it also takes steps to cover such loss, either by revenge and blood-letting, or alternatively by payment of blood money” by the group on behalf of the individual.” Such a perspective towards life and early society can be viewed as an early form of insurance (mutual self-protection).

The practice of blood money, or “wergild” was sustained for nearly a thousand years as a provision against danger to which a group of persons are all equally subject. A group united by blood-ties and family-ties comes to the aid of a member through mutual action. Hence, the custom of sharing in common. This practice was used for plundered property as well as compensation for the loss of life to avoid feud and unchecked destruction. The Arabic term for bloodtie is maaqil , which is derived from aql or aqila.

{Note: The vestiges of these practices still exist in Saudi Arabia today. Motorists who cause injury or death are obliged to pay a “wergild” to the victim’s family.}

During the emergence of Islam( 623-670 CE), some of these customs, including ‘aqila were sanctioned by the Prophet Muhammad (PBUH). In this way, these customs became part of the Sunnah (collection of sayings and practices of the Prophet Muhammad (PBUH) and subject to regulations by the Shari’ah.

The principle of maaqil was affirmed by the Prophet Muhammad (PBUH) as related in the following story from the Sunnah.

“Allah’s Apostle gave this verdict about two ladies of the Hudhail tribe who had fought each other and one of them had hit the other with a stone. The stone hit her abdomen and as she was pregnant, the blow killed the child in her womb. They both filed their case with the Prophet and he judged that the blood money was for what was in her womb. The guardian of the lady who was fined said,”O Allah’s apostle! Shall I be fined for a creature that has neither drunk nor eaten, neither spoke nor cried? A case like that should be nullified” On that the Prophet said, “This is one of the brothers of soothsayers.”

Two ladies (had a fight) and one of them hit the other with a stone on the abdomen and caused her to abort. The Prophet judged that the victim be given either a slave or a female slave (as blood-money). Narrated Ibn Shihab: Said bin Al-Musayyab said, “Allah’s apostle judged that in case of child killed in the womb of its mother, the offender should give the mother a slave or a female slave in recompense. The offender said, “How can I be fined for killing one who neither ate nor drank, neither spoke nor cried: a case like that should be denied.” On that Allah’s Apostle said “He is one of the brothers of the foretellers.” {Sahih Bukhari, Volume 7, Book 71, Number 654-655, Narrated by Abu Hurairah.}

The decree in this case was that the Prophet Muhammad (PBUH) decided that the second woman’s kin would pay a penalty to the relatives of the first woman who was killed (aqila), in accordance with established custom.

Mutual assistance amongst members of a tribe was not originally a commercial transaction and contained no profit or gain at the expense of others. Rather, it evolved as a social institution: to mitigate the burden of an individual by dividing it among his fellow members (group persons) or tribe. In contrast, most modern insurance (even mutual stock insurance entities, but not mutual associations) is a capitalist-based commercial enterprise, where losses are projected in advance and funds (premiums) allocated to risks to cover them. Premiums are paid in line with such projections of risk.

In short, the former practice involves compensation for actual losses upon occurrence by dividing them among the group, whereas, the latter involves the transfer of losses in advance based upon past experiences. This transfer often is from policyholders (the group) to shareholders (owner of insurance company) and thus voids the age-old principle of mutual assistance .

It is noteworthy that the first Constitution in Medinah (622 C.E.) arranged by Prophet Muhammad (PBUH) contained three aspects directly relating to insurance.

· Provision for social insurance affecting the Jews, Ansar and the Christians.

· Article 3 which included “the immigrants among the Quraish shall be responsible for their word and shall pay their blood money in mutual collaboration.”

· Provision for Fidya (ransom) whereby payment is made to rescue the life of a prisoner and the aqila (relatives) could cooperate to free him.

Takaful Referenced with the Qur’an and Sunnah

Although the word Takaful does not appear in the Holy Quran, it is derived from the term Ta’awun, or mutual assistance and connotes the same meaning. The second verse of Surah 5 in the Holy Quran exhorts the individual to assist others:

* “Assist one another in the doing of good and righteousness. Assist not one another in sin and transgression, but keep your duty to Allah” V.5:2.

In addition, many of the virtuous customs from the pre-Islamic period of Jahiliyya were declared “Islamic” by the Prophet Muhammad (PBUH) when he said: ” the virtues of the Jahiliyya are acted upon in Islam.” He further clarified this point in the constitution written in Medinah.

* They {Muslims of the Quraysh and Yathrib tribes} are one community (ummah) to exclusion of all men. The Quraysh emigrants according to their personal custom shall pay the blood-rite {aqila} within their number and shall redeem their prisoners with the kindness and justice common among believers.”

* Believers are to other believers like parts of a structure that tighten and reinforce each other.” Al-Bukhari and Muslim .

* The Believer, in their affection, mercy and sympathy towards each other, are like the body- if one of its organs suffers and complains, the entire body responds with insomnia and fever.” Muslim.

Given the Quranic admonition to “assist one another” and the words of the Prophet Muhammad (PBUH) regarding mutual assistance, Takaful may be understood as an imperative upon Muslim believers:

* “… a system based on solidarity, peace of mind and mutual protection which provides mutual financial and other forms of aid to Members {of the group} in case of specific need, whereby Members mutually agree to contribute monies to support this common goal.” O.Fisher

Finally, although a believing Muslim is required to accept (destiny or pre-ordainment) which can incorporate misfortune, s/he is not a passive “victim of circumstances. Conversely, the believing Muslim is exhorted by the injunctions of the Holy Quran to proactively take precautions in order to minimize potential misfortune, losses or injury from unfortunate events. One specific such instruction appears in Hadith to the owner of the camel to first tie your camel then rely upon the destiny ordained by Allah (swt).[Al Tirmidhi Vol.4,p.668].

A Perspective on Takaful from Islamic Scholars

The Majority viewpoint by contemporary Islamic scholars is that Takaful (cooperative insurance) is fully consistent with Shariah principles. This perspective is upheld by numerous meetings and resolutions :

* Council of Saudi Ulama (1397 Ah/1977 CE) resolution

* Fiqh Council of Muslim World League (1398/1978) resolution

* Fiqh council of Organization of Islamic Conference (1405/1985)

* Islamic Fiqh Week Conference, Damascus 1961

* Second Conference of Muslim Scholars, Cairo 1965

* Symposium on Islamic Jurisprudence, Libya 1972

* First International Conference on Islamic Economics, Meccah February 1976

* The Islamic Conference,Mekkah,October 1976

The esteemed shariah advisory Board of Bank Aljazira confirms also its viewpoint and whole heartedly endorsed the Family and Group Takaful Programs now offered by Bank Aljazira .{Refer to Fatwa dated April 2001}.

-THE END-

Source: http://www.takaful.com.sa/m1sub2.asp
(13 April 2008)

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