Post on 04-Apr-2018
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Takaful Islamic Insurance : An
Overview
By :
Abdullah Aboobucker
Manager Corporate Risk Management
Amana Takaful PLC.
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What is Insurance?
How Insurance Operates?
Why insurance is not permitted by Shariah ?
What is Takaful?
How Takaful operates?
Comparison on Takaful Vs Insurance
Takaful Basics
Takaful Worldwide
Question & Answer
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Insurance is a way of
protecting against
financial losses.For a payment
(premium), an insurance
company will take the
responsibility of
compensating financial
losses.
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Rs.1000/-each from
house owner
InsurancePremium
Rs. 100 Million
BalanceBelongs toInsuranceCompany
InsuranceCompany100,000 houses(eg: Rs. 30 Million)
Rs. 70 Million(100-30)
LessClaims Paid for
Losses
InsuranceCompany
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A Significant amount of insurance companys
portfolio is by interest based investments.
In life insurance, the insured, on his death or
maturity of the policy, is entitled to get much more
than he has paid which shall be from the interest
income of the company.
As the Contract is a Commercial Contract, theexcess on one side in the exchange between the
amount of premium and the insured sum.
Insurance is the sale of money for money, of a
greater or lesser amount, with a delay in one of the
payments.
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The insurance contract contains uncertainty due to:
whether a loss will occur or not is not known
the time it will occur is not known the claim amount to be paid is not known
When a claim is not made, the insurancecompany may acquire all the surplus whilst the
participant may not obtain any profit whatsoever.
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The element of gambling exist in
conventional insurance policies, whereinany of the two parties involved may win a
sum of money from the other, but one of
them is destined for total loss depending
on the happening of an uncertain future
event.
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Islamic Insurance is a process of agreement among a group of persons tohandle the injuries resulting from specific risks to which all of them are
vulnerable. A process, thus initiated, involves payment of contributions asdonations, and leads to the establishment of an insurance fund that enjoys thestatus of a legal entity and has independent financial liability. The resources ofthis fund are used to indemnify any participant who encounters injury, subjectto a specific set of rules and a given process of documentation. The fund ismanaged by either a selected group of policyholders, or a joint stock company
that manages the insurance operations and invests the assets of the fund,against a specific fee.
FROM AAOIFI
(Accounting and Auditing organization of Islamic Financial Institutes)
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TakafulContribution
Rs.1000/-each from
house owner
Rs. 100 Million100,000 houses
Balance willbe distributed
as Surplus
Fee for Managing the Fund(eg: 35% of Takaful Contribution)
Takaful Company
Rs. 35 Million
eg: Rs. 40 Million
Rs. 25 Million(65-40)
Rs. 65M
LessClaims Paid forLosses
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How
Takafulis different from
ConventionalInsurance ?
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100,000 houses
Rs.1000/- eachhouse owner
InsurancePremium
Rs. 100 Million
Belongs toInsurance Company
InsuranceCompany
100,000 houses
Rs.1000/- eachhouse owner
TakafulContribution
Rs. 100 Million
Takaful
Company
35Million
65Million
Rs. 100 Million
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Different Claims
ScenariosIncome for
Insurance Company
after paying claims
Income for
Takaful Company
After paying claims
If Claims for the year is
Rs. 50 Million
For the Insurance Company
= 100M
50M= Rs.50 Million
For Takaful Company - Rs.35 Million
Surplus for Participants - Rs.15 Million (65M-50M)
65 M100 M
If Claims for the year is
Rs. 30 Million
For the Insurance Company= 100M 30M= Rs.70 Million
For Takaful Company - Rs.35 Million
Surplus for Participants - Rs.30 Million (65M-30M)
If NO Claims for theyear
For the Insurance Company= 100M 0M= Rs.100 Million
For Takaful Company - Rs.35 Million
Surplus for Participants
Rs.65 Million (65M-0M)
If Claims for the year is
Rs. 40 Million
For the Insurance Company= 100M 40M= Rs.60 Million
For Takaful Company - Rs.35 Million
Surplus for Participants - Rs.25 Million (65M-40M)
35 M
Even though Uncertainty on Claims Amountexist in both
Conventional Insurance & Takaful,it has NO big impact on the revenue of
Takaful
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Who owns theInvestment Returns
of the Insurance
Fund?
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Belongs toInsurance Company
InsurancePremium
InsuranceCompany
TakafulCompany
Investment Profits
Rs. 20 Million
Rs. 20 Million
InvestmentProfits
InvestmentProfits
Investment
Investment
Rs. 100 Million
Rs. 120 Million
45Million
75Million
TakafulCompany
35Million
65Million
TakafulFund
TakafulFund
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Differences on
Technical AspectTakaful
(Risk Pooling)Conventional Insurance
(Risk Trading)Contract
Ownership ofthe Fund
Company Role
Relationshipbetween company &policyholder
Surplus of theFund
A Combination of Donation &Indemnity contract between individualpolicyholder & the fund, representedby the Takaful Operator
A policy in the form of an exchangecontract (Sale & Purchase) betweeninsured & company; the subject matterproviding indemnity by the company
Fund has legal Personality(on Shariah Perspective)
Trustee and Entrepreneur of the fund
Operator / Participant
Will be distributed among theParticipants To Shareholders Account
Insurer / Insured
Owner of the Fund
Shareholders
ConsiderationParticipants make contributions tothe scheme
Policyholders pay premium to theinsurer
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Other
Differences
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In Takaful
Business is based onadl
& ehsan
(Justice & Goodness)
Example, takaful cover not provided forelements harming the society
Cigarettes &Manufactures
Casinos Liquor Shops /Alcohol
Manufactures
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Takaful
Does not Invest on elementsprohibited by SHARIAH
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Takaful World Wide
The first ever Takaful company was established in 1979
The Islamic Insurance Company of Sudan
100+ Takaful Companies in over 20 countries.
Average growth rate higher than conventional insurance
companies.
Non-Muslims increasingly opting for Takaful products.
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Essentials of Takaful
Intention (Niyyah)
Integration of Shariah Conditions
Presence of moral Value and ethics
No element of Prohibition (Haram)
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Basics of Takaful
Donation (Tabarru)
Partnership among the participants
Need of an operator
Management contract between participant and
operator
Investment in shariah compliant modes
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Key Features of Takaful Model
Cooperative risk sharing for protection
Clear segregation between Participant and Operator
Shariah compliant investment strategies
Avoid Interest (Riba) and Element of Gambling(Maysir)
Gharar is forgiven through Contract of Donation
(Tabarru)
Shariah Advisory oversight / Directives (Fatwa)
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Any Questions?
Email: abdullah@takaful.lk
Contact: 077-7383443
mailto:abdullah@takaful.lkmailto:abdullah@takaful.lk7/29/2019 Understanding Takaful
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Thank You