Different Models

Different Models of Takaful In the Global Sound Market

Dr. Mohd. Ma’sum Billah∗

Preview A Shari’ah alternative to the concept of insurance is the doctrine of al-takaful. The word al-takaful is derived from a verb Kafala, which means to help or to take care of one’s needs. Takaful is operated based on shared responsibility, brotherhood, solidarity and mutual cooperation or assistance, which provides for mutual financial security and assistance to safeguard participants against a defined risk. Takaful operation should be within the Shari’ah spirit, and there may not be any justification to involve herewith any element, which is against the Shari’ah principles. Allah (s.w.t) says to the effect: “…And co-operate ye one another in righteousness and piety, and do not co-operate in sin and rancour…” (al- Qur’an :5:2)

“…Allah s.w.t permitted trade and transaction while prohibited in involving usury…” (al-Qur’an 2:275)

The basic notion of takaful is to bring equity to all parties involved, while the profit earning is not the prime objective, but is to help others, who face risks and sharing misfortunes.

In takaful, there are four parties involved namely: participant, operator, insured and beneficiary. The contribution or premium made by the participant is put into two accounts. One of them is investment account that follows the principles of ‘al-Mudharabah’ (profit and loss sharing). The other account is treated as charity or donation according to the principles of ‘al-Tabarru’. There are three operational models of takaful so far exist in today’s global economy. These three different operational models are: Tijari in Malaysia, Ta’awuni in Sudan and Wakalah in Bahrain. All these models will hence, be highlighted separately later in this work.

Shari’ah Ruling on Takaful

Takaful doesn’t protect, but ensures, if there is any loss or damage in the future for example on the property insured, to provide a financial security. Its operation is

∗ Consultant, International Cooperative and Mutual Insurance Federation (ICMIF), London. Assoc. Professor of Law, Dept. of Business Administration, International Islamic University Malaysia. Advisor and Consultant to Several Companies & Institutions both Internationally and Locally in different parts of the world on Insurance, Banking, Finance, Business, & E-Commerce regulations. Also the author of www.islamic-insurance.com. [e-mail: [email protected]]

© Mohd. Ma’sum Billah 1

based on shared responsibility, mutual cooperation, brotherhood and solidarity, which make it more significant as compared to the conventional insurance. Takaful policyholders would co-operate among themselves for their common goal of mutual security against risk. The payment of premium made by policyholder is to assist those of them who need financial security and it is regarded as a donation contract. Takaful transaction is free from element of uncertainty, unjust enrichment, riba that will invalidate a takaful contract. The Holy Prophet (p.b.u.h) said to the effect:

“Reported by Said Ibn al-Musayyib r.a verily the Holy Prophet S.A.W forbade from an

uncertain transaction.” (Muwatta Imam Malik) It also doesn’t aim to take advantage at the cost of other individuals. In its all aspects of operation it shall abide by the absolute Shari’ah principles. Therefore, takaful falls under a condition, which makes it permissible in the Islamic transaction.

“…Muslims are bound by their conditions except the condition which prohibits the lawful one or the one which permits the unlawful one…” (al- Tirmizi)

General Structure of Takaful Company

Basically, the chart of organizational structure of takaful company (refer to appendix) is the basic idea of how they manage the company. And it is applied in Malaysia, Bahrain, and Saudi Arabia. General manager is the top managers of takaful company and it have four department to control under his supervisory, where each of the department have a specific area of jobs to do. General Manager Generally in takaful company, general manager have a duty to control four department i.e. Family Takaful, General Takaful, Finance & Administration, and marketing department. He have a big responsibility to implement overall organizational plans, and to achieve organizational goals. He also has full authority to make a decision for all departments under his supervisory. Life Takaful Division Family takaful schemes have been grouped into two classes i.e. individual takaful and group takaful. In individual takaful, the participant has a policy to protect herself for security against defined risk. A legal operator will manage the premium paid by the participants. The operator has responsibilities to gain collective rights over contributions and benefits. All these activity will be treated based on the principles of al-Mudharabah, i.e. profit & loss sharing in PA account, while in PSA account, it will be treated in the line with the principles of al-Tabarru’ (charity). For example, in Syarikat Takaful Malaysia Berhad it provides many products for individual plans. There are Family Takaful Plan, Family Takaful Plan for Education, Takaful Rawat, Takaful Mortgage, Takaful


Keyman, Takaful Ma’asyi, Takaful Siswa, Takaful Waqaf, Takaful Dana Pekerja, Takaful Ziarah, and Takaful Hawa. While in group takaful, participants will have the policy for a group i.e. his own self and also his family as a protection for them from any defined risk. And same as individual takaful, a legal operator will manage the fund. As an example in group plans in Syarikat Takaful Malaysia Berhad, it provides Group Family Takaful Plan (credit), and Group Medical Takaful Plan. General Takaful Division In this division, all operations are managed by functions and it has been grouped into three i.e. underwriting, claim, and re-takaful. The underwriter have a responsibility to arrange the terms and conditions of the cover and its price, at levels which reflect the degree of risk which the case brings to the General Takaful Fund by way of potential frequency and potential security and loss. The takaful underwriter must also ensure that the one who proposes has the capacity to contract and is in compliance with Shariàh Law. The various underwriting plans have been grouped into several main classes i.e. fire takaful scheme such as basic fire and business interruption, motor takaful scheme such as private motor car and motor cycle, miscellaneous or accident takaful scheme such as personal accident and personal accident for pilgrims, and engineering takaful scheme such as machinery breakdown and erection all risks. Meanwhile, for claiming the policy it has been divided into two parts i.e. motor and non-motor.

Finance and Administration Finance and administration is very important for any company, so as to be able to manage business successfully. For that reason, Takaful Company is having these two departments to make management easily controllable, and to trace out the problems quickly.

Finance

Finance department itself is divided into two parts i.e. investment and account. Under the account division, the first one is shareholder fund where all the premiums paid by participants will be collected and managed by a legal operator for a legitimate consideration for the services given.

Secondly, the Family Takaful fund, which is collected through the contribution made by the participants is put into two accounts; Participant’s account (PA), where the fund is invested according to the principles of al-Mudharabah (profit & loss sharing), and Participants’ Special account (PSA), which is treated as charity according to the principles of al-Tabarru`.

Lastly, the General Takaful Fund, which is treated on the basis of al-Tabarru` in PSA account. For example, A has a Family Takaful policy for individual and


nominates X as nominee. If he is still alive upon the maturity of his policy, he has right to claim from the operator the total amount of paid contribution together with a share of the profits made over the contribution. In addition, he will also get a bonus and dividend according to the company’s policy. But, if A dies before the maturity of the certificate, the trustee / nominee shall have the right to claim the total paid contribution and share of the profit made, bonus and dividend which he will get based on the company’s policy and also donation from the company’s al-tabarru` fund. Then, nominee (X) will give all that money to A’s legal heirs.

Furthermore, the other parts in finance division, which is investment, is responsible to invest all the contribution paid by participants to gain profits. And all these profits will be distributed to participants and also operators based on the principle of al-Mudharabah. But, if it incurs loss only participants will bare the losses.

Administration

It is the center part for a company where all matters about employees, business transactions, and other matters about takaful company must be reported and recorded. Administration department is also known as Human Resources department whereby it has been classified into three specific areas; branch operation, general administration and personnel and training.

Branch operation emphasizes any matter or problems of takaful company’s branch / outlet. All managers at every outlet must refer to Head Quarter for any problems arises especially management problems, or before made any changes or decision. General administration acts as main management office where all information, problems, and any matters about business are discussed and kept. For example, information about participants personal detail, and etc.

Takaful company needs a good trust (amanah), and well-trained people as operators who will manage the entire funds paid by participants. Therefore, Takaful Company has a special division, which gives training and takes care of employees’ welfare, and this division is called Personnel and Training Division. For example, they will provide special trainings for a new operator to make all works effective and efficient.

Marketing Takaful company needs a marketing department to plan and promote all the products and services provided by them. To make it more effective and efficient, Marketing Department is divided into two areas of jobs i.e. using an agency to help them promoting their product, and also corporate especially for a company. Nowadays, marketing department of takaful company has moved one step forward to promote takaful company and its product through Internet. It is the fastest way to spread information about takaful company. For example, Syarikat Takaful Malaysia Berhad have their own website; www.takaful-malaysia.com.my where all information about the company and all products provided by the company is given. As society is not so exposed about


http://www.takaful-malaysia.com.my/

Islamic insurance or takaful, where all the transactions are based on the Shari’ah law. So, I think this is the best way to give them information and at the same time attract more people to contribute in takaful company and for Islamic cause. DIFFERENT MODELS OF TAKAFUL PRACTICES IN THE GLOBE Ta’awuni Model (Co-operative Insurance) The concept of ta’awuni was originated in Sudan and Saudi Arabia. It was first established in 1979 when the scholars realized that there is need for cooperation in insurance. Thus, came the idea that members should donor or give their contribution to the fund. Both the operators and contributors should acknowledge their rights and responsibilities to the fund. The profit surplus will be distributed entirely to the participant.

They are practicing the concept of pure Mudharabah in their daily transaction where it encourages Islamic values such as brotherhood, unity, solidarity and mutual co-operation. In pure Mudharabah concept, both the Takaful company and the participant will only share the direct investment income, in which the participant is entitled to a 100% of the surplus with no deduction made prior to the distribution. This model is applicable to life family Takaful as the fund is entirely distributed to the participants.

Let’s consider the following example to illustrate how the Islamic concept of brotherhood, solidarity and mutual co-operation in pure Mudharabah concept is applied. A (a party) lends his money to B (operator) and B manages the fund sincerely with no intention for profit making or benefit.

The participant is also regarded as policyholder and thus, they have power of control and management. Islam always promotes us to help one another as long as it does not violate the rulings of Shariàh. “….And co-operate ye one another in righteousness and piety….” (5:3) It is very important to acknowledge that the contribution paid is actually based on the principles of Tabarru`. A tabarru` concept is rather a one-way transaction in which once the contribution is made, the contributor has no right to take any benefits out of it. The fund is used for any participant who faces difficulties within the time period as agreed on insurance policy. When the participant contributes to the fund, he is indirectly applying the golden principle of ‘bear ye one another’s burden’.

However, not all companies including insurance companies in Sudan itself comply with the recommendation to accept ta’awun as a basis for Islamic insurance. The constraint is due to poor fund for the initial capital, as nowadays no body wants to invest something for free. When they contribute their money, they are actually expecting something for return i.e. financial reward or profit sharing.


There is an argument regarding the true nature of ta’awun. Is it really co-operative in nature. Insurers/Takaful operators are often described as “custodian or treasurer of the common fund”. Unfortunately, the practitioners believe that the above notion is rather inaccurate with what has been practiced by most of the insurance companies today. With the exception of the mutual insurance companies, most of them are more treasurers, as they believe that they are the owners of the fund. The facts that the any deficit will be made up by other than the insured themselves indicate that really it is a cooperative effort involving the insured only. Thus, it can be concluded that the conventional insurance is only factual in concept rather than the practice.

Dr. Qardawi in one of his book mentioned that none of those who buy insurance are conscious that the premium is for mutual help. Quote:

‘As far as insurance companies-especially life insurance are concerned, they do not satisfy these condition in any respect because:

“The insured individuals do not pay the premium as donations; such a thought never occurs to them…” (The Lawful and The Prohibited in Islam (English translation) p. 275

Besides, Afzalur Rahman in his book, Economic Doctrine of Islam (Vol. 4 p. 224) has described that it is incorrect to imply that the principles of ‘mutuality’ in all insurances. He asks:

“ How can all forms of insurance be mutual when this mutual character is actually unknown to the insurer and insured? What is the value of an economic interdependence between all the insured and between the insured and the insurer, of which neither of them is aware?”

Such question urges us to think more critically regarding the issue of true mutual co-operation. Each contributor in ta’awun practice will share the profit, liability, indemnity and surplus and parties in the same group will receive equal benefit and advantages. For instance, A is member of Takaful fund. Unintentionally, he met with an accident and claimed for indemnity to repair his car that cost him RM1000. So, in this case, he will entitle to receive his compensation and inculcate the profit sharing at the end of the year. The existence of the Takaful company is just to help and assist the participants in reducing the losses due the unexpected misfortune, disaster and all sorts of troubles. The chart below shows the accounting flow in ta’awuni concept General Takaful :

Contribution 100%


20% Surplus

80% Allocation

Underwriting Surplus Claim Reserve Re-takaful After the deduction of the Unearned Premium allocation, the participant Management Cost will get the entire surplus. Technical Reserve . Life Takaful : 50% PSA 50% PA

Contribution 100%

Expenses Underwriting Surplus Unearned premium Investment Claim reserve Incurred but not received Re-Takaful Capital 50 + Profits 30 =80 40 40 Will be given to the Participants, who didn’t make any claim. Expenses on:

Staff cost Establishment expenses Administration General Expenses

Balance 10 (-) Zakat ---------------------------


Net profits for the shareholders

Ta’awuni model produces no issue pertaining the Participant Account (PA) and Participant Special Account (PSA), because the proportion is equally divided i.e. 50:50. The fund in PA will be used for long-term investment and profit gained from the investment will be shared within the family member. Meanwhile, in PSA, the fund is viewed as donation or sadaqah with intention to help the needy and the suffering people. Let’s examine the chart discussed previously. The premium paid by the participant is RM200; will be divided into two, PSA and PA respectively.

For PSA, the RM100 collected will be deducted to the expenses i.e. unearned premium, claim reserve, incurred but not receive (IBNR) and re-Takaful cost. On the other hand, for PA, the amount of RM100 will be used for the underwriting surplus. Underwriting is best described as the selection of the profitable insured. The role of underwriter is to decide whether to accept or reject the application for insurance. This is important in order to maintain a safe and profitable distribution of business for the company. The money will be invested in the project in conformity with Syariah and the gained will be distributed between the participant and the Takaful operator in equal ratio i.e. 50:50. The RM40 in participant’s part, the money is reserved to those participants who did not make any claim during the period of confinement. While for the operator’s part, the RM40 will be subtracted for management expenses for example staff cost, maintenance, establishment expenses and administration general expenses. The remaining will then be subtracted to Zakat family fund. At the end, the balance is actually the net profit for the operator or the shareholder. Wakalah Model (Agency) Al- Wakalah is a contract of agency. According to this principle, a person (A) will delegates his right or business to other people (B) to act as his representative. B is known as the agent or Wakil. The agent is responsible to contribute his/her knowledge, skills and ability in performing the task assigned to them because both A and B have a contractual relationship. In Takaful operation, a Takaful company as the insurer/operator has the right to employ the agent either on a full-time or part-time basis. The agent is presenting his/her company in which these selected people have to promote and develop the products offered by their company as they are bound to the contract of al-Wakalah. The Takaful operation is still new to the market compared to the conventional insurance companies. Thus, strategies must be taken into consideration in order to increase the awareness of its existence, as an alternative and substitutes to the existing conventional insurance system. Therefore, it is under the agent’s responsibility to identify the potential participant and disseminate information regarding the concept and policy practiced in Takaful business. They need to


explain thoroughly to these people so they will get comprehensive understanding and lead to no misconceptions. Furthermore, the agent is obliged to convince people of its advantages compared to the conventional in order to gain competitive advantage and good credibility. This can also be a proof that Islam has always provides a comprehensive ways of life.

“ This day have I perfected your religion for you, completed My favor upon you, and have chosen for you Islam as your religion” (5:3)

An agent may also assist the Takaful company by collecting the fund. Since they are representing their company, it is very important for them to produce good image and build strong relationship in effort to maintain good credibility and integrity of Takaful business. In modern days, there are increasing number of companies have embarked on implementing the concept of Al Wakalah in their Takaful operation. Most of the companies are operating in Bahrain and Saudi Arabia for example the Bahrain Islamic Insurance Co., Sharikat Takaful Al-Islamiyah, Global Islamic Insurance Co. and Takaful Islamic Insurance Co. Bahrain. If we compare the modes of payment applied between both the Islamic and conventional insurance, we can see that they are basically different in several ways. In conventional insurance system, the agent will receive their commission by deducting some percentage contributed by the participants. For instance, Mr. X is appointed as an agent by one of the insurance company. In the agreement, it has been confined that Mr. X would get his commission of 20% from each participant. Let say the contribution paid for each participant is RM300, thus, he will receive a commission of RM60 per participant. However, Islamic insurance system believes that the above transaction is rather unfair. An agent is representing and working for the company. Therefore, they should be treated as an employee and the Takaful operator as the employer, who is obliged to pay sum amount of money in terms of salary to the appointed agent.

‘B’ Agent

(Wakil)

‘C’

Participant

‘A’ Takaful

Operator

The above diagram explains how the al-Wakalah model is applied in Takaful fund i.e. General Takaful and Family Takaful. For example, A is the Takaful operator, B works as an agent or Wakil represents A and C as participants or policyholders of the Takaful business. Take note that C is obliged to pay his contribution (premium) to A. However, C could give his contribution to B as B has been authorized to collect the contributions not only from C as well as other participants. The contribution collected will then be pooled into the Takaful fund.


The fund will be managed by A based on the principles of Mudharabah and tabarru`. Thus, it can be concluded that all participants are actual owner of the fund. The General Takaful Fund Before A wants to start managing the fund, A will first deduct some amount out of the PSA account on a basis of tabarru` for management and services expenses. The remaining balance will be deducted to allocate costs i.e. unearned contributions, claim reserved, technical reserved, re-Takaful cost and Incurred But Not Reported (IBNR). The balance is called underwriting surplus. This surplus will be used for investment that is not violating the rulings of Shari’ah. Profits obtained will be distributed between the shareholder and participants who have not made any claim during the time policy time period. Normally it will be allocated equally 50: 50. Example of Calculation Premium Paid RM 200 (-) Management costs RM 100 RM 100 (-) Allocation Costs RM 50 Underwriting Surplus RM 50 Profit from investment Are divided into 2: 50% 50% (Shareholders) Participants (Who do not claim yet)

The Life / Family Takaful Two types of accounts involve in this fund, which are the Participant’s Account (PA) and Participant’s Special Account (PSA). It is upon the operator, A, to manage both accounts according to the principles of al-Mudharabah and Tabarru` respectively. The fund pooled from the contributors will then be deducted to the management costs. Balance from this amount is separated into PA and PSA. For PA, when no claim is made by B, then he/she is entitled to get an accumulated contribution paid together with profits. However, for PSA, participants are not entitled to get the benefits as it is for allocation costs i.e. IBNR, unearned premium and etc.


Example of Calculation Contribution Paid RM 200 (-) Management costs RM 100 RM 60 PA account - 95% (if no claim yet, accumulated contribution + Profit) PSA account - 5% (for allocation costs)

Tijari Model (Business / Commercial) The practice of Takaful operation in Malaysia is actually based on Malaysian Tijari Model. This model is divided into two different parts. Where one is general Takaful and the other is life or family Takaful. For the time being, two concepts have been applied. The first one is known as the pure Mudharabah and another is the modified Mudharabah. The pure Mudharabah approach is applied when the Takaful and the participant is entitle to a hundred percent of the surplus. No deduction is required for the operational expenses. This model is only applicable for the Family Takaful business because it is basically life insurance coverage provided to the participants. Modified Mudharabah model is the second model. It includes the investment income that is put back into the Takaful fund. The surplus that is developed form the Takaful fund is shared upon the Takaful companies and its participants. This second model is applicable to the General Takaful business in which deduction of expenses is taken into consideration. The rationale is due to a short-term contract and the risk inherent. The second model is very competitive, but by using the first model, it would lessen the competition. The Takaful Company would have to charge more premiums and higher contributions just to cover its expenses. The operational expenses can always be deducted, but the whole contribution charge will remain at a high rate. There are issues regarding reasons of deducting operational expenses. Some people claim that this is not parallel with the Shari’ah’s rulings due to disagreement among scholars that are in school of thoughts. There are suggestions to solve this issue by adopting the principles of ‘Talfiq’. One suggestion is that the principles of Talfiq should not stick to a school of thought without understanding the rationale behind new orders.


Another reason was from the thoughts of these scholars, who feel that the prohibiting of deduction expenses is not similar to the current practice of the Mudharabah model. Lastly, the Takaful contribution will receive more competitive from the deduction on operational expenses, which is according to the current tax laws of Malaysia. There are two different approaches taken by the Takaful companies with regard to the eligibility of participants in the share of the surplus. Few companies feel that only some of the Takaful participants will be entitled to actually participate in the distribution of surplus provided. But they have not made any claims yet, received any Takaful benefits that were offered from the Takaful companies, or if that participant plans to cancel their contract before its expiration date. Claim Briefly, two steps are involved in the settlement of a claim. First step is either payable or not payable, but it is divided into four different parts. The first part is where the policy and certificate is enforced, either expired or not. Obviously, knowing that the certificate is expired, the participant cannot whatsoever claim it. The second part includes if the risk is covered or not covered. The third party is involved in this particular situation. This person who is chosen as a trustee would be the one to distribute the claimed benefits among the legal heirs of the deceased participants. This event would be in accordance with the principles of Faraidh (inheritance). The cause of death, being natural, accidental, or even lawful is not important because it is the will of Allah s.w.t., Who is the only one that determines the death of all His creatures. The following verse from the Holy Qur’an provides proof of such statement.

“Nor can a soul die except by Allah’s leave, the term being fixed as by writing” (3: 145)

The third part is warranty, which means that there are limitations on claims that are based on Takaful companies regulation. The last part is excess. The objective of excess is to avoid the small claims that are made by the participants. Here is one example, the amount of excess is fixed at RM 200, if there is an accident and the participant lost RM 1000, the company will only pay RM 800. The second step is known Quantum. It is divided into two. One is either adequate or not and other conditions such as self-insurance condition, but the main purpose is to actually avoid excess in claims. Accounting Treatment The Takaful industry is relatively newer than plain insurance policy. The insurance industry has its own standards, at least in individual countries. An example is in the accounting standards area. In Malaysia, income has been acknowledging area of income on accrual bases. However, for Takaful operators in Malaysia, namely Syarikat Takaful and MNI Takaful, income is accounted and recognized on an on-cash basis.


Syarikat Takaful and Bank Islam Malaysia Berhad (BIMB) will only accept shared and distributed profits if the income is actually realized. MNI Takaful argued that accrual basis could also be used. This is based on the Hadith regarding estimates on the quantum i.e. Zakat on dates. Agency (Marketing Executive) Agency or Wakil has more than one issue. Takaful operators rarely use agents because they believe that the current practice is rather an unfair practice. They feel it is not right to deduct expenses from certain Takaful funds. Participants also feel it is unfair if the companies deduct management expenses. It has been said that using agents would keep the commission from being part of the contribution. Consequently, Mudharabah is paid based upon the net contributions. The Malaysian Takaful Act of 1984 provides the use of agents but not brokers because they are not allowed in such practice and must be separately licensed. Tijari model also acknowledge the concept of al-Wakalah in the Takaful business. The agent is authorized representative of their Takaful company or shall I say work on behalf of their company. Thus, sum amount of salary should be allocated to them as a return for completing the task assigned upon them. Another terms for them is marketing officer and their roles and responsibilities are relatively similar to an agent (Al Wakalah) discussed earlier. Operational Sketch

A B C D

X RM 200

The Tijari model explains about the Takaful company and policy, where X is the main operator of the company and it acts as an entrepreneur, or Dharib. A, B, C, and D are the participants for the Takaful policy called Shahibul Maal. Participants that have hold of the Takaful policy would have to pay on a certain agreed amount of contribution (maal), which should be declared in their contract to X. The Dharib, or X, has the authority to manage this Maal according to Shari’ah rules. The General Takaful Fund The contribution paid are regarded as al- tabarru’. Therefore, the participant has no right to claim the fund since it is already treated as donation. However, the participants are eligible to claim for their rights if it is upon the defined risk on a subject matter. The deduction made is for allocation costs i.e. re-Takaful, claim


reserved, technical reserved, IBNR and unearned contributions. Take note that Tijari model is based on business instead of service charge. All contributions paid by participants are directly deducted for allocation. The balance left is under the operators’ responsibility and the term given is the amount of underwriting surplus. The underwriting surplus will be invested in lawful investment project if there is no claim made by donors under the principles of Mudharabah financing technique. The profit from the investment will then be distributed accordingly, the Dharib (Takaful operator) and the Sahibul maal (donor). Example of Calculation Contribution Paid RM 200 (-) Management costs RM 100 - Re-Takaful

- Unearned Contribution - Technical Reserved - Incurred but not Reported - Claim Reserved

Underwriting Surplus RM 100 belongs to company No claim? - Invested Balance + Mudharabah Profit\ Bonus Distributed The Life / Family Takaful Fund There are two different accounts involved. The first one is known as the Participant’s Account (PA) while the other is called Participant’s Special Account (PSA). The PA is managed according to the principles of al-Mudharabah financing or profit and loss sharing technique. It means that any profit gained from the lawful investment will be shared according to an agreed ratio between the shareholder and the participant. The scenario will be slightly different in term of loss in which


only the participants borne the incurred loss and shareholder will receive nothing from the services rendered. Whereas for PSA account, the tabarru` principles has been applied and for that reason also, the participant are not allowed to make any claim if there is no risk occurred within the maturity period of the Takaful policy. After deducting the allocation costs, the remaining (underwriting surplus) will be invested in business in conformity with the Shariàh. The amount left is allocated for the shareholder and tabarru’ fund. Example of Calculation Contribution Paid RM 200 95% (PA)

- Shared by shareholder and participants Who not make claim

5% (PSA) - (-) Allocation costs - Underwriting surplus - Balance shared by - Shareholder - Tabarru’ Fund

Payable Not Payable

Claims

1st Step

On Policy Certificate

Risk Coverage

Warranty Excess 2nd Step

Not Adequate

Quantum


Grass Root Reasons of Having Diversified Models of Takaful and Possible Solutions

There are three different operational models of takaful namely : Tijari, Ta’awuni and Wakalah, which are adapted in the global economy, and each of these models has its own strong and weak points. There is no exactly any fact upon which, any of these models can be considered distinctive from among others, because all of these functions on many factors which are suitable to the country where those are being practiced. It is difficult to judge as what people see about the existing models.

In general, all of these three operational models have several problems, which need to be concerned and solved. This is to ensure the success of the takaful policy commercially throughout the world. Such problems are the diversified confusions among the scholars and also practitioners in the field of takaful. Most of the Shari’ah experts do not really understand about the takaful system while many takaful practitioners themselves also have lack of knowledge and information about the Shari’ah principles regarding Islamic insurance. It brings to the difference of opinions of scholars, academicians, professionals and others.

It makes the way of smooth developments of Islamic banking and finance including takaful operation difficult. It becomes worse when the practitioners and Shari’ah experts seldom meet and sit together to have discussion on takaful issues. Sometimes, they just give their own opinions based on only what they know and think.

Another problem is that the practitioners in the takaful industry are not well experienced in the subject of takaful. Many takaful practitioners are still lagging behind compared to conventional insurance practitioners in terms of knowledge and practices. There are takaful practitioners who are perhaps not yet well prepared to involve in takaful operation, as they may not be able to stimulate the theories into practice. In terms of quantum of al-Mudharabah, they are yet to understand well about the calculation formulas. There is also a problem from the accountants, who are usually just concerned on financial accounting without having any comprehensive knowledge and information about takaful system.

In order to solve above problems, takaful practitioners, Shari’ah experts and government authorities should have mutual cooperation and understanding to plan the strategic solutions. Although there are some efforts to solve the problem, but it looks to be not wholeheartedly done. However, at least some parties have some sort of consciousness to ensure that, the Muslims are alive in Islamic environment in line with the Shari’ah principles.

One of the solutions to meet these problems is to educate the takaful practitioners and general public about the Islamic financial laws and other related matters about takaful through seminars, conferences, lectures and mass medias. The practitioners in the takaful industry and other Islamic financial institutions should


be inculcated with comprehensive training on how to operate the system effectively according to the principles of Shari’ah. Some governments so far give support to takaful industry for instance, by issuing licenses, giving businesses, providing loans for housing and other constructions etc.

The other solution is to make the Shari’ah Supervisory Boards (SSB) available in each Islamic bank. Financial institutions should have strong cooperation and should always be in touch in exchanging the information with the regulatory body in each country. Every takaful company should make advance studies and research about their operation weaknesses and on methods to improve and promote their respective company’s businesses. They also should prepare means, tools and technology that can help to upgrade the management of takaful through scientific mechanisms.

Even though takaful system has three different operational models, it should not prevent operators from maintaining a close relationship and cooperation towards sharing information among themselves for the success of takaful business and to protect the interest of the Muslim Ummah in general. In fact, one of the beauties of Islamic economy is that it helps to improve tolerance towards differences of operational models. Actually, these differences have always been a source of inspiration, research, debate and ijtihad. All of these make the takaful operations more meaningful in spirit. It is not impossible that takaful once would be adapted widely in the global market. Final Remarks In conclusion, introducing Takaful system is an alternative to the existing conventional insurance. However, these understandings about the system are very important because it may help the people to appreciate the existence of the system. The discussion about the models applied in countries likes Malaysia (Tijari), Bahrain (Wakalah), and Sudan (Ta’awun), hopefully will give more knowledge to the communities in the world. Practicing Takaful from all these models plays are of the same the same goals and functions, which are getting the pleasure of Allah (s.w.t). In short, these three models bring the principles of co-operation, solidarity, and brotherhood. Let’s say, the Ta’awun model which is being practicing by Sudan and Saudi Arabia applies the concept or principles of lend their money to the operator and the operator will manage their fund without seeking or looking for any benefit. Furthermore, the Wakalah model, which is being practiced by Bahrain, contributes to the same principles. By building up a good relationship between the company and participants, which is arranged by agent or representative, may help to strengthening the brotherhood among them. Islam as the perfect religion encourages all Muslims to build the relationship among them and strengthen it.



Then, relating to the mutual co-operation concept, it best be explain by the Tijari model which is being practiced by Malaysian Takaful companies. Malaysia is practicing the concept of Mudharabah (profit and loss sharing) accounting technique. As such this discussion shows that the model deeply recovered the element of gambling among the communities in Malaysia.

Hopefully, the people would take these alternatives which are in line with the principles of Shariàh, its rules and regulations as serious matter and would help for the best performances of Islamic insurance.

Different Models

Documents

general takaful

takaful transaction

takaful operation

individual takaful

takaful mohd

takaful contract

takaful rawat

takaful mortgage