islamic insurance 2016 - all topic - ipad

8/17/2019 Islamic Insurance 2016 - All Topic - iPad

1/235

اسل فكتا

Islamic Insurance (Takaful)

Dr. Kamaru Salam Yusof (2016)Lecturer, FBMS, Unissae!ara Brunei Darussalam


2/235

Faculty of Business & Management Sciences, UNISSA, BruneiDarussalam

Tings to consi!er

1. Arabic term vs english term2. Your role – to understand, lecturer role –

to help you understand. – Don’t hesitate to ask, visit, talk, email,

wasaping etc.. !n time – plssssss "lecture, tutorial,

submit#$. Your class – your home.

%. Attendance – must and record "maybe un&noticed#

'. (witch o) your *on and tablet "e+cept..#. -at and drink – i* need and not disturb

others


3/235


"ur course

• /ecture• 0 can ask• roup mail

• eading material• /ibrary research• 3ui4•

5resentation• test• e+am


4/235


Aims

• 6orrect perspective on 7slamic 8aka*ul

• 8heory and application o*7slamic 8aka*ul

•

Able to utili4e the rules o*taka*ul in line with the (yariah/aw


5/235


contents

• !rigin 9 development o* insurancepractice

• !rigin 9 development o* taka*ulpractice

• overnance principles in taka*ulpolicy.

• :ormalities 9 considerations ininsurance contract – common law 9syariah

• 5ractice o* taka*ul – principles 9


6/235


To#ics to co$er• 7ntroduction to risk management• 7ntroduction to insurance 9 its history.• 7ntroduction to taka*ul 9 its history• elation between taka*ul, banking and other 7slamic

:inancial (ystems

• Di)erent between 7nsurance and taka*ul• Detail discussion on riba, gharar 9 maysir in insurance• !perational :ramework o* 8aka*ul 9 6lassiakalah• ?ow implement both contracts in taka*ul• ?ybrid


7/235


To#ics (cont%)

• ;runei and =alaysia @ which model• e&taka*ul• (hariah 7ssues in 8aka*ul• :AB about taka*ul *rom the (hariah view• egulatory :ramework *or 8aka*ul• Discussion on ;runei Act 9 =alaysia Act

• 8aka*ul@ opportunities 9 challenges• 6ontemporary issues on taka*ul@ *rom

general society


8/235


eferences & te'tooks

% *ssential gui!e to takaful@ Dr-ngku abiah Adawiyah -ngku Ali 9?assan (cott 5. !dierno. 6-8

"6enter *or esearch 9 8raining, C/#

+% Takaful A stu!y -ui!e. asser Yassin, Eamil amly. "7;:7=#. Cuala

/umpur.


9/235


10/235


11/235


1once#t of fate (2 & 2)

• 5rophet saw and ;edouinG why notyou tie the camel – 8ie&up, thenH..

• 7mportant o* making e)orts to reducethe loss.

• 5rophet Eoseph G


12/235


isk in takaful

• !ne way to *ul


13/235


isk%% From 3ere4

• *rom uncertainty inG1.


14/235


ty#e risk

Types Desc Egs.

Pure Possibility loss or

no loss

Fire, flood, death

of breadwinner

etc.

Speculative Possibility of

profit, loss or no

loss

Investment, Stock,

shares, horse

race..

Fundamental RiskEffect economy/

large numbers.

War, famine,

earthquake

Particular Risk Effect individualsnot all

Motor accident


15/235


5o3 to treat te risks4

• 8he strategies to manage threatstypically includeG1. Avoiding – eliminate

2. eduction "mitigate#

. etention "accept and budget#

$. 8rans*erring

%. (haring'. eutralise or hedge the risk


16/235


/at is risk management

..identi


17/235


risk management concept

2 basic part o* human1. uncertaint regarding loss &&J risk K

change o* loss

2. peril cause loss – the*t, accident, sickness, Lood, premature

death, 8! 8A6C/-


18/235


19/235

8opic M 2

7nsurance@ concept,history 9 it’s hukm


20/235


5istory of insurance ()• 8he


21/235


5istory of insurance (+)

• Achaemenian monarchs werethe


22/235


5istory of insurance (6)• 8he ancient Athenian

Qmaritime loanQ advancedmoney *or voyages withrepayment being cancelled i*the ship was lost.

• 8he reeks and omansintroduced the origins o*health and li*e insurance c.

'OO ;6- when they createdguilds called QbenevolentsocietiesQ which cared *or the*amilies o* deceasedmembers, as well as paying*uneral e+penses o*members.

• uilds in the =iddle Agesserved a similar purpose. 8he

8almud deals with severalaspects o* insuring goods.;e*ore insurance wasestablished in the late 1th

century, Q*riendly societiesQe+isted in -ngland, in which


23/235


5istory of insurance (7)• in 12th 6entury, a*ter the

establishment o* (elFuk state inAnatolia, (elFuk (ultan hiyas ad&Din Caykhusraw 7, introduced a*orm o* state insurance whichreimbursing the traders *or theirloss *rom the state treasury, i* theywould be robbed within the (elFukterritory.

• (eparate insurance contracts "i.e.,insurance policies not bundledwith loans or other kinds o*contracts# were invented in enoain the 1$th century, as wereinsurance pools backed by pledgeso* landed estates.

• 8he


24/235


5istory of insurance #ost8enaissance (9)• 7nsurance became *ar more sophisticated and

speciali4ed varieties developed.

• 8he will o* obert ?ayman, written in 1'2S, re*ers to twopolicies he has taken out with a wealthy /ondonerG oneo* li*e insurance and one o* marine insurance.T7n the late

1'SOs, =r. -dward /loyd opened a co)ee house thatbecame a popular haunt o* ship owners, merchants, andships’ captains, and thereby a reliable source o* thelatest shipping news. 7t became the meeting place *orparties wishing to insure cargoes and ships, and those

willing to underwrite such ventures.

• 8oday, /loydNs o* /ondon remains the leading market"note that it is not an insurance company# *or marineand other specialist types o* insurance, but it works

rather di)erently than the more *amiliar kinds o*insurance.


25/235


5istory of insurance #ost8enaissance (:)

• 7nsurance as we know it today can be traced to thereat :ire o* /ondon, which in 1''' devoured 1,2OOhouses. 7n the a*termath o* this disaster, icholas;arbon opened an oPce to insure buildings. 7n 1'SO,he established -nglandNs


26/235


To!ay 5istory of insurance (;)

• 7nsurance as we know it today can be traced to thereat :ire o* /ondon, which in 1''' devoured 1,2OOhouses. 7n the a*termath o* this disaster, icholas;arbon opened an oPce to insure buildings. 7n 1'SO,he established -nglandNs


27/235


28/235

T5* 1"N1*


29/235

/5= INSUAN1* IS

5AAM4(*-TT)


30/235


*lements in insurance

1.riba

2.harar

.maysir


31/235


ia 8 !e>nition

• /iterallyG addition, increase, to growto rise.

• 8echnicallyG the premium that mustbe paid by the borrower to the lenderalong with the principal amount as acondition *or the loan or *or an

e+tension in its maturity


32/235



33/235


1om#aring et3een ?akat & ria(6@6)

ا و أ في و ب ر

م

ب ن ت

م

آ

آمت ه ! ا "#$ % مربو ف & # ! ا

'()ف ! ه ا * ه + "%ر ,- ./ ن

ا 0123و + 4)39(


34/235


ia #ractice! y e3 & its ?ulm(7:@8:)

5- 6! 7 8م $ # ر! 9 : 4ا ا! %; ن ف -


35/235


-eneral ty#es of ria

1. Al&Duyun & increases arising *rom debts"loans#1. iba Bardh G the increase "interest# on the

principal sum o* the loan is agreed upon atthe point o* contract.

2. iba Eahilliyah or iba asiahG the increaselevied on the borrower *or late repayment or*ailure to repay the loan

2. Al&buyu’ – commercial transaction1. iba ;uyuN or iba Al :adl G e+cess which is

taken in e+change o* speci


36/235


1omo!ities of ria3i

1. old

2. (ilver

. Dates$. >heat

%. (alt

'. ;arley


37/235


ia in insurance

2 situation1. amount received by insured

– greater than instalment• *adl

• nasiNah

2. companyNs pro


38/235


39/235


40/235


Ty#e of garar

1. *ahish – substancial prohibited

2. yasir – trivial tolerated


41/235


-arar in 3at a2!4

• harar e)ect on a3d mu’wadhah"changed contracts& bilateral# 9 noton a3d tabarru’ "donation or charity

contracts & unilateral#

= u ’ w a d

h a h 8abarru

’


42/235


-arar in insurance

li*e 9 general

• subFect matter not uncertain untilevent – pay more get nothing

– pay less get more

• shariah & must know all particulars

relating at time o* contract.5olicyholder not in*ormed amount o*compensation


43/235


maysir

de


44/235


45/235


46/235


3or!

• 8echnically, "8aka*ul# *rom theتكاeconomic point o* view means mutualguarantee provided by a group o*

people living in the same societyagainst a de


47/235


Meaning of takaful

1. esponsible

2. uarantee

. taka*ul & Foint guarantee, share

responsiblity

aspects mutuality happen•. ?elp

•. esponsibility•. protection


48/235


conce#t

• system where participantcontribute to common *und andintend to Fointly guarantee eachother.

• when participate

–seek protection – Fointly co&operate


49/235


Dalil of Takaful

5:2}

Cو D ت! ا ر ! 6ا $ } @ 1وا*an" #el+ ou one anot#er in ri!#teousness an" +iet-

As&(unnah A ه #$ Eا Fي بي 4ر% ر, أ ن $: GH ب Cر BIا 34ا"9J فر ? %K4 ن + أر ا ?تت Aا

8#L ب ي ف 38ت D ف.

M%: أ + 2D ف س ه $ Eا N ي 6# ا J او 3> ت Bف

$ Aت8 $ ا 3رأ, M%: 2A ," أ "6$ . ( *# O 8# ر,

P Q6ا Rا(Xarrated by Abu ?urairah "r#, who said thatG once twowomen *rom the tribe o* ?u4ail clashed when one o* them

hit the other with a stone, which killed her and also the*oetus in the victim’s womb. 8he heirs o* the victim

brought an action to the court o* the ?oly 5rophet "s.a.w#,who gave a verdict that the compensation *or the

in*anticide is *reeing o* a male or *emale slave while thecompensation *or killing the woman is the blood money

"diyat#, which to be paid by the WA3ilah’ "the paternalrelatives# o* the accused.


50/235

5istory of takaful


51/235


5istory of takaful

• Ancient Arab tribal custom and thecompanions o* the 5rophet.

• 8he custom o* Xal$aila#, it is mutuallyagreed among the tribes that i* a person iskilled unintentionally by a person o* adi)erent tribe, the accuser’s paternalrelatives will take the responsibility to makea mutual contribution *or the purpose o*

paying the blood money to the victim’srelatives.

• 8his practice o* having a *und that poolscontributions *rom a group o* people to

assist others in need was *urther encouraged


52/235


53/235


Takaful in mo!ern 3orl!

• 8he


54/235

Faculty of Business & Management Sciences, UNISSA, Brunei

Darussalam

*$olution in takaful

• 1UU && taNawuni – (udan

• 1US$ && mudarabah –

malaysia• 1US$ && wakalah – gul*

• 1UU' && wa3* & south a*rica


55/235


Darussalam

Takaful as in!ustry to!ay

• ow practiced by over 'O companiesin 2 countries.

• =ore recently, retaka*ul, the

e3uivalent o* conventionalreinsurance, has been developed,initially in =alaysia.

•

At present, most 8aka*ul operatorsreinsure to conventional reinsurers,and this is considered acceptable solong as there is no practicable

(hari’ah compliant alternative


56/235


Darussalam

Takaful in #resent !ay

spirit1. helping *riend – *east

2. repair house. =oving

$. khayrat *und

•. All are not contradict

•. but not commercial


57/235


Darussalam


58/235


59/235


60/235


Darussalam

TakafulEs gro3ing sare of te -11 insurancein!ustry

• >ith a *ocus on 8aka*ul, (audi Arabiatops the world rankings, holding %Z

o* total global contributions,according to the latest released


61/235


62/235


Darussalam

uling of takaful (+)

taka*ul must base on1. =utuality

2. co&operation

5rinciples

. shared responsibility

$. Foint indemnity

%. common interest

'. solidarity


63/235

1ase stu!y


64/235


Darussalam

Insurance in Brunei

• American 7nternational Assurance"A7A#

• Asia /i*e Assurance (ociety /imited

• reat -astern /i*e Assurance 6o /td

• A\A 7nsurance ";# (dn ;hd

• ;orneo 7nsurance (dn ;hd

• Aiva 7nsurance (dn ;hd


65/235


Darussalam

Takaful in Brunei

• 8A7;

• 8aka*ul 7slam


66/235


67/235

T"


68/235


69/235


Darussalam

#oint !iGerent

• ?as elements o* ]7;ADA?• ?as element o* 8A]A>0 "=utual

6ooperation#•

?as elements o* 8A;A0’ "Aim o*(incere Donation#• o elements o* 7;A’ "7nterest 0sury#• o elements o* =A7(7 "ambling#• o elements o* ?AA "0ncertainty#• (haring o* investment 5ro


70/235


Darussalam

#oint !iGerent +

not buying and selling, but anarrangement a group o*

individuals pay a


71/235


72/235


73/235


Darussalam

3y takaful acce#te!4

1. co&operate on common good

2. pay contribution to assist

. considered donation

$. donation intended to divide losses

%. element uncertanty eliminated &inso*ar made clear

'. not aim deriving advantage *romothers


74/235


Darussalam

insurance 4 ItEs s#irit4

• spirit ok e+cept

D7(60((7!


75/235


Darussalam

Fun!amental !iGer

insurance• it contract• 2 parties• paying premium in return

• guarantee pay compensation in case• probabilistic contract

8aka*ul• taka*ul operator not insurer•

participant insurer each other• operator as administrator

– =anaging – investing


76/235


77/235


78/235

T"


79/235


Darussalam

De>nition of contract A2a!()

• 6ontract comes *rom the Arabic Na3adameans binding or cemented.

• 7n language understanding is the bond,bind. 7t said bond "al&rabath# intention isto gather or collect two ends o* the ropeand tied one on the other.

• 7n the BurNan al&a3du words contained in

the letter o* Al&=aidah paragraph 1, thathumans are asked to meet a3ad.

De>nition of contract A2a!E


80/235


Darussalam

De>nition of contract A2a!(+)

• 8echnically & engagement contract,agreement and consensus "itti*a3#.

• 7n this connection the role 7Fab "statement tothe bond# and 3abul "declaration accepting

the bond# is very inLuential on the obFect.• According to =usta*a A4&_arka a legally

binding contract is per*ormed by two ormore parties who are e3ually eager to attach

itsel*. 8he will o* nature hidden in the heart,there*ore declaring each must disclose in astatement called 7Fab and 3abul.


81/235

1 t t f !


82/235


Darussalam

1ontents of a2a!

De


83/235

Faculty of Business & Management Sciences,UNISSA, Brunei Darussalam

1ontracting #arties


84/235


1ontracting #arties(e'am#les)

T i f


85/235


Darussalam

Ty#e 8 rief

• 7n relation to (haria bankingpractices and in terms o* the

intent and purpose o* thecontract itsel* can beclassi


86/235


Darussalam

Ty#e contracts (!etails)

8hose contracts that are permitted canbe divided into three broad

categories as *ollowsG

1. 8rading 6ontracts.2. 6ontracts o* 5ro


87/235


Darussalam

Tra!ing 1ontracts%

• "A# 6ash (ales – "i# ormal cash sales – "ii# (ar* "*oreign currency e+changes# – "iii# -+changes between ribawi materials o* di)erent kinds and o*

the same basis "gold with money or wheat with palm oil# – "iv# ;ai Al&Dayn "debt trading as in ;ills o* -+change#

• ";# De*erred payment sales "debt


88/235


Darussalam

1ontracts of #artici#ation (e2uity >nancing#ro>t saring)

"i# =usharakah "Foint venture pro


89/235


Darussalam

Su##orting contracts

"i# ahnu "mortgage#"ii# Ca*alah "guarantee#"iii# >akalah "agency#"iv# >adiah "sa*e custody#

"v# Bardh ?asan "benevolent loan#"vi# ?iwalah "trans*er o* debt#"vii# 8abarru’u "donation#"viii# ?ibah "gi*t#"i+# >ak* "endowment#

"+# 7braa’ "rebate#"+i# =u3asah "set&o)#

T f t t


90/235

Faculty of Business & Management Sciences,

UNISSA, Brunei Darussalam

Ty#e of contracts

1ontracts in takaful


91/235


Darussalam


6ompany"operator#

5articipant5articipant

+ ty#e of contracts in


92/235


Darussalam

y#takaful

• Amongst participants

• ;etween participants and

operatorMu!ara

a

/akala

JuEalaia

3a2af

taarru in takaful


93/235


Darussalam

taarru in takaful

• by participants• agree to pay to taka*ul *und

• not speci*y *orm o* donation – hibah

– wa3*

U

TaarruE


94/235


Darussalam

TaarruE

• 8abarru contract is the contract thatis intended to help others and simplyhope pure pleasure and reward *rom

Allah,• Absolutely no element o* seeking the

return, or a motive. 6ontract that

includes this type include rant, 7bra,>akalah, Ca*alah, -ve, ahn andBirad

Mu!araa


95/235


Darussalam

Mu!araa

• =udharabah is a contract where theowner o* capital entrusts his *unds toan entrepreneur who contributes

skills in a business and the pro


96/235


Darussalam

ycon!itions are

1. 6ontract& Absolute and in de


97/235


Darussalam

Te essential elements are necessarycon!itions are (+)

$. 6apital"i# 7n money only

"ii# ot debt

"iii# (peci


98/235


Darussalam

Mu!araa in takaful

• give capital to others & trade it &sharing pro


99/235


Darussalam

Mu!araa in takaful (+)• ;asically, Mu"ara%a# is de


100/235

Mu!araa in takaful (7)


101/235


Darussalam

Mu!araa in takaful (7)

• 7t is the responsibility o* the operator to sa*eguard theinterest o* the participants in order to ensure thebusiness will not be seriously a)ected by the loss thatmight Feopardi4e the credibility and con


102/235


Darussalam

3akala

• agency• participant & actual owner

• operator – agent

• principal & appoint agent – taka*ul aktivities

– 7nvesment

– entitle agency *ee

/akala in takaful


103/235


Darussalam

/akala in takaful

• 8he term aala# in Arabic means agency.• 8here*ore under the structure, an agency relationship is agreed

between two parties to conduct a certain business undertaking.• ;ased on this premise, the model describes an agency agreement

between the operators, acting as the agent or ail- to theparticipant as the principal to manage the participation o* the latter ina variety o* taka*ul products provided by the operator.

• 7n return *or rendering the agency services, the operator is permitted tocharge a *ee under the agreement. 8he *ee is payable *rom the taka*ulcontribution paid by the participant. 7n this sense under the abovemodel, management e+penditure can be charged to the taka*ul *und asup*ront charges.

• ;y this model, the operator earns its revenue *rom the agency *eedescribed in the a*orementioned as well as returns on the investmento* its shareholders` *und. ?owever, there are also operators practisingthe above model who charged per*ormance *ees on its roles andservices o* managing the investment o* the taka*ul *und. 7n the evento* a cancellation or surrender, the participant will be re*unded o* thenet balance o* his contribution, i* any, a*ter deducting all the up*rontcharges such the aala# *ees and other management e+penses *romthe taka*ul *und.

Juala 1ontract


104/235


Darussalam

Juala 1ontract

• Eu’ala is a contract in which one o* theparties "the Eail# o)ers speci


105/235


Darussalam

Ju ala is !istinguise! from Iara on te follo3inggroun!s

"a# Eu’ala is valid despite uncertainty o*work deeming the determination o* there3uired result by the o)eror assuPcient.

"b# Eu’ala does not re3uire acceptance."c# -ntitlement to compensation depends

on completion o* work and delivery o*result.

"d# Eu’ala is valid even i* the other party isnot known."e# As a rule, Eu’ala is terminable, while

lFara is binding.

uKala in takaful


106/235


Darussalam

u ala in takaful

• commitment to pay & reward *orper*ormance o* task

• participants appoint operator to

manage• payment based on actual

per*ormance

3a2f


107/235


Darussalam

3a2f

• relin3uish a right over property *orgeneral enFoyment

• in taka*ul *und only, management still

tru wakalah or mudarabah• participant lose the right over their

contribution

• operator as trustee

/a2f in takaful (!etail L


108/235


Darussalam

)• 8he term af re*erred *or this model e+plains the

contract o* taka*ul that underlines the agreement orconsent o* the participant that the taka*ul contributionpaid in return *or participating in the taka*ul product tobe credited by the operator into the taka*ul *und inaccordance with the principle o* af or endowment.

8o begin with, a wa3* account has to be established bythe operator within the taka*ul *und. 8o this e)ect theoperator is re3uired to relin3uish some kind o* Xseedmoney as af to generate the said af account.

8his af account o* the taka*ul *und will be investedsimilar to the three business models hereinbe*ore.

8he af *und shall work to achieve the *ollowingobFectivesG

• a# 8o e+tend


109/235


Darussalam

+)• All the e+penses related to the underwriting

and operational cost o* taka*ul shall becharged to the af *und. As manager, thetaka*ul operator will per*orm all *unctions

necessary *or the operations o*theaf against a aala *ee to bededucted *rom the contribution paid by theparticipants. As Mu"ari%, the operator willmanage the investment o* the taka*ul *undincluding its af account in S#aria#&compliant investment avenues and willshare its returns on the investment at anagreed ratio similar to the pro


110/235


Darussalam

6)• 7t is important to note the di)erent principles

o* S#aria# are used in the taka*ul contract to e+pressthe consent o* the participants *or their contributionsto be credited into the taka*ul *und *or the purpose o*undertaking the concept o* Foint guarantee asencapsulated in the term taka*ul. 7n contrast to

the af model, the other three models applied theprinciple o* tabarru to the contract.

• 7t is a basic *eature o* the model below thatthe af :und will lay down the rules *or distribution o*its proceeds to the bene


111/235


Darussalam

re$ision

• isk management• 7nsurance – concept, history 9 hukm.

• 8aka*ul – concept 9 history

• Di)erences between taka*ul 9insurance

• !perational *ramework *or taka*ul


112/235

T"


113/235


Darussalam

#rinci#les

• participant benecation


114/235


classi>cation

general *amily

-eneral takaful


115/235


-eneral takaful

• short term• paid credited to *und &&J invested• tabarruN more apparent• all contribution go to common pool• no saving• surplus distributed• 6ategori4e

–

=otor – non motor•


116/235


Family takaful

• long term &&J 1O to O yrs• eg G education, pension, death etc• distribute contribution

– partici account – special account &&J tabarruW

• eceive –

savingdividenspecial account & eventhappen 9 paid until maturity – savingdividen

mo!ern takaful oGere!


117/235


mo!ern takaful oGere!

• -ducational• etirement

• >a3*

• critical illness

• Disability

• accidental death


118/235

Malaysia Analysis


119/235





120/235



underlying• between participant & tabarruN

•

between operator 9 participant

see pic


121/235


122/235

T"


123/235

Insurance system


124/235


Insurance system

• 0nderlying contract – sale 9 purchase – 6ustomerI policy holder buy policy and

paying *or premium.

• 7nsurer provides protection• All the premium, pro


125/235


Takaful system

• 5articipants contribute the donation.• 6ompany only as a agent or manager

• 8aka*ul *und –in principle& pro


126/235


• 8he operation o* taka*ul within the non$ti3ari sector are based on purecooperative model.

• 8he operation o* taka*ul within the ti3arisector can be structured on a number o*business models as shown belowG – i. aala# model

– ii. Mu"ara%a# model

– iii. Mu"ara%a# 4 aala# mo"el also knownas #%ri" model

– iv. af model

<

ure coo#erati$e mo!el


127/235



#


128/235

Tiari Mo!els (+)


129/235


( )

• >hen =alaysia commenced taka*uloperation in accordance with the 8aka*ulAct 1US$, the al$Mu"ara%a# mo"el wasintroduced by the operator, (yarikat

8aka*ul =alaysia (endirian ;erhad.• ;runei too adopted the Mu"ara%a#mo"el when taka*ul was


130/235


( )

• !n the contrary, when (udan launched itstaka*ul operation based onthe ta5auni or cooperative principle, itadopted the aala# mo"el, as seen in

the business Low o* her taka*ul debutant,7slamic 7nsurance 6o. /td o* (udan.• ?owever, with the advent o* taka*ul

business in the late 1UUOs in the ul* and=iddle -ast, the %ri" mo"el began totake shape.

• 6urrently, all newly established taka*uloperators, including in =alaysia, havechosen the %ri" mo"el.

Tiari Mo!els (7)


131/235


( )• !n the other hand, af is a

relatively new model and so *ar nooperator is known to have used it.

• 8he principle o* af as a model *or

taka*ul operation was


132/235

Mu!araa mo!el

Takaful L Mu!araaMo!el


133/235


Mo!el• ;asically, Mu"ara%a# is de


134/235


( )

• 0nder this arrangement, a pro


135/235


• 8he contract will de


136/235


• :or the *amily business it includes themortality surplus to be allocated to theeligible participant as declared by theactuarial valuation at the end o* every


137/235

Mu!araa mo!el (:)


138/235


• 7n the event o* such loss, it is incumbentupon the operator to make good the lossby ar" or loan by the shareholders.

• An important *eature to note is that under

the Mu"ara%a# mo"el, managemente+penditure is not charge on the taka*ul*und instead it is borne by theshareholders` *und.

• evenue o* the latter is its portion *romthe pro


139/235


140/235


141/235

Mu!araa mo!el


142/235



Basic mu!araa mo!el


143/235



Basic mu!araaim#limentation


144/235



im#limentation

Mu!araa mo!el (;)


145/235


• 8here*ore, under the above business model,the participant and the operator enter into acontract o* the Mu"ara%a# *rom inception,*or indemni


146/235


• /i*e insurance is said to be as high aseighty "SO# percent o* ithout these e+penses charged tothe *und, taka*ul operators practisingthe Mu"ara%a# model, as seen in

=alaysia and ;runei, have been ableto share the underwriting pro


147/235

Mu!araa mo!el (@)


148/235


• (imilarly, as there is no up*rontleakage o* the instalmentcontribution to cover management

e+penses or agency cost, aparticipant o* a long&term *amilyproduct would be re*unded all theinstalment meant *or his savingsinclusive o* its returns on investmentshould he chose to cancel orsurrender the participation in the


149/235


• 7n this regard, the uni3ue di)erenceo* taka*ul against the conventionalinsurance is very clear. 8he di)erence

is not only *rom the underlying basiso* contract or aa" that is *oundedon S#aria#, but also *rom thebusiness operation which isadvantageous to the consumers.

Mu!araa mo!el (+)


150/235


• onetheless, some scholars and 7slamic Furisprudents e+pressed concern on thesuitability o* applyingthe Mu"ara%a# contract *or taka*ul

operation. According to them, it is notappropriate to link a contract o* tabarru’between participants to pro


151/235

Takaful 8 /akala Mo!el


152/235


• 8he term aala# in Arabic meansagency.

• 8here*ore under the structure, an agencyrelationship is agreed between two

parties to conduct a certain businessundertaking.

• ;ased on this premise, the modeldescribes an agency agreement between

the operators, acting as the agentor ail- to the participant as theprincipal to manage the participation o*the latter in a variety o* taka*ul products

/akala Mo!el (+)


153/235


• 7n return rendering the agency services,the operator is permitted to charge a *eeunder the agreement. 8he *ee is payable*rom the taka*ul contribution paid by theparticipant.

• 7n this sense under the above model,management e+penditure can be chargedto the taka*ul *und as up*ront charges.

• ;y this model, the operator earns itsrevenue *rom the agency *ee described inthe a *ore mentioned as well as returnson the investment o* its shareholders`*und.

/akala Mo!el (6)


154/235


• ?owever, there are also operatorspracticing the above model who chargedper*ormance *ees on its roles andservices o* managing the investment o*

the taka*ul *und.

• 7n the event o* a cancellation orsurrender, the participant will be

re*unded o* the net balance o* hiscontribution, i* any, a*ter deducting allthe up*ront charges suchthe aala# *ees and other management

Basic 3akala mo!el


155/235


Im#lement te 3akalamo!el


156/235


mo!el

-eneral takaful 3akala


157/235



158/235

Family takaful 3akala


159/235



160/235


161/235

/akala #rolem


162/235


• 5roblem• operator cannot share pro


163/235

5yri! Mo!el

Takaful L 5yri! Mo!el


164/235


• As the term denotes, taaful#%ri" model is a combination o* thetwo principles above.

• 0nder the model, a relationshipbetween the operator whichcombines the role o* entrepreneur or

Mu"ari% as well as the agentor ail o* the participant, whilst thelatter in the capacity as both providero* capital or sa#i%ul$mal and principal

5yri! Mo!el (+)


165/235


• ;y this arrangement on the part o*the operator, an agency *ee can beremunerated as up*ront charges *rom

the taka*ul *und whilst at the sametime will have the right to pro


166/235


• 7n this regard, the Mu"ara%a# contract isapplied on the investment activity only.• 5ro


167/235


• 8here*ore to the operator it has threesources o* incomeG aala# *ee andpro


168/235



169/235


-eneral takaful yri!


170/235


Family takaful yri!


171/235


5yri! Mo!el (9)


172/235


• 8he above model underpins the cooperativerisk sharing taking place among participantswhilst the operator earns a *ee *or theservices provided as agent or ail- o*participant.

• 7n other words the operator derives part o*its revenue *rom up*ront deductible *ee onthe contributions.

•

8hus, unlike the al$Mu"ara%a# model, thismodel enables the operator based on theagency arrangement to charge the taka*ul*und to cover both the managemente+penses as well as the agency cost.

5yri! Mo!el (:)


173/235


• 7n addition, there is pro


174/235


• evertheless, the main concern o*the aala# hybrid model is the un*ul


175/235


• 6ombination• wakalah in underwriting• mudarabah in investment

• operator entitled 2 – agent &&J manager – mudarib &&J investor

• Abu Dhabi ational 8aka*ul• more accepted


176/235

/a2f Mo!el

/a2f mo!el


177/235


Takaful L /a2f Mo!el


178/235


• 8he term af re*erred *or this modele+plains the contract o* taka*ul thatunderlines the agreement or consent o*the participant that the taka*ulcontribution paid in return *orparticipating in the taka*ul product to becredited by the operator into the taka*ul*und in accordance with the principleo* af or endowment.

• 8o begin with, a wa3* account has to beestablished by the operator within thetaka*ul *und.


179/235

/a2f Mo!el (6)


180/235


• 8he af *und shall work to achievethe *ollowing obFectivesG – a# 8o e+tend


181/235


•

All the e+penses related to the underwriting andoperational cost o* taka*ul shall be charged tothe af *und.

• As manager, the taka*ul operator will per*orm all*unctions necessary *or the operations o* theaf against a aala *ee to be deducted *romthe contribution paid by the participants.

• As Mu"ari%, the operator will manage theinvestment o* the taka*ul *und includingits af account in S#aria#&compliant investmentavenues and will share its returns on the

investment at an agreed ratio similar to the pro


182/235


• 7t is important to note the di)erentprinciples o* S#aria# are used in thetaka*ul contract to e+press the consent o*the participants *or their contributions to

be credited into the taka*ul *und *or thepurpose o* undertaking the concept o* Foint guarantee as encapsulated in theterm taka*ul.

• 7n contrast to the af model, the otherthree models applied the principle o*tabarru to the contract.

/a2f Mo!el (:)


183/235


• 7t is a basic *eature o* the model belowthat the af :und will lay down the rules*or distribution o* its proceeds to thebene


184/235


N*/ M"D*C


185/235


• >adiah – 0nder review

• solve problem

– ownership o* the *und – sharing o* surplus

– entitlement to the investment pro


186/235


• intro by 8a3i 0thmani• shareholder o* the operator donate to

the wa3* *und

• *und invested, return to participants• tabarruN *und *rom participants as

part o* wa3*

• wa3* *und *romG – donation shareholder participants

yri! 3akala & 3a2f(+)


187/235


•

lose ownership• monies &&J wa3* & used *or bene


188/235

intro


189/235


• 7etaaful is the 7slamic alternative to thereinsurance industry. 7n the conventionalinsurance industry, an insurancecompany reduces its risk o* paying largeclaims by insuring a portion o* its riskwith another insurance company.

• 8he third party is called a reinsurer, and ithelps the insurance company insituations involving natural disasters,

widespread


190/235


can be traced to the early days o* 7slam when

the 5rophet himsel* instituted what can beregarded as ma5il al$i3tima5 or socialinsurance between the Mu#a3irun andthe 9nsar .

• 8hough the insurance as well as thereinsurance business has undergone a lot o*developments and innovations since the timeo* the 5rophet, it can still be brought into

harmony with the rulings and re3uirements o*the S#ari5a# as e+plained by =uslim

Furists.0nless this harmony is e)ected, theinsurance as well as the reinsurance business

De>nition re8takaful


191/235


• De


192/235


•

7n a nutshell, a taka*ul company pays premiums toa retaka*ul company so the retaka*ul companyassumes a portion o* the taka*ul company’s risks.

• >hy is retaka*ul important 7n reality, a taka*ulcompany can’t bear the whole risk o* covering itsparticipants’ claims. 7* disaster strikes, the taka*ul*und may be depleted 3uickly and becomeinsolvent, in which case everyone theparticipants, the shareholders, and the taka*uloperator loses.

• ;y splitting the risk with a retaka*ul company, the

taka*ul operator is much better able to managethe company through periods o* high claims. 8here*ore, retaka*ul ensures the stability o* taka*ulcompanies and the entire industry

Nee! For etakaful InIslam


193/235


• Eust as the 5rophet recogni4ed the need *or ma5il al$i3tima5 or the system o* Wa3il to protect =uslims againstany *uture loss or damage, so also is there the need toprotect the operators o* this important work o*8aaful *rom part o* the losses and risks that mayaccrue *rom the policies they underwrite. 8his will helpto spread the losses and risks involved inthe 8aaful business as well as lighten the


194/235


•>ho involved – 8aka*ul holder

taka*ul operators retaka*ul operators.

Ty#es


195/235


8reaty• 0nder standing agreement

– usualy annual basis• Accepted by 8! i* *all

within the scope.:acultative• 6ase&by&case basis• optional

Facultati$e


196/235


•

(pecial cases 9 on individual risk basis – :amily – group *amily – =ortgage

•

=ethod – operator present the risk – re&taka*ul study the in*o 9 decide to accept or

not – -+ample

• risk & OZ 8! & OZ 8!• contribution & OZ 8! & OZ 8!• /oss & OZ 8! & OZ 8!


197/235

5o3 retakaful 3orks


198/235


1. etaka*ul operates the same way thattaka*ul does. 8he only di)erence is thatparticipants "policyholders# o* regulartaka*ul products are individuals,

businesses, and other commercialorgani4ations.a# 7n a retaka*ul contract, participants

"policyholders# are various taka*ulcompanies, and the *und operator is theretaka*ul company.

b# !* course, retaka*ul companies need tooperate according to sharia law and mustmake any investments or hedges


199/235

5o3 retakaful 3orks (6)


200/235


$. 8he contributions or premiumscollected by the retaka*ul company*rom the taka*ul operators areinvested based on the wakala,mudaraba, or wakala&mudarabacombined contract, and pro


201/235


• Mu"ara%a# contract is applied to 7e8aaful operationsas an alternative to interest – based securities in whichthe conventional insurance investment their surplus*unds. 8his account in taka*ul is re*erred to as5articipant Account "5A#.

• 7n 8aka*ul, clients are investors and are re*erred to

as 7o%%ulmal while 8aaful operators assume the roleo* entrepreneur and are re*erred to as =udarib. 8heywould invest the pool o* *unds into S#ari5a# compliantinvestments and speci


202/235


*ellow participants who su)er *rom a de


203/235


1. /ike the rest o* the 7slamic


204/235


. 6urrently, more than two do4endedicated retaka*ul operators are inoperation, as well as si+ retaka*ulwindows. 8he


205/235

tale com#arison


206/235


(ee page no %1

SariEa ulings An!e2uirements


207/235


•

7n view o* the above and the need o*the 7etaaful business in 7slam, it isproposed that the same S#ari5a# rulings andre3uirements governing the 8aaful businessin 7slam should also govern the 7etaaful

business.• ;oth the 8aaful business and the 7etaaful

business in 7slam are in the same businessoperation, they are both concerned with themanagement o* risks with one insuring

against risk and the other reinsuring againstit. 7n line with the resolution o* =uslim

Furists, 7etaaful business should there*orebe based on the principle o* mutuality andcooperation.

• 6ontrary to the conventional contract,the 7slamic contract o* mutual


208/235


cooperation will be *ounded on sharedresponsibility, charity and indemnity.7slam supports the insurance or 8aafulcompanies coming together to cooperate

among themselves *or the Foint sharing o*losses and risks.• 7n con*ormity with the contract o* mutual

cooperation, the 8aaful companies will

help one another with a de


209/235


7t will be used to assist any o* 8aaful companies that

re3uires compensation against loss without obtainingany bene


210/235


that accrue *rom the 7e$8aaful businessinvestments will be shared. 6ertain portion o* thepro


211/235


• ot allowed i* re&insured truconventional

• -+cept transitional. why –

la dharar wala dhirar – 0sing tabarruW agreement

– -ndorsed by :atwas

D% /aaEs $ie3 on re8takaful


212/235


•

permissible with conditionsG – minimum possible – to the need only

– not collect pro


213/235


' conditions be*ore re&insuranceG

1. retaka*ul


214/235


• darurah principle – limited.5resent days

• re&insured is e+empted

• X..harm is measured by theirdegree..

1allenges in re8takaful

•


215/235


•

/imited capacity – :und• 6ompetition

– to stay shariah compliance

• ating – *ew got A&rating

• /ack o* e+pertise – management, underwriting, accounting and

marketing –

need educational tools 9 training• 8ransparency in reports

– accounting methods, management, governance


216/235


217/235

Discussion on saria$ie3

1. 5aper M 1G Critikan taka*ul

2. 5aper M 2G (hariah issues

Issues

1 7ssue M 1 & 8abarru’ and mu’awadhah


218/235


1. 7ssue M 1 & 8abarru and mu awadhah

2. 7ssue M 2 & 8abarru’ and ilti4am bi al&tabarru’

. 7ssue M & 6ombination between more thanone a3ad.

$. 7ssue M $ & 8he validity o* hibah%. 7ssue M % – nomination

'. 7ssue M ' – surplus distribution

. 7ssue M – the tabarru’ concept

S. 7ssue M S – =ortgage ate 8erm 8aka*ul

U. 7ssue M 1O – standardi4ation or deversi


219/235


1. bilateral or unilateral• donation &&J unilateral

• claim by donor &&J bilateral

• bilateral &&J attract riba, gharar 9maysir

2. 7* tabarru’ are uni, sodemand by operator &&Jbilateral

Ouestions & ans3ers


220/235


1. B& 8aka*ul is a3d muNawadah "bilateral# –contain riba, maysir etc. – AnswerG

• Adopted *rom ma4hab =alik ilti4am bi ttabarruW• uniteral *rom both side

2. B& promise Wwa’d’ not a contract so whyclaim may arise – AnswerG

• =aliki & unilteral promise is binding•

-nglish law – i* a promise is made under a deed,it will be binding.• 1$OU & 7slamic :i3h Academy

Ouestions & ans3ers (+)


221/235


.B & gharar still persist –e+tend o* gharar – how

• gharar yasir – tolerable

• taka*ul are uniteral – so nogharar.

• uncertanties are tolerable in

gratuitous contract

Ouestions & ans3ers (6)


222/235


$. B & underwriting surplus & takedonation back or allow to share aspro


223/235

T"


224/235


•

/ocal – special legislation

• malaysia 9 bahrain

– no special• no special treatment

• no hurdles – 0C

•

7:(; standard• 6ore principles o* 7A7(

risk face! y takaful

•


225/235


•

asymmetric in*o• shariah risk

• solvency risk

• market risk

Issues% Un!er3riting


226/235


• A7D( su)erers• partner vs spouse

• diyat *or women

• not based on 7slamic criminal law

• have to underwriting everythings

Issues consumer#erce#tion

•


227/235


want similar to conventional services• due to religious or service 3uality• ade3uate e+plaination•

plan really needed• reasonable premium• ePciency in processing 9 paying

investment managementcorporate social responsibilities

callenges


228/235


:rom the article

5o3 to im#ro$e4 (ISA)


229/235


1. =ore regional 9 global investment&linked taka*ul *und .

2. Diversi*y investment o* taka*ul *und

outside the country.. 7nvest mainly in sukuk


230/235

*ISI"N

*ISI"N


231/235


1. >hat is the relation betweeninsurance, banking, capital market 9monetary system

2. >hat is the key area that need toimprove intensively in taka*ulmarket 5ls e+plain how that areae)ect the taka*ul.

*ISI"N +

•


232/235


>hy the people need insurance• ?ow the people manage their risk

• >hich type o* risk are insureable

>hy• >hy the insurance is haram

• ?ow you can proo* the maisir is e+ist

in insurance

*ISI"N 6

•


233/235


8he taka*ul are same with theinsurance in term o* pay and claim.6an you counter that accusation?ow

• >hy the taka*ul come later thaninsurance

• 8he reason why the people acceptthe taka*ul system.

*ISI"N 7


234/235


1. Di)erences between 6onventional7nsurance 9 7slamic taka*ul & princess2. 8he history o* taka*ul@ origin, past 9

contemporary & elle. Application o* modern taka*ul@ the

mudarabah model & so*yuddin$. Application o* modern taka*ul@ the

wakalah model & i44udin%. Application o* modern taka*ul@ the hybrid

model & isma

*ISI"N 9Takaful et3een myts & facts


235/235

1. 8aka*ul 9 3ada’ 9 3adar2. :orm o* gambling

. -lements o* uncertainty

$. (till involves the buying 9 selling

islamic insurance 2016 - all topic - ipad

Documents