TAKAFUL Team 3
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Transcript of TAKAFUL Team 3
TAKAFULWhat is Takaful
And how does it differ from conventional insurance
By Team 3
Team 3 : Takaful 2
Content
Takaful’s Standing in the World What is Takaful and Why does it exist? Takaful Models How Takaful differs from Conventional
Insurance? Summary Q & A
Team 3 : Takaful 3
Resource: Global Takaful Insight 2014, Ernst & Young Ltd.
Takaful’s Standing in the World
2010 2011 2012 2013 2014f 2015f 2016f0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
8,4269,645
10,77512,268
14,02916,108
18,561
Global Takaful Contributions Forecast 2010 - 2016
Contribution ($ Million)
Year
Note: “ f ” means forecast
Team 3 : Takaful 4
Foreign mergers and acquisitions in Malaysia (in 2013)
• Khazanah Nasional Ltd. (Malaysia) & Sun Life Financial Ltd. (Canada)
• American International Assurance Ltd. (USA)
Regulatory improvements in Islamic countries
• Malaysia• Indonesia • Turkey• Oman
Takaful’s Standing in the World
• Saudi• Bahrain• UAE (United Arab Emirates)
Team 3 : Takaful 5
Development of sukuk (Islamic bond) tax framework (Hong Kong)
Sharia-compliant platform launched in Cobalt Ltd. (London)
Takaful’s Standing in the World
Team 3 : Takaful 6
What is Takaful? Concept derived from the Arabic word “Kafala” Embraces the element of mutual protection
and shared responsibility Takaful is a joint guarantee A group of participants agree to mutually
guarantee each other against a defined loss
ContributionsTabarru (donations)
Provide mutual indemnityParticipants
Takaful Fund Takaful Operator
Team 3 : Takaful 7
Why Takaful Exists?Quran
The Holy Book
SunnahThe way of
life
TakafulInsurance System
Prohibits:• Gharar (Uncertainty)• Maysir (Gambling)• Riba (Interest, Usury)
ShariaIslamic
Religion Law
Team 3 : Takaful 8
Gharar, Maysir and Riba
Gharar(Uncertainty)• Uncertainty regarding
transparency of transactions
• The amount to be paid is uncertain
• The occurance of the insured event is unknown
Maysir(Gambling)• Speculative risk – Insurer
Profit: claims < premiumsLoss: claims > premiums
Riba(Interest, Usury)• Sharia Law prohibits
interest-based debt financing such as bonds and stocks
Tabaru (Donations)•Gharar is difficult to be
avoided•But can be forgiven on
the grounds of cooperation and tabaru
Risk Sharing•Speculative risk can be
eliminated•Risk transferred and
shared by participants
Sharia-compliant Assets•Sukuk (Islamic bond)
9Team 3 : Takaful
Takaful Models
Pure Wakalah
Pure Mudarabah
10
Pure Wakalah
PTC1 S/Hs2
Takaful Fund
Claims Expenses(not mgt. exp.)
Mgt. Expenses
Reserves
Investment Return
Contribution
Agent FeeSurplus S/HsSurplus
Qard (Interest-free loan)
to cover the deficit
S/Hs Fund
Team 3 : Takaful
Note: 1. “PTC” is the abbreviation for participant 2. “S/Hs” means shareholders
11
Takaful Fund
Claims Expenses(not mgt. exp.)
Mgt. Expenses
Reserves
X%
1-X%
ContributionY% 1-Y%Surplus S/Hs
Surplus
Qard (Interest-free loan)
to cover the deficit
Investment Return S/Hs Fund
Pure Mudarabah
Team 3 : Takaful
PTC1 S/Hs2
Note: 1. “PTC” is the abbreviation for participant 2. “S/Hs” means shareholders
Team 3 : Takaful 12
How Takaful differs from Conventional Insurance?
Differences
Risk
Principle
Investment
Retakaful
Surplus
Deficit
Team 3 : Takaful 13
DifferencesTakaful Conventional
Risk Share with participants Transfer to insurer
Principle
Mutual Assistance for Participants
Transparency Sharia board in Management
team (sharia-compliant)• No interest/ uncertainty/ gambling• Avoid prohibitive dealings
Maximize Profit for Shareholders
Investment Non Interest-bearing
• Property, Islamic Banks, sharia-compliant stocks
Interest-bearing securities and equities
Team 3 : Takaful 14
Takaful Conventional
Retakaful(reinsurance
)
Takaful fund
Sharia-compliant
Company
Not Sharia-compliant
Surplus
Takaful fund: sharing among participants
Investment profits: • Participants (Wakalah)• Participants and shareholders
(Mudarabah)
Shareholders
Deficit Qard (Interest-free loan) from
shareholders’ fund Company cover the
risks
Differences
Team 3 : Takaful 15
Summary Takaful promotes the spirit of mutual assistance and
tabarru (donation) between its participants guided by the sharia law.
Element of Gharar (Uncertainty), Maysir (Gambling) and Riba (Interest).
Takaful ≈ quasi-mutual insurance but fixes a service entity (the Takaful Operator) at its helm.
ModelWakalah Principal–
Service Agent
Mudarabah Profit sharing
16
SummaryAsset Investment
Strategy
= Takaful
Commitment
Team 3 : Takaful
Social Responsible Investing
Thank you! Any Questions?
Team 3 : Takaful 18
References
EYhttp://www.ey.com/Publication/vwLUAssets/EY_Global_Takaful_Insights_2014/$FILE/EY-global-takaful-insights-2014.pdf Research and Markethttp://www.researchandmarkets.com/research/bgm67s/market King Abdulaziz Universityhttp://www.kau.edu.sa/Files/320/Researches/54999_25350.pdf Institute of Islamic Banking and Insurance
http://www.islamic-banking.com/takaful_insurance.aspx International Cooperative and Mutual Insurance Federation
http://www.takaful.coop/index.php?option=com_content&view=article&id=7%3Awhy-is-conventional-insurance-not-permissible-in-islam&catid=44%3Afaq&Itemid=113