Topic
By “Author”
Sub heading – describing topic
Islamic Life InsuranceThe World of Takaful
By Shivash Bhagaloo
2
South Africa
Contents
• Market Overview
• What is Takaful Insurance?
• How is Takaful Insurance Different?
• Takaful Models
• Regulation
• Challenges
3
South Africa
Market Overview
• Market born in Sudan in 1979
• Global Presence• Largest market in the GCC and South East Asia
• Global contributions of $2-3bn (2006) (60% GI, 40% LA and Pensions)
• Annual growth of 15-20% over the past 3 years
• African Presence• Largest markets in Sudan, Egypt, Tunisia, Algeria, Senegal
• Smaller presence in South Africa, Gambia
• Industry driven • High economic growth
• Increased awareness
• Increase in Sharia compliant financing
4
South Africa
What is Takaful Insurance ?
• Compliant with Sharia principles (Islamic law)
• Literally translated means “ joint guarantee”
• Similar to co-operative or mutual insurance• Policyholders underwrite the risk
• Policyholders own the company
• Allowance for a charitable donation of surplus
• Terminology• General Takaful – general insurance
• Family Takaful – life assurance and pensions
5
South Africa
How is Takaful Insurance Different ?
• Certain aspects of normal insurance conflict with Sharia principles
Maysir
(Gambling)
Gharar
(Risk & Uncertainty)
Riba
(Interest)
Haram
(Forbidden / Unlawful)
insurers make bets on the loss occurrence
and this is deemed to be gambling-
-
-
-
timing and amount of the loss are
uncertain
investments in interest bearing securities
and possible interest on loans
investments in commodities or involvement
in activities that are forbidden (alcohol,
pork etc).
6
South Africa
How is Takaful Insurance Different ?
• Important Practical Implications of
• Uncertainty – No term or endowment assurance products allowed
• Interest – Bond investments not allowed, equity investments permissible since market risk replaces credit risk.
• Haram – Trading in futures is forbidden
7
South Africa
Takaful Models
• Differ in the way funds are shared between policyholders and the Takaful operator
Wakalah (Fee based) Model• Operator acts as an agent, administers funds on behalf of participants • Receives a fee for operating expenses
Mudharabah (Profit share) Model • Operator acts as Mudarib (entrepreneur) with participants as the
capital providers• Losses paid by participants with a pre-agreed profit sharing agreement
Wakalah/Mudharabah (Fee based/Profit share) Hybrid• Wakalah for insurance activities and Mudharabah for investment
profits
8
South Africa
Wakalah ModelManagement
ExpensesPARTICIPANTS
Shariah compliant
Investments
Takaful
Fund
Reserves
Reinsurance/
Retakaful
Claims
Investment Profits
Surplus/(Deficit)
Shareholders’
Fund
Charitable Donation
Qard
HassanUnderwriting Profit
Contribution Wakalah Fee (eg 30%)
100% surplus
9
South Africa
Mudharabah ModelManagement
ExpensesPARTICIPANTS
Shariah compliant
Investments
Takaful
Fund
Reserves
Reinsurance/
Retakaful
Claims
Investment Profits
Surplus/(Deficit)
Shareholders’
Fund
Charitable donation
Qard
Hassan
(interest free loan)
In case of a deficit
in the fund to
be repaid from
surpluses in future
years
Underwriting Profit
Contribution
X% of Surplus 100% - X% of Surplus
10
South Africa
Wakalah / Mudharabah Hybrid
Management
ExpensesPARTICIPANTS
Shariah compliant
Investments
Takaful
Fund
Reserves
Reinsurance/
Retakaful
Claims
Investment Profits
Surplus/(Deficit)
Shareholders’
Fund
Charitable donation
Qard
HassanUnderwriting Profit
Contribution Wakalah Fee (eg 30%)
100% of Surplus
100% - X% of
Investment Profits
X% of Investment Profits
11
South Africa
Regulation
• First set of regulation was 1984 Takaful Act, Malaysia• Mandatory compliance in certain countries (Saudi Arabia,
Sudan)• Regulation is still in its infancy• Takaful compliance is overseen by a Sharia Advisory Board
comprising Sharia scholars• Lack of fiscal involvement• Lack of harmonisation of rules globally
12
South Africa
Challenges
• Not as developed as conventional insurance
• Lack of global awareness
• Shortage of skilled resources in the Takaful market
• Limited Shariah compliant investments
• Lack of harmonised regulation of Takaful industry
13
South Africa
Summary
• Takaful Insurance is based on Sharia principles
• Market is developed in Far East and Middle East but less of a presence in Africa
• Similar to a mutual or co-operative, where policyholders underwrite risk
• Gambling, uncertainty, interest and forbidden activities are removed
• Models differ in the way funds are shared between policyholders and the Takaful operator
• Compliance is overseen by a Sharia Advisory Board
• Still require a harmonised global regulatory framework
Top Related