Takaful is derived from an Arabic word “ Kafala ” which means common warrant, whereby a group of participants agree to reciprocally vouch among themselves against a defined loss. This simple construct of takaful is the foundation of the takaful concern, which is the present Shariah-compliant insurance[ 1 ].
Takaful is “ a strategy based on brotherhood, solidarity and common aid which provides for common fiscal assistance and aid to the participants in instance of demand whereby the participants reciprocally agree to lend for that intent ”[ 2 ].
The modern-day legal experts acknowledge that the foundation of Takaful was laid down in the system of “ Aaqilah ” , which was an agreement of common aid or damages customary in some folks at the clip of the Prophet ( peace be upon him ) . Takaful provides solidarity in regard of any calamity in human life and loss to the concern or belongings.
The elements present in the conventional insurance viz ; Gharar ( uncertainness ) , Riba ( involvement ) and Maisir ( chancing ) are against the dogmas of Islam. Muslim Scholars do non object to insurance per Se but merely to certain failings in the insurance contract ( which weaknesses render the insurance contracts fasid ) . It is for this ground, 1972 Fatwa by National Council for Islamic Religious Affairs of Malaysia that life insurance is non lawful as it contains gharar, maysir and riba.
Hence, takaful attempts to take all these aspects present in the conventional insurance and works within the guidelines of sharia law. The construct of tabarru makes the dealing allowable and valid harmonizing to Islamic jurisprudence. It changes the footing of contract from an exchange contract ( mu’awadat ) which is bilateral in nature, to a charitable contract, which is one-sided.
2.0 Takaful – Industry overview
Globally, the takaful industry has been turning quickly, appealing to both Muslims and non-Muslims. The industry is expected to turn by 15-20 % yearly, with parts expected to make USD7.4 billion by 2015[ 3 ]. Presently, there are more than 110 takaful operators worldwide.
As per the Ernst & A ; Young ‘s World Takaful Report 2009 notes that planetary Takaful parts have risen to $ 3.4bn in 2007 as compared to $ 2.5bn in 2006 ( 36 % Growth ) . The 2009 new projections for 2012 for Takaful Market are US $ 7.7 billion and US $ 11.0 billion by 2015[ 4 ].
Saudi Arabia was the biggest market in the Gulf Cooperation Council ( GCC ) , with parts numbering USD 1.7 billion in 2007, and Malaysia the largest takaful market in Southeast Asia with parts of USD 800 million.
Malaysia has achieved important mileposts in the development of its takaful industry. With the passage of the Takaful Act 1984, the first takaful company was established in 1985. Since so, Malaysia ‘s takaful industry has been deriving impulse and progressively recognized as a important subscriber to Malaysia ‘s overall Islamic fiscal system.
As at 2007, entire assets of Malaysia ‘s takaful industry amounted to USD2.8 billion, with market incursion of 7.2 % . Takaful assets and net parts experienced strong growing with an mean one-year growing rate of 27 % and 19 % severally from 2003 to 2007.
The rapid liberalisation of Malaysia ‘s Islamic fiscal industry has encouraged foreign establishments ‘ engagement in Malaysia, therefore making a diverse and turning community of domestic and international takaful operators. There are presently eight takaful operators and two re-takaful operators, with five foreign engagements from the UK, Bahrain, Germany and Japan. These takaful operators conduct both domestic and foreign currency concern.
Malaya continues to come on and construct on the industry ‘s rapid development by ask foring fiscal establishments across the universe to set up takaful and re-takaful operations in Malaysia to carry on foreign currency concern.
2.1 Current Trends and Future chances
With the spread outing demographics of Islamic states and that of the Islamic population globally, the chance of Islamic Insurance theoretical accounts looks assuring. During 2007-2008, the emerging markets contributed close to 28 % of the planetary economic activities. The Muslim states on their ain accounted for 23 % of the emerging market ‘s GDP and 11 % of the premiums written in these economic systems[ 5 ]. The sum of Takaful premiums from emerging markets was USD 1.7 billion, with Malaysia and Saudi Arabia demoing the highest growing rates. However, other insurance companies runing on intercrossed theoretical accounts with their base in the Sharia accounted for another USD 4 billion in premiums.
During the same period, the ratio of written premiums to GDP in Islamic states is 1.3 % of the GDP as compared to 2.8 % for emerging markets as a whole. Therefore, the potency for Takaful operators to turn in these economic systems is enormous. Current research points out that the market is grossly underserved with a balanced mentality for a yearon- twelvemonth growing of 25 % ( after accommodation of rising prices ) for the following 3-4 old ages. The Accounting & A ; Auditing Organization for Islamic Financial Institutions ( AAOIFI ) has been playing a cardinal function in bordering and reexamining the regulative criterions regulating Islamic insurance companies. Although it frames the guidelines, the duty of the reading and execution of these regulative guidelines is governed by the Sharia Supervisory Board of each Takaful company.
With the improved criterions of life and increasing consciousness of Takaful, the market is expected to see steady growing in per capita spend on Takaful insurance premiums and besides in footings of market portion in comparing with conventional insurance merchandises.
2.2 Strategic Issues and Challenges
With jutting growing as described in the old subdivisions, the Takaful industry will see much alteration. As with all new merchandise offerings, success will depend on several factors, both internal and external. Highlighted below are a figure of strategic issues and challenges that suppliers will postulate with as the industry expands.
The planetary Takaful industry, presently, includes different operational theoretical accounts, accounting criterions and regulative governments. Bahrain, Malaysia and Pakistan are presently the lone markets to hold issued specific Takaful Torahs or ordinances. However, in malice of the commendable attempts by AAOIFI, the industry is still desiring in constructing a set of planetary regulative criterions that will be adhering on all operators, with certain localisations.
The Takaful industry is dominated by local operators. New entrants should make synergisms that can be used to leverage bing distribution channels, banc-Takaful and strategic confederations across geographicss. This will besides enable the operators to increase premium volumes to better profitableness ; a cardinal factor in lasting the ‘start-up ‘ old ages.
Developing Advanced Merchandises
Developing attractive and competitory merchandises that meet diverse client demands will be a major challenge for Takaful manufacturers. Though Takaful suppliers cater to a really specific and soon unsated market, they still need to make merchandise offerings that are as sophisticated and advanced as their conventional rivals. Their ability to plan merchandises that exceed the criterions soon set by conventional insurance companies will be the ultimate trial for Takaful as a merchandise.
Bettering Selling and Branding Tacticss
The present trade name value of Takaful is comparatively limited peculiarly in non-Islamic states. Analysts have suggested that Takaful has tremendous potency for Islamic and non-Islamic populations, offering an ‘ethical ‘ insurance option. Experts besides propose that Takaful can potentially be a utile mechanism for poorness relief. The low incursion of insurance in many Islamic states where Takaful operators are expected to be most successful indicates that Takaful operators have yet to do important advancement towards this terminal.
Raising the Standards in Customer Service
As the industry grows and becomes more competitory, constructing client service accomplishments and developing best patterns will go progressively of import. At present, general client service criterions are mean among Takaful suppliers, relative to their conventional opposite numbers.
IT Solutions for Takaful
Issues such as advanced merchandise development, clip to market, serving of policies and claims within acceptable clip lines, truth of computations, cost containment, and betterment in service criterions can all be facilitated by the execution of robust and flexible IT solutions. Takaful compliant IT solutions serve an of import intent from a regulative conformity point of view and can assist operators avoid susceptibleness to unfavourable regulative determinations and the possibility of increased regulative conformity costs.
3.0 Takaful – Models
A takaful theoretical account depicts the relationship between the company and the participants. Based on the nature of relationship between the company and the participants, there are assorted theoretical accounts like Wakalah ( bureau ) Model, Mudarabah Model and the combination of bureau and Mudarabah theoretical accounts.
In Mudarabah theoretical account that is practised chiefly in the Asia Pacific part, the policyholders get net income on their portion of financess merely if Takaful Company earns net income. The sharing footing is determined in progress and is a map of the developmental phase and net incomes of the Company.
In Wakalah theoretical account, the excess of policyholders ‘ financess investings – cyberspace of the direction fee or disbursals – goes to the policyholders. The stockholders charge Wakalah fee from parts that covers most of the disbursals. In order to give inducement for good administration, direction fee is related to the degree of public presentation.
4.0 Takaful – Classs
Takaful concern as presently practiced can be categorised as follows:
4.1 By Management Structure
Cooperative or common takaful: It is a sort of takaful whereby the participants themselves manage and accountable for the takaful strategy.
Takaful Tijari or commercial takaful: It is a sort of takaful whereby direction of takaful strategy is undertaken by separate entity specifically appointed for this purpose known as takaful operator.
4.2 By type of concern
4.2.1 General takaful
The general takaful provides protection on a short-run footing, usually covering a period of one twelvemonth. It normally provides protection for belongings loss or harm, liability originating from harm. In general Takaful, the company raises a fund, which called as ‘tabarru ‘ fund or history, where the participants pay to the fund. The company will put the balance of the fund after subtracting the operational cost of the strategy. Any net income or return from the investing will be returned back to the fund. If there is any participant who faced loss or harm to his belongings or belonging, so the peculiar participant will be compensated from this fund.
4.2.2 Family takaful
The household takaful offers a combination of protection and long-run nest eggs, normally covering a period of more than one twelvemonth. It provides fiscal benefits if the insured is inflicted by a calamity every bit good as possible net incomes. Hazards covered include premature decease, unwellness and lasting disablement, and regular income during retirement.
5.0 Shariah issues in Takaful:
As is the instance with any industry in its nascent phases, the takaful industry excessively is confronting a batch of teething jobs. The prevailing issues and concerns are from the sharia law issues. Some of the shari’ah issues associating to takaful viz ; who are the existent proprietors of the takaful fund, the methodological analysis and the procedure to be adopted to portion the excess between the participants, the issue of hibah ( gift ) in a takaful policy and the construct of selective underwriting to those participants who are comparatively healthy than to person who is unhealthy and in existent demand.
So, allow us analyze these issues in the visible radiation of Shari’ah to understand the statements posed for and against each of these issues to acquire a clear thought on the issue in general.
6.0 Shariah issue # 1: Sharing of the excess fund
6.1 The construct of excess:
By and large, many Takaful companies ( particularly those utilizing the Mudaraba rule ) claim that their operations are based on the construct of common or co-operative insurance as approved by the Muslim legal experts. This claim is on the footing that:
They receive the premium or part from the insured on the footing of the Mudaraba rule, whereby the company becomes the enterpriser ( Mudarib ) and the insured party the capital supplier ( Rab al-Mal ) .
The insured party agrees to donate a certain per centum ( or in some instances as in General Takaful the whole of the sum paid ) of the premium/contribution to a particular fund used to pay compensation or benefits to subscribers.
Any excess left in the fund after colony of all claims is shared by the company and the insured as net income in a ratio as agreed in the contract. An insured party who has received compensation, the sum of which is greater than what he could hold received as a portion of the excess had he made no claim, is non entitled to portion such a excess. The company uses normal actuarial rules to cipher hazard and premium.
The first and the most critical issue in takaful is the issue of excess distribution. Bing a ta’awuni instrument to supply a common warrant for possible hazards, excess arises as an issue of what to make with it if such hazards are dealt with through hazard transportation or damages. A recorded excess at the terminal of the fiscal twelvemonth of a peculiar takaful operator is an issue that invokes both Shari’ah and legal examination.
6.2 The industry pattern:
Until late, the mudharabah theoretical account adopted by Malayan takaful operators refers to gain as the underwriting excess, which is the surplus of premiums over claims, plus investing returns. This agreement marks a going from the original mudharabah theoretical account, which will entitle the takaful operator a ratio in the investing returns, without sharing in the underwriting excess. The modified mudharabah theoretical account justified the sharing of the underwriting excess on the evidences that such an agreement would let takaful operators to defy competition and avoid overpricing, which may finally rock takaful participants from takaful, and be attracted to conventional insurance, with all its non-Shari’ah compliant elements. This is farther justified by the fact that there is nil haram in sharing the underwriting excess, in the position of the absence of any textual or general Shari’ah rule disapproving such a pattern.
6.3 Manners of excess distribution
By and large the excess which is generated after paying all the claims and other disbursals is distributed in the undermentioned ways.
Pro-rata manner: Whether the excess is underwriting excess plus net income or underwriting excess merely, it is distributed in proportion to the premium paid by the participants, without distinguishing between claimable and non-claimable histories. This manner seems to be in line with the aim of takaful ta’awuni, which is to supply common warrant and mutual hazard protection.
Selective manner: This manner tends to indemnify non-claimable histories merely. Takaful operators tend to strip claimable histories, so that they become more prudent in the hereafter. The excess is distributed as an inducement to the participants, which is a sort of affecting them into the procedure of hazard choice and equal underwriting for a given fiscal twelvemonth.
0ff-setting manner: This manner tends to countervail the rate of subventioning excess from the sum claimed. This is applicable merely on histories whose underwriting excess less than the claims. If the underwriting excess is equal or more than the claims, so the participant does non portion in the excess. This manner is viewed as the most just amongst the other manners. It is more accurate in footings of computation, and more so in footings of justness and ta’awun ( operation ) .
6.4 The Shari’ah issue in excess distribution
Equally far as excess distribution is concerned, two jural positions have surfaced and dominated the takaful industry in the Middle East and Malaysia. The first one flatly prohibits the sharing of the underwriting excess between the takaful operator and the participants, but the other position validates the sharing, based on ratios that differ harmonizing to the line of merchandises offered. The oppositions of sharing the underwriting excess back their contention by determinations taken by extremely acclaimed establishments, such as AAOIFI, whose criterion on takaful reads: “ The Takaful operator does non portion in the ( underwriting excess ) ” .
The AAIOFI Standard on takaful provinces: “ The underwriting excess and its returns, less disbursals, and payment of claims, remain the belongings ( milk ) of the policyholders, which is the distributable excess. This is non applied in commercial insurance, where the premiums become the belongings of the ( insurance ) company, by virtuousness of contract and acquisition, which would do it gross and a net income for commercial insurance ”[ 6 ]
This statement by AAOIFI raises the issue of ownership claimed on the premium paid. On one manus, the participant has donated the premium as tabarru ‘ , therefore, losing rubric over it, as prescribed by the regulations of hibah in the Shari’ah, but on the other manus, he still holds claim over it in the signifier of acquiring the whole underwriting excess or a portion thereof. Hence, allow us analyze the ownership issue component in hibah and the extent of its Shari’ah complaisance.
There are a figure of legal experts who emphasized that pure hibah leads the wahib to release his ownership over the object of hibah. Ibn Qudamah asserts that “ al-hibah tamalik ”[ 7 ]– a hibah which requires the wahib to enable the beneficiary to claim rubric of the object of hibah. Al Imam al- Shirazi points out that “ Al-hibah tamlik bighayri ‘iwadd “[ 8 ]– a hibah which enables the beneficiary to have the object of hibah without an exchange. In such a instance, the jural deductions of hibah, as Ibn Nujaym al- Hanafi asserts, will be the transportation of hibah to the donee, entitling him to keep rubric over the object of hibah ( thubut al-Milk lil mawhubi Lahu ) .[ 9 ]
By and large talking, the ShafiaˆYis position hibah as reassigning the ownership of an plus without exchange during oneaˆYs life-time, on a voluntary footing. The other mazahib ( schools of law ) refer to the same significance, with a particular accent on the component of “ no exchange ” , i.e. : Bi ghayri ‘Iwadd. This transportation of ownership would be effectual, either by manner of acquisition ( qabd ) on the portion of the donee, which is the position of the ShafiaˆYis and Hanafis, or by manner of ijab and qabul ( offer and credence ) , , which is the position of the Malikis. This jural attack is an grounds that tabarru ‘ requires the relinquishment of ownership over the object of hibah. Since the latter entitles tamlik to the beneficiary, we can rightly state that the mutabarri ‘ ( giver ) does non keep any legal right or claim over the plus donated. Having said so, the takaful operators are at autonomy to qualify conditions on how the underwriting excess should be distributed, raising the philosophy of shurut ( conditions ) in contracts, as articulated in Islamic law. The lone shroud of right that the giver may still bask to keep rubric of his hibah is when he donates it in exchange for a countervalue, a rule known as “ hibah al-thawab ”
Contemporary bookmans like al-Qurdaghi are of the position that the rule of hibat al-thawab ( a gift for on exchange ) is a good premiss to warrant the parturiency of excess to the participants merely. It is true that some of the Prophetic Hadiths mentioning to hibat al-thawab have secured some right of ownership to the givers after contribution. Abu Hurairah narrated that the Prophet ( s.a.w. ) said: “ The giver holds an sole right of ownership over his hibah, provided he is non rewarded for it ”[ 10 ]. This Hadith is the lone piece grounds certifying to a conditional ownership of the hibah by the wahib, leting him to abjure his hibah if he is non rewarded or satisfied with the wages. However, as clearly understood from the Hadith, this grounds merely gives conditional abjuration of the same gift, non a excess of it. In the instance of Islamic insurance ( takaful ) , this Hadith is non applicable to surplus distribution, instead it is about abjuration of hibah.
Another hadeeth which is given as an statement for restricting the excess distribution to the participants merely is the Hadith of Nahd/Nihd. It has been mentioned in Saheeh Al-Bukhari, ( Book of Sharikah ) that “ Muslims did non see any injury in Nahd ”[ 11 ]. The latter, as Ibn Hajar explains, is “ The allotment of a fund in proportion to the figure of participants ( in the fund ) ”[ 12 ]. Although this agreement was more utile and practical in journeys to supply common coverage of disbursals, it has been viewed as a mechanism to reassign hazards, whether in a journey or otherwise.
After mentioning the same Hadith, the appendix of AAOIFI Standard on Takaful provides an account to Ibn HajaraˆYs definition of Nahd. The Standard states that Ibn Hajar ‘s definition of Nahd refers to the underwriting excess, which should be redistributed to the participants, so that it could be used in another journey.
Revising Ibn Hajar ‘s position in his Fath al-Bari, it can be barely understood that Ibn Hajar ‘s definition and account of Nahd does non mention in any manner to surplus redistribution to the same participants. The Hadith, is therefore, wholly soundless about excess, opening the doors for ijtihad to be exercised, in position of the maqasid al-shari’ah and general Islamic fiscal rules.
Another issue raised by those who oppose the sharing of excess to the takaful operator is that Sharing in the underwriting excess is a sort of taking peoples ‘ belongings unjustly.
This contention is held by outstanding bookmans like Hussein Hamid Hassan[ 13 ]and Al-Qurgaghi[ 14 ]. The contention seems to travel beyond the recognized parametric quantities of justness. Although there could be plausible evidences for such a position, in visible radiation of the patterns of some takaful operators that seize the lionaˆYs portion of the underwriting excess, there should non be any shred of uncertainty that, in visible radiation of our earlier jural analysis, sharing the underwriting excess is Shari’ah-compliant every bit long as it falls within the parametric quantities of recognized conditions ( shurut ) , every bit good as the rule of the rida ( satisfaction ) , having such contracts. With the being of sound regulative model that caps the per centum of the distributable excess, takaful operators will non be in a place to take people ‘s belongings unjustly, nor do I believe that there exists any takaful operator which is inclined to make so.
7.0 Shariah issue # 2: Distribution of decease benefit in household takaful
Another Shari’ah issue ( or ) concern raised is in household takaful on to whom should be the decease benefit be paid after the decease of the participant. One group of bookmans and Takaful operators say that it should be given wholly given to the beneficiary as in the instance of conventional insurance and the other group feels that the donee should move as a executor of the asleep and the benefit should be distributed to the legal inheritors of the asleep. So, allow us analyze the statements put away by the two sides in the visible radiation of shar’ah.
7.1 The construct of mal in the visible radiation of Takaful benefit
The Arabic word mA?l, or belongings, originates from the root word mawala that literally means to finance. Al-ZuhaylA« defines mal literally as being anything a adult male owns that is in his existent ownership and this includes corporeal and usufruct. Gold, Ag, animate being, works, money and benefits or usufructs such as the equitation of vehicles, the erosion of apparels and the residing in houses are regarded as mA?l. On the other manus, birds in the sky, fish in the H2O, and mines deep in the Earth and workss in the jungle are non literally mA?l on the footing that they are non in the existent ownership of a adult male.
The categorization of mA?l by Dr. Muhammad Daud Bakar, which is suited to the modern context, appears to follow the bulk ‘s definition. Harmonizing to him, mA?l or belongings can be classified into three types:
Tangible assets like landed belongings, present points and stock including Islamic bonds that are asset-based such as ijA?rah, musyA?rakah and mudarabah bonds.
Intangible assets such as right of first publication and royalty, trade name, hallmark, industrial design, etc
Fiscal rights ( haqq mA?liyy ) such as rights to have ( receivable ) that include Islamic bonds, deferred dowery & A ; care, right to amendss, the right to takA?ful compensation, etc.
It can be concluded that in the modern application, takaful benefit is besides treated as mal ( belongings ) . Harmonizing to Sec.2 Takaful Act 1984, takaful benefit includes any benefit, pecuniary or non which is secured by a takaful certification, and “ wage ” and other looks, where used in relation to takaful benefits, shall be construed consequently.
As it is by and large practised in the industry, for the Family takaful, there are two histories, viz. the Participant Account and the Particular Participant Account. The premium paid by the participant is paid into both histories based on a ratio agreed by the takaful operator and the participant. The Participant Account is considered to be the sedimentation history of the participant whereas the Particular Participant Account is for the exclusive intent of doing contributions. When a participant dies, there is hence no inquiry sing the heritability of the money in the Participant Account as it is portion of the deceased ‘s estate. However, with respect to the money collectible by the takaful operator taken from the Particular Participant Account for the decease benefit is still questionable.
It is a standard pattern in Malaysia that when a participant of an Islamic insurance policy dies, the participant ‘s legal inheritors inherit the money paid by the takaful operator. In other words, the payment of the money by the takaful operator to the campaigner appointed by the asleep participant is later distributed among the participant ‘s legal inheritors in conformity with the farA?`idiˆ? jurisprudence. This agreement takes topographic point even though at that place appears to hold been no Islamic legal opinion or fatwA? issued by any fatwA? council in Malaysia either at national or province degree sing the place of the money collectible as compensation by the takaful operator on the happening of the decease of a participant.
The distribution of the returns among the legal inheritors of the asleep participant has apparently become standard pattern in Malaysia. Section 65 ( 1 ) of the Malaysian Takaful Act, 1984 stipulates that the payment of takaful benefits is made to the proper claimant. Section 65 ( 4 ) explains that the ‘proper claimant ‘ is a individual who claims to be entitled to the amount in inquiry as executor of the asleep or who claims to be entitled to that amount under the relevant jurisprudence.
7.2 The construct of ownership in Takaful benefit
Muslim jurisprudence provides four legitimate agencies for geting absolute ownership[ 15 ]:
The contract of exchange such as trading and renting contracts, and one-sided contracts such as wasiyyah, hibah and waqf
The replacing, or khalafiyyah, i.e. heritage, the payment of diyyah and compensation
The control over allowable things such as fish in the sea and birds in the sky
The growing and the production of things owned such as poulet ‘s eggs, cow ‘s milk, etc.
Takaful benefit falls under the 2nd portion of the first class, i.e. one-sided contract ( tabarru’at ) . It could be contended that without the engagement of the policyholder, the takaful operator would ne’er pay the money. On this footing, the attempt of the participant by fall ining the policy and paying the monthly premium suffices to represent the returns as tarikah. In other words, it is the contract entered into by the policyholder for household takaful, which generates the benefits. This contention is based on the fact that one ‘s attempt becomes a justification for ownership. As a consequence, the money is divisible among the inheritors of the policyholder harmonizing to the jurisprudence of farA?`id.
7.3 The takaful benefit to sole beneficiary V to the legal inheritors
Takaful contracts realize the duty upon the company to pay. They do non make wealth in the insured ‘s ownership, but instead they create an duty to ease the load suffered due to the losingss of fellow participants. The participant ‘s part is his or her contribution for the good of others, non for himself and is hence different from the instance of a trap, which is intentionally fixed by the deceased for his ain addition. The returns collectible belong to the fund on behalf of the participants, non the takaful operator.
Therefore, even though it is the asleep ‘s attempt, the money is more suitably to be regarded as an duty upon the takaful tabrru ‘ fund to pay on behalf of other participant as fiscal aid to the insured ‘s household in instance of decease. This is the importance of sing a legal and fiscal entity for the fund. This pecuniary duty is straight based on the understanding or promises of common aid stated in the contract.
In other words, the tabarru ‘ fund managed by the takaful operator on behalf of the participants agrees to pay the returns, and the affair of to whom they are paid should be freely and wholly left to the understanding or the judicial admission made by the policyholder to the company. This is similar with the stipulated status made by the performing artist of wakf as he stipulated status is adhering. As the part made by the policy holder through the premiums is considered as tabarru ‘ act ( contribution ) merely like in the instance of waqf contract, he can besides set status to whom the fiscal aid should be paid as exclusive donee or as a trustee/executor.
The primary aim of the takaful policy is to supply fiscal aid to the participant ‘s or insured ‘s household. If the payment is collectible purely merely to the inheritors of the participants or insured, it implies that it is the belongings of the deceased. If this is so, the money is capable to the fulfillment of certain rights that must be carried out before distribution to the inheritors, such as the payment of burial disbursals and the deceased ‘s debts.
This would intend that the compensation is non being used to ease the load of the household but instead it seems that other fellow participants are under an duty to settle the debts of the dead participants. In this respect, the creditors would hold anterior rights over the participant ‘s dependents. The dependents would merely have the benefits after the creditors ‘ claims have been satisfied.
As such, infixing a clause lawfully and purely enforcing a responsibility on the appointed campaigner to administer the money among the legal inheritors of the dead participant seems to belie the aim of both the takaful. Inserting such a clause as presently practiced in Malaysia is non based on valid statements.
Furthermore, by sing it an estate for heritage intents, the takaful and insurance activity becomes a beginning of income. This is contradictory to the intent of takaful i.e common cooperation to ease a load.
Interestingly there are a figure of modern-day fatwas leting the distribution of takaful benefit to a peculiar donee which is the common pattern in the conventional insurance.
The Shariah Advisory Council of Bank Negara in its 34 meeting held on 21st April 2003 resolved:
Takaful Benefit can be used for hibah since it is the right of the participants. Therefore the participants should be allowed to exert their rights harmonizing to their pick every bit long as it does non belie with Shariah.
The position of hibah in takaful program does non alter into will ( wasiah ) since this type of hibah is a conditional hibah, in which the hibah is an ofer to the receiver of hibah for merely a specified period. In the context of takaful, the takaful benefit is both associated with the decease of the participant every bit good as adulthood of the certification. If the participant remains alive on adulthood, the takaful benefit is owned by the participant but of he dies within such period, so hibah shall be executed.
A participant has the right to revoke the hibah before the adulthood day of the month because conditional hibah is merely deemed to be completed after bringing is made ( qabadh ) .
Participant has the right to revoke the hibah to one party and reassign it to other parties or end the takaful engagement if the receiver of hibah dies before adulthood
The takaful denomination signifier has to be standardized and must qualify clearly the position of the campaigner either as a benefeciary or an executor ( wasi ) or a legal guardian. Any affair refering distribution of takaful benefit must be based on the contract. Participants should be clearly explained on the deduction of every contract being executed.
However, there are a figure of unsettled issues over delegating a exclusive donee, among others:
How to do hibah of something which non yet realized, i.e. there will be no decease benefit if the policy holder is alive until the adulthood of the policy?
If it is a hibah, can the policy holder retract the hibah because he/she takes the policy for his/her ain benefit upon adulthood?
In a valid hibah, the ownership is transferred to the receiver. What if the receiver dies? It becomes his/her estate. Can the receiver be replaced?
If a hubby is paying a policy for his married woman, can he be the receiver of the benefit or he can merely be a trustee/executor and takaful benefit should be treated as her estate which shall be distributed harmonizing to regulations of mirath/faraid?
Hibah which is tied up with decease is a will ( wasiyyat ) . It is non allowed to do wasiyyat to heir ( waris ) . Another issue is that it may non function the intent of taking protection to a peculiar receiver.
7.4 The alternate methods proposed and practiced by the takaful operators
In order to get the better of the above mentioned Shari’ah issues, the takaful operators have come up with some options listed below:
To see takaful benefit as the asleep ‘s estate: As such, for Muslim participants the first campaigner is the receiver of 100 per centum takaful benefits as prescribed under Section 65 Takaful Act 1984. The first campaigner is responsible to administer the benefit in conformity to faraid. If the first nominee shall predecease the participant, hundred per centum of the benefit shall be paid to the 2nd campaigner and so forth. The campaigners shall administer the benefits in conformity to faraid.
Absolute Assignment: In this instance the hibah is a existent hibah where the policy holder will non remember the hibah and the ownership of policy is regarded to hold been transferred to the donee. The hibah includes whatever returns in the policy whether it is the policy holder personal economy or the contribution history. There will be no issue of remembering the hibah or replacing of the assignee by the policy holder in the instance of decease of the assignee. The assignee nevertheless can transfer the policy to other party.
Proposed Beneficiary: The policyholder merely proposes the donee to the takaful fund. It is the takaful operator on behalf of takaful who is giving hibah the takaful decease benefit to the donee. However there is another signifier for the participant ‘s personal history where the campaigner is regarded as the wasi or executor.
Therefore, from the above treatment, it is really clear that there is no Shariah and legal difference to see takaful benefit as the asleep ‘s estate and to handle a campaigner as an executor. But, there are many unsettled Shariah and legal issues refering to hibah ( give ) the takaful benefit to a exclusive donee.
Harmonizing the industry practises in Malaysia, to decide this, some takaful operators consider “ absolute assignment ” ( absolute hibah ) to give away the takaful benefit and its proceed to the receiver where it becomes irrevokable. However, As to the deceased ‘s salvaging part, it shall be distributed harmonizing to the regulations of fara’id where campaigner is merely and executor.
8.0 Shari’ah issue # 3: Selective Underwriting – Is it favoritism?
8.1 The construct of underwriting
Basically, subventioning is a procedure of categorization and evaluation of hazards. In a nutshell, it is merely a hazard choice procedure. In Family Takaful for case, this choice procedure consists of measuring the person hazard place based on the information given or obtained and so to sort whether the person is a criterion or substandard hazard. If the categorization consequences in the single being substandard the class of action would be to ‘load ‘ the person ; in footings of higher parts. The strategy of coverage can besides be modified to except certain hazards or the sum or coverage reduced. Of class the application can besides be rejected all together. Over and above that subventioning for Shariah conformity is besides required i.e. weeding of hazards related to activities which are in struggle of Shariah such as alcohol addiction or unwanted life styles.
The investment banker ‘s occupation basically is to do a judgement call as to whether the company should accept the applier and hazard paying a claim. He or she will use all the information gathered from legion beginnings to find whether or non to accept a peculiar applier. The investment banker ‘s benchmark would be the actuarial pricing footing in footings of mortality or morbidity. Good judgement calls for old ages of experience in this field. Good investment bankers are able to read beyond the facts obtained officially from the applier. The investment banker ‘s primary aim is to protect the takaful operator and the takaful fund insofar as is possible against inauspicious choice ( where those persons with higher hazard persons are more likely to take part than others ) and those parties who may hold deceitful purpose. This is why single applications are capable to closer examination compared to group appliers as in the former the participant ‘s existent purpose or motivation for coverage may be obscured.
8.2 The Shari’ah issues in selective underwriting
It is the general pattern of the insurance and the takaful industry to treat merely those appliers who have the least hazard profile. This would assist the companies to administer a least sum in claims thereby increasing the underwriting excess and therefore the overall net incomes. For illustration, an insurance company ( or ) a takaful company would prefer an person who is immature, healthy and is in his center ages than a individual who is corpulent, old with lower income.
As we are cognizant, takaful was founded on the footing of Ta’awun ( mutualness ) and Tabarru ‘ ( contribution ) .Takaful constructs are good supported by Quranic poetries and Hadith for case,
“ Help one another in fostering virtuousness, righteousness and piousness and make non assist one another in fostering immorality and enmityaˆ¦ ” ( Al Maidah, 5: 2 )
Narrated by Abu Hurarira r.a.h. the Holy Prophet ( S.A.W. ) said: “ Whosoever removes a worldly adversity from a truster ( mu’min ) ‘ , Allah ( S.W.T. ) will take away from him one of his adversities in the afterlife. Whosoever alleviates a destitute individual, Allah ( S.W.T ) will relieve from him both in this universe and the hereafteraˆ¦.. ”
From the Shariah position – a inquiry arises as to how could the Takaful industry today implement such pure constructs of al-Ta’awun and al-Tabarru ‘ if the takaful operators underwrite to choose participants. Underwriting is perceived to be prejudiced particularly to those who are in demand of screen. Besides, subventioning in insurance typically aims to repress underwriting losingss or increases the anticipation of excesss so that stockholders can gain.
The construct of al-Ta’awun is to advance common protection of the members and is a response to what Allah wants Muslims to make on a concerted footing to accomplish the Ummah ‘s involvement. Al-Ta’awun purportedly would do the society stronger and more efficient. A stronger, more economic-efficient and self reliant organisation in bend perchance can assist to take down part rates, create loss bar techniques and promote or heighten greater public credence of Takaful.
However, the aqad requires takaful operators to pull off the hazards providentially and the pure hazard exposures between takaful operators and conventional insurance are similar. Contributions to be charged has to commensurate with the hazard degree expected in the actuarial pricing. Without proper underwriting, Takaful operators may see higher claims, good above that projected on an mean footing. Adverse choice of course consequences in higher than expected claims and increase costs for all members of the takaful pool. Lower hazard persons are discouraged to seek coverage and takaful operators may non be able to vie with the insurance companies.
Among the jural rules of Islamic jurisprudence are: “ Precedence is given to continuing the cosmopolitan involvement over peculiar involvements, ” and “ The general public assistance takes precedence over single public assistance. ” From this footing is derived the rule that “ A private hurt is accepted to debar a general hurt to the populace. ” Similarly, giving private involvement for the intent of accomplishing and protecting the common involvement of the populace is related to the jural rule that “ The lesser of two immoralities shall be chosen. ” We can besides take comfort that in Islam injury and harm has to be avoided. This is based on the legal axiom “ al-darar yuzal ” or harm should be eliminated. Hence, underwriting is opined to be allowable under Shariah.
8.3 The surrogate theoretical account to protect the high hazard group.
Harmonizing to Ezamshah ( 2010 ) , operators do non challenge what most bookmans have adjudicate that sharing of subventioning excess by the operator is non allowable. The distribution of the underwriting excess back to the participants should besides be discouraged so that the takaful fund remains resilient to any hardship or volatility in claim experience. After all, the actuarial pricing would hold assumed that hazard charges will merely be sufficient to pay for these claims at one point of clip. Furthermore, excesss will beef up regulative capital demands under RBC model. The strength in the capital is a pulling factor for the greater public to take part in takaful.
He suggests that a existent common takaful operation providing to the protection and investings demands of the general thickly settled should be in the murdering picturing the just trade name of Shariah. To accomplish that, the excess from the hazard fund could be earmarked or channeled to an Islamic Trust ( waqf ) for a secondary strategy to cover those likely to be categorized as deficient appliers. Coverage can be modified to accommodate the affordability of resources in the ‘substandard pool ‘ . In this manner, the people in existent demand will besides be benefit from the takaful strategy and it will reflect the existent construct of Ta’awun ( mutualness ) and Tabarru ‘ ( contribution ) .
For this Ummah which was ready to confront the catastrophes and bear losingss than to be a party to the haram conventional insurance, takaful has given them hope as a halal, shari’ah compliant and an economically feasible option. No uncertainty, the purpose behind the creative activity and constitution of takaful is to reflect the existent construct of Ta’awun ( mutualness ) and Tabarru ‘ ( contribution ) , which becomes the responsibility of this Ummah, as stated in the Glorious Qur’an.
Unlike the capitalist conventional insurance companies which need to fulfill merely the stakeholders, the takaful companies are accountable to the Almighty and besides to their stakeholders. Hence, there come a batch of limitations in the operations of the takaful companies, for them to be in conformity with Shari’ah.
As with any industry in its nascent phases, the takaful industry excessively has some teething issues to decide. This paper attempted to foreground some of the shari’ah issues which are impacting the takaful industry and in which there are varied difference of sentiment. Hence, it is incumbent on the Ulema and the Fuqaha to turn to these issues comprehensively and to get at a consensus wherever possible to standardise the industry protocol. This will in bend make the takaful industry more resilient and robust in the coevalss to come.
And with Allah entirely lies all Success!