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Title: ST 2001 : MANAGING TAKAFUL INSTITUTION Author: Sab Last modified by: Ezamshah Ismail Created Date: 1/24/2008 6:48:41 AM Document presentation format – PowerPoint PPT presentation

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  • Development of Insurance and Takaful and its
    Regulatory Aspects

Shariah Advisors Shariah Compliant of
Operations Governance
Operator Scheme Design Administration Distribution
Collections Underwriting Investment Claim
payments Risk management Retakaful
Actuary Monitor Review Pricing Valuation
Wakalah Fees
Takaful Fund
Claims Benefit Payments
Investment Returns
Taawun/Mutual Assistance
Regulators Licensing Regulation Supervision Standa
rds Setting Customer Protection Promotion
Surplus/Deficit Participants top up and
shares Operator advances and shares
  • Risk a major component of our environment human
    is surrounded by innumerable risks from birth to
    death human learned to improve after
    experiencing misfortunes quest for security
    evolved since the dawn of mans existence
  • According to Braise Pascal
  • As each generation progressed they will learn
    at least a part of what their earlier generations
    had learned.
  • Abraham Maslows hierarchy of needs
  • Survivable
  • Security
  • Love and Belongings
  • Self esteem
  • Self actualization

Definition of Insurance
The term Insurance in its real sense, is
community pooling, to alleviate the burden of the
individual, lest it should ruinous to him the
simplest and most general conception of insurance
is a provision made by a group of persons, each
singly in danger of some loss, the incidence of
which cannot be foreseen, that when such loss
shall occur to any of the, it shall be
distributed over the whole group. In sum, the
aim of all insurance is to make provision against
the dangers which beset human life and dealings.
1 Insurance in Encyclopedia Britannica(eleventh
edition) Vol 14.p.656
  • (a) Early Insurance Development
  • Introduction of the contract of Bottomry by the
    merchants of Babylon about 4000-3000 B.C.
  • Code of Hammurabi, 2250 B.C.
  • Bottomry Contract adopted by the Phoenicians
    1600-1000 B.C.
  • The Greeks adopted it around 4 B.C
  • Later adopted by the Romans
  • Thomas Gresham established the first Royal
    Exchange, 1570
  • Life insurance first practical in 1583
  • Lloyds of London established 1688 Lloyds Act
    passed in 1871

  • (b) Takaful (early evolution)
  • Diyat pre-islamic pagan Arabs aqilah system
  • Adopted by Prophet two situations
  • Dispute between the two women from the tribe of
  • Constitution of Medina, between Muhajirin and
  • The aqilah system was utilized
  • A fund known as Al-Kanz was created to be used
    to pay compensation on behalf of members who are
    liable to pay diyat
  • During the time of Umar the second Caliph, he
    ordered preparation of registers (diwan) in all
    parts of the Muslim State names in the diwan
    owed one another mutual assistance

  • Ibn Abidin (1784-1836) a Hanafi lawyer, became
    the first Islamic Scholar to come up with the
    meaning, concept and legal basis of an insurance
  • ( c ) Takaful in the Modern Era
  • The first modern Islamic insurance was formed in
  • Islamic State of Sudan in 1979 the company
  • based on the concept of cooperative i.e., The
  • Insurance Company of Sudan
  • As of 2008, there more than 150 takaful
  • globally
  • Growth expected to be between 15 and 20
    annually revenue expected to reach USD 7.4
    billion by 2015

  • (d) Development of Takaful in Malaysia
  • Evolutionary phase
  • Nurturing phase
  • Consolidation phase
  • (e) Performance of the Malaysian takaful
  • The industry is about 25 years in operation
  • 8 (1) Takaful and 2 Retakaful operators in the
  • More than 40,000 agents are utilized
  • Net contribution exceeded RM 2 billion
  • Total Takaful Fund Asset exceeding RM 8 billion
  • Almost 3,000 employees.

  • (f) Definition of Takaful
  • The word takaful is derived from the Arabic verb
    kafala which means to guarantee one another to
    help to take care of ones needs
  • A scheme based on brotherhood, solidarity and
    mutual assistance which provides for mutual
    financial aid and assistance to the participants
    in case of need whereby the participants mutually
    agree to contribute for the purpose. (Takaful
    Act 1984)
  • Based on the principle of Taawun (mutual
    assistance) and Tabarru (voluntary
  • The operation of the concept must be within the
    spirit of Shariah

  • (g) Muamalat in Takaful
  • Nature of Takaful Contract
  • Based on the concept of taawun and tabarru
  • Syariah compliant
  • Element of Mudarabah
  • Based also on the principle of al-Musahamah
  • Scope of takaful contract
  • Wide and flexible covers life, health and
    non-life risk
  • Subject to underwriting
  • Regulated and supervised by the authorities
  • Rational outlook of takaful
  • Provide material assistance against unexpected
    financial losses
  • Reduction of poverty in society
  • Ensure security and produces a self-reliant

  • (a) Opinion of Scholars
  • Majority of scholars are of the opinion that the
    conventional insurance practiced today is not
    Shariah compliant
  • However, many do not object to the concept of
    insurance per se but rather the contract
  • According to Dr. Yusuf Qardhawi

  • Our observation that the modern form of
    insurance companies and their current practices
    are objectionable Islamically does not mean that
    Islam is against the concept of Islam itself
    not in the least it only opposes the means and
    methods. If other insurance practices are
    employed which do not conflict with Islamic forms
    of business transaction Islam would welcome
  • The Lawful the Prohibited in Islam (pg.
  • A Fatwa issued by a committee comprising of
    leading scholars for the Saudi Arabia Government
    have said

  • From the point of view of most Muslim jurists,
    cooperative (or mutual) insurance is not only
    permissible by the Shariah but also encouraged
    especially when looked at from the aspect of
    cooperation towards welfare. As such it is
    permissible for a bank to set up a cooperative
    (mutual) insurance company to function for the
    benefit of many activities but there is a need to
    state as clearly as possible in the contract of
    insurance that the amount of money to be paid by
    the participant is on the basis of donation to
    the said company which can be used for the
    purpose of assisting fellow participants who
    require assistance according to the terms agreed
    as long as these terms are not in conflict with
    the Shariah

  • The National Fatwa Committee Malaysia deliberated
    on the question of life insurance (15th. June
    1972) and below is a translation of an extract
    from the minutes recorded
  • Life insurance as presently practiced by
    insurance companies is a fasid transaction as it
    is contrary to the Shariah principles of contract
    because it contains the following elements
  • Gharar
  • Maisir
  • Riba
  • As such from the Shariah point of view,
    insurance is haram.

  • According to the late Tan Sri Prof. Ahmad Ibrahim
    in his paper Towards an Islamic System of
    Insurance (1982)
  • The practice of insurance presently follows the
    western style of management and is therefore not
    in line with the teachings of Islam in a number
    of ways
  • (a) Many insurance contracts contain usury as
    it promises to pay more than the premium paid
  • (b) Insurance companies invest the premiums which
    they have collected, in interest bearing
  • (c) The western method of insurance is a kind to
    gambling as one can lose the premium to insurance

  • (d) The western method of insurance contain the
    element of gharar and the contract is uncertain
  • (e) Western insurance companies can earn profits
    or loss as a result of death or accident or risk
    to people.
  • The above is a translation of an extract from the
    working paper of a committee known as Badan
    Petugas Khas set up by the government in 1982
    to study the feasibility of setting up Islamic
    Insurance in Malaysia.
  • The Badan Petugas Khas also concluded that
    conventional insurance contract is fasid,
    however, the objection is not against the concept
    of insurance per se but against the existence of
    certain weaknesses in the insurance contract.

  • (b) Elements of Gharar, Maisir and Riba
  • (i) Gharar
  • Element of uncertainty in a contract
  • The Prophet was reported to have forbidden all
    transactions involving gharar but did not
    specifically state what these constitutes
  • Deficient of clarity (or uncertainty) with
    regard to the subject matter (Makud Alaih)
    being contracted
  • O Believers ! Do not devour one anothers
    property by unlawful ways instead do business
    amongst you by mutual consent.
  • (An-Nisa, verse 29)

  • The following are examples involving gharar
    expressly forbidden by the Prophet
  • (a) Habal al-habalah sale of the offspring of a
    still-to-be born animal
  • (b) Musamasah sale of fruit prior to ripening
  • (c) Bai munabadha a sale performed by the
    vendor throwing a cloth at the buyer and
    achieving the sale without giving the buyer the
    opportunity to properly examine the object of
  • (d) Al-Madhamin wa Imalagih sale of what was
    in the loins and wombs
  • (e) Bai Al-hassat a type of sale where the
    outcome is determined by the throwing of a stone
    on the object to be sold

  • Gharar is present in all those business dealings
    in which one party does not know what is in
    store for him at the end of the bargain
  • Gharar is not just about lack of information
    regarding the quality or quantity of the subject
    matter but according to Ibn Rushd, it may
    originate from
  • (a) Ignorance and lack of information over the
    nature and attributes of an object
  • (b) Doubt over its availability and existence
  • (c) Lack of information concerning the price and
    terms of payment
  • (d) Prospect of delivery

  • According to the Badan Petugas Khas Report with
    regards to gharar in an insurance contact
  • It is clear that the insurance contract as
    practiced presently give rise to Al-gharar as the
    Makud Alaih is not clear with regards to
  • (a) Uncertainty as to whether or not the insured
    will get the compensation which has been promised
  • (b) Uncertainty as to how much the insured can
  • (c) Uncertainty as to when the compensation can
    be paid

  • (ii) Maisir
  • The word maisir literally means getting
    something too easily or getting a profit
    without working for it
  • The Prophet forbade all forms of business in
    which the monetary gain comes from mere chance or
    speculation and not from work
  • The prohibition with regards to games of chance
    is explicit in the following verse
  • O Believers ! Intoxicants and gambling and
    divining arrows are an abomination of satans
    handiworks. Leave it aside in order that you may
    prosper. Indeed satan intends to sow enmity and
    hatred among you by means of intoxicants and
    gambling and to prevent you from the remembrance
    of Allah and from prayer. Will you not,
    therefore, abstain from these things? Obey Allah
    and His Messenger and abstain from these things.
  • (Al-Maidah 90-92)

  • Insurance practitioners is of the opinion
    insurance reduces risk where as gambling increase
    or create risk therefore they are not one of
    the same the notion that the insured lost his
    premium when claim do not occur is not quite
    correct the premium is in fact has been
    exchanged for financial security to them this
    should not be considered as wrongful devouring,
    it is totally different from the money earned
    from gambling
  • The elements of gharar and maisir are
    interrelated the presence of gharar could lead
    to maisir if it is excessive there cannot be
    maisir unless the element of gharar is present

  • (iii) Riba
  • Literally means increase in or addition to
  • Islam prohibits riba
  • The following Quranic verse
  • O you who believe, devour not usury, doubling
    or quadrupling, the sum lent, Fear Allah and
    observe your duty to Him that you may really
  • (Al-Imran, verse 130)
  • Present day insurance activities involve the
    element of riba. For example
  • (a) Investing in interest bearing instruments
  • (b) Paying interest on some of their products
  • (c) Many insurance contracts contain usury, as
    it promises to pay more than the premium

  • Riba is of two forms riba al-fadl and riba
    al-nasiah Muslim jurists differ in
    interpreting riba al-fadl however they are all
    of the same opinion with regards to riba
    al- nasiah
  • (iv) Roles of Takaful Operator
  • As Custodian of Fund
  • acts as manager/ operator of the takaful fund
  • acts as Mudharib
  • As Risks Taker versus Risk Sharing
  • Takaful operator does not own the takaful fund
    they acts as the professional manager
  • All the participants mutually agree to share the
    risk among them

  • Transparency and Fairness
  • Sincerity
  • The parties to the contract must have the
    sincerity not to gain but to be bound by the
    principles of mutual cooperation, solidarity and
  • Absolute Shariah Principles
  • Aims and operations do not involve any element
    which is not approved by the Shariah
  • Moral Attributes
  • - The parties involved in the contract should
    observed the principles of utmost of good faith,
    honesty, disclosure and truthfulness.
  • Element of Contract.
  • - The parties to the contract must have legal
    capacities must have insurable interest
    consideration mutual consent

Takaful Insurance Area
Based on mutual cooperation and Tabarru Based solely on commercial factors Contract
Profit sharing between the individual participants and the pool of participants in the Takaful Exchange of contract between policyholder and the insurance company Contract
Contracts of Agency between the participants and the Takaful operator to manage the fund Insurance is a buy-sale contract. In which policies are sold and the policy-holders are the buyers Contract
Participants own the Takaful funds and managed by the operator. Participants give up individual rights to gain collective rights over contribution and benefits. The fund belongs to the insurance company Contract
Participants make contributions to the scheme Policyholders pay the premiums to the insurance company Contract
Free from riba, gharar and maisir. Presence of riba, gharar, and maisir. Principles of the contract
Profit/surpluses will be shared among operator (company) and participant on Mudharabah basis or Performance Investment Fee on Wakalah. Underwriting profits belongs to the Company. In life insurance, only participating policyholders will share in the surpluses. Contract of Musarakah
Depending on the Biz Model and line of Biz, contributions may be split or wholly credited to the al-Tabarru Fund (PSA), In General Takaful contributions wholly credited to the PSA in line with the principles of al-Mudharabah. In Family, it is usually credited to the PIA and then dripped in the PSA, (al-Tabarru or Waqf) For general insurance, the paid-premium is credited into the general insurance account. In life insurance policy similarly, the collected premiums are credited into the life insurance account or fund Contractual relationship
  • (a) Mudharabah Model
  • A mudarabah contract is a commercial profit
    sharing contract between the provider or
    providers of fund for a commercial venture and
    the entrepreneur.
  • In a mudarabah model the takaful operator acts as
    a mudarib and the participant as rab ul mal. The
    takaful operator manages the operations of the
    fund in return for a share of the surplus. The
    surplus is shared in a pre-agreed proportion
    between the operator and the participant.
  • In a pure mudarabah model, the management
    expenses and any other direct expenses for
    management of the fund will be borne solely by
    the operator from the shareholders fund and its
    share of the surplus of the underwriting and
    investment returns.

  • Under the modified mudarabah model, the
    management expenses direct or otherwise will be
    charged to the takaful fund. The surpluses from
    the fund which is a combination of the
    underwriting surplus and the investment surplus
    will be shared between the participants and the
    operator in the pre-agreed proportion.

  • (b) Wakalah Model
  • In a wakalah model, the takaful operator acts as
    the agent on behalf of the participants. The
    operator is paid a pre-agreed management fee for
    the services rendered in respect of underwriting,
    management and investment of the fund. The
    operator does not share in the underwriting
  • In underwriting, the takaful operator act as an
    agent on behalf of the participants to manage the
    takaful fund. Any liabilities for risks
    underwritten are borne by the fund and any
    surplus arising from belongs exclusively to the
    participants. The operator is not liable for any
    deficit of the fund. The operator is being paid a
    management fee termed as wakala fee which is
    usually a percentage of the contributions paid by
    the participants. This is normally deducted
    upfront from the contributions. As for the
    management of the investment activities of the
    fund, the operator is also paid a wakala fee
    based on an agreed percentage.

  • (c) Waqaf Model
  • In a waqaf model, a waqaf fund is established by
    the shareholders of the takaful company through
    the contribution of ceding amount to compensate
    the beneficiaries or participant of the takaful
    scheme. The ceding amount of the waqaf will
    remain invested. The takaful fund, consisting of
    the contributions paid as tabarru, will be
    further invested by the company based on the
    principle of Islamic modes of trades. Any person
    by signing the proposal from contributing to the
    Waqaf and subscibing to the policy documents
    shall become the member of the waqaf fund.

  • In general, the commercial takaful is categorized
    into two basic types of business namely
  • (i) Family business
  • (ii) General business
  • In terms of licensing, it varies among the
    various jurisdictions throughout the world. Some
    issue license on a composite basis (both family
    general) while some others issue on a monocline
    of business basis. In Malaysia, under Takaful
    Act 1984, licenses are granted on a composite
  • (a) Family Takaful Plans
  • The Family Takaful Plan provides protection and
    also the platform for savings for members.
    Various products are designed to provide
    solutions to the needs and demands of the
    individuals and the commercial segments.

  • The following benefits can be by an individual
    participant in a long-term family takaful plan
  • Protection in the form of financial mutual aid to
    his family members arising from the benefits of
    the takaful plan should the participant die
    before the maturing of the takaful plan.
  • Regular savings for a definitive period with the
    view of creating retirement fund to be utilized
    during old age.
  • Earning investment profits acceptable to Shariah
    from the contribution to the fund.
  • Availability of funds to finance children
    education should be chooses the education plan
    offered under the Family Takaful business.
  • Avenue to assist each other through the concept
    of tabarru.

  • Basically a family takaful plan covers death
    benefit, maturity benefit riders can be
    incorporated to provide hospitalization benefits,
    accidental and permanent disability benefits and
    also critical illness benefits.

  • For the commercial sector, family takaful offers
    schemes such as Group Family Plans and Group
    Family Takaful Hospitalization and Surgical
    Plans. These are arrangements of cooperation and
    mutually based on the principles of taawun and
    mudarabah among members of the fund. Group Family
    Plans are normally taken by the corporate bodies
    as employers for the benefit of their employees
    under an employment contract.
  • Apart from the above, there are various other
    Family Takaful Plans or products available to the
    individual or group such as
  • Takaful mortgage plans
  • Takaful education plans
  • Investments Linked plans
  • Credit Related Takaful plans

  • In general, the Family Takaful comprise of two
  • namely the Participants Account (PA) and the
  • special Account (PSA). The PA is meant solely
    for the
  • purpose of savings and investments, while the
    PSA is to
  • pay takaful benefits such as death and
    maturity of the
  • contract.
  • (b) General Takaful Plans
  • The General Takaful business is basically a
    contract of joint
  • guarantee. It is a short-term contract
    usually covering a
  • period of one year or less. General Takaful
    contracts are
  • designed to meet the needs for protection in
    the event of
  • any material loss or damage or bodily injury
  • upon the accident happening of a peril
    whether it is
  • catastrophic in nature or otherwise inflicted
  • properties, material belongings or mankind.

  • In consideration of agreeing to contribute to the
    pool, the participants undertake as Tabarru
    these contributions for the purposes of mutual
    compensation to be made available to any defined
    loss or damage or sufferings. These contributions
    are pooled into a fund called general Takaful
    Fund and it is from this fund that mutual
    compensation would be paid to any participants
    suffering from a defined loss.
  • The takaful operator will act as a mudarib for
    the fund and will make all the necessary efforts
    to diligently invest this fund in Shariah
    approved investment instruments to earn the
    necessary returns or profits. In order to
    prudently manage the fund and to protect it from
    suffering severe financial impact or loss,
    appropriate re-takaful arrangements are made. The
    cost of these re-takaful arrangements are charged
    to this fund apart from the appropriate reserves
    for unexpired risks, claims and also the incurred
    but not reported claims (IBNR) which are deducted
    from this fund.

  • The fund has to be managed prudently, any
    outflows must be properly accounted for in order
    not to result in any deficit. Any surplus from
    the fund will normally be shared between the
    participants and the takaful operator depending
    on the business model it has adopted. Should
    there be any distribution of surplus, it can only
    be given to participants at the expiry of their
    takaful contracts provided they have not received
    any compensation or incurred any claims during
    the period of the contract.
  • The following are the various types of General
    Takaful Plans
  • Motor Takaful Schemes
  • Fire Takaful Schemes
  • Miscellaneous Accident Schemes
  • Marine Takaful Schemes
  • Engineering Takaful Schemes
  • Aviation Takaful Schemes

  • (a) Sources of Shariah
  • There are four fundamental sources of Shariah
  • (i) Quran
  • (ii) Sunnah
  • (iii) Ijma
  • (iv) Qiyas
  • Apart from the four sources of Shariah that
    have been
  • agreed upon by Scholars, there are also other
    sources of
  • namely
  • (i) Istihsan
  • (ii) Maslahah Mursalah
  • (iii) Istishab
  • (iv) Uruf
  • (v) Mazhab Sahabi
  • (vi) Sharun man Qablana

  • (b) Legal Maxims
  • Apart from the sources of shariah, qawaid
    fiqhiyah are also
  • used in the discussion of takaful legal maxims
  • statements of principles that are derived from
    the detailed
  • reading of the rules of Islamic Jurisprudence
  • There are five fundamental legal maxims which
  • (i) Acts are judged by the intention behind
    them (Al-umuru
  • bi-maqasidiha)
  • (ii) Certainly is not overruled by doubt
    (Al-yaqinu la yuzallu
  • bish-shakk)
  • (iii) Custom is the basis of judgement
  • muhakkamatun)
  • (iv) Hardship beget facility (Al-mashaqqatu
    tujlab at-taysir)
  • (v) Harm must be eliminated (Ad-dararu yuzal)
  • The five legal maxims are further broken
    down into
  • seventeen corollaries.

  • Some of the more common corollary legal maxims
    that has
  • been used in the discussion of takaful are
  • (i) The original legal position of any matter
    is permissible
  • until there is evidence prohibiting it.
  • (ii) Whatever leads to haram, is in itself
  • (iii) In contracts effect is given to intention
    and meaning and
  • not to words and phrases.
  • (iv) Difficulty brings ease.
  • (v) The ends do not justify the means.
  • (c) Law of Transactions
  • Law of transaction deals with fiqh muamalat
    which includes
  • exchange contracts (e.g., sale and purchase),
    profit sharing
  • contracts (e.g. mudarabah and musharakah),
    contracts of
  • guarantee, agency contracts and others.

  • The Sale Contract
  • The sale contract is the most prevalent form of
    contract and can be said to form the basis of
    other contracts. The Quran mentioned and
    legalised the sale contract the verse And Allah
    has permitted trade and prohibited riba
    (Al-Baqarah 275). The Sunnah further sactioned
    and endorsed the sale contract as narrated by
    Al-Hakim The work of a man with the hands and
    the mabrur sale.
  • Tenets of a Sale contract
  • In order for the sale contract to be accepted by
    Islamic law, it has to fulfill certain tenets and
    conditions, which are
  • (i) The contracting parties
  • (ii) The objects
  • (iii) The offer and acceptance

  • (d) Principles of Takaful
  • The takaful concept is based on the
    following principles
  • (i) Mutual Responsibility
  • (ii) Mutual Help and Cooperation
  • (iii) Mutual Protection

  • (a) Malaysia
  • In Malaysia, the takaful operations are governed
    by the
  • Takaful Act 1984, which contains four parts
    and sixty eight
  • sections. The four parts are
  • Deals with definitions and classification of
    takaful business
  • Deals with conduct of takaful business
  • Deals with returns, investigations, winding up
    and transfer of business
  • Deals with miscellaneous and general provisions
  • Under the Takaful Act 1984, a takaful operator
    must be
  • incorporated as a company as defined in the
  • Act 1965 or as a society as registered under
    the co-
  • operative sociaties.

  • The Act require the operator to establish a
    Shariah advisory
  • body which is approved by the Director
    General, to advise
  • an operator on the operations of its takaful
    business so as
  • to be shariah complaint.
  • (b) Bahrain
  • In Bahrain, the law governing the takaful
    industry is
  • Legislative Decree No.17 of 1987 with respect
    to insurance
  • companies and organizations. The Decree Known
    as the
  • insurance law of 1987 contains 4 Chapters and
    37 Articles.
  • However, the central Bank of Bahrain and
  • Institutions Law 2006, which was passed
  • superseded the Decree .
  • (c) Indonesia
  • In Indonesia, the takaful operations are
    governed by the
  • same laws governing conventional insurance.

  • (d) Singapore
  • Like Bahrain and Indonesia, the same law that
  • conventional insurance governs the takaful
    operations in
  • Singapore. i.e., Singapore Insurance Act (SIA).
    SIA contains
  • 4 Parts with 65 sections.

  • The following are the statutory bodies entrusted
    to regulate and supervise the takaful industry in
    each of the jurisdiction
  • (i) Malaysia Central Bank of Malaysia
  • - Minimum paid up capital in RM100 million
  • - Takaful Act 1984
  • - Various guidelines have been issued to
  • regulate the industry in a
    systematic, orderly
  • manner.
  • (ii) Bahrain Central Bank of Bahrain
  • - CBB Rulebook Vol. 3
  • - ES-1 ES-2 ES-1.19

  • (iii) Indonesia Peraturan Pemerintahan
    Nombor 73 Tahun 1992 tentang
    Penyelenggaraan Usaha Peransurian.
  • - Mininum paid- up is
    RP50 milliard
  • (iv) Singapore Monetary Authority of
    Singapore (MAS)
  • - Minimum paid-up not less than S25
  • - Set various levels of margins of

  • Governing bodies tasked with the development of
  • takaful industry issuing fatwas and/or
    guidelines under the
  • international Islamic organizations are
  • OIC Fiqh Academy,
  • The Islamic Financial Services Board (IFSB)
  • The Accounting and Auditing Organization of
  • Financial Institutions (AAOIFI).

  • There is also the International Association of
    Insurance Supervisors (IAIS) formed in 1994 among
    governing bodies in various countries for
    non-shariah matters. IAIS is mirrored along the
    lines of Basel Committee on Banking Supervision
    (BCBS) which issued Basel Capital Accord and
    Basel II.
  • The IAIS was established to promote cooperative
    among insurance supervisors and liaise with
    supervisors and regulators on other financial
  • The IAIS develops principles, standards and
    guidance on insurance supervision and is active
    in promoting their implementation, in particular
    the Insurance Core Principles and Methodology
    (ICPS) which consist of
  • Essential principles that need to be in place for
    a supervisory system to be effective
  • Explanatory notes that set out the rational
    underlying each principle
  • Criteria to facilitate comprehensive and
    consistent assessments

  • The ICPs serves as a basic benchmark for
    governing bodies and can be used when
    establishing a supervisory regime for identifying
    areas in existing regimes that need to be
    improved. In addition, it provides a
    globally-accepted framework for the regulation
    and supervision of the insurance sector. However,
    there is a possibility that some of the ICPs may
    not be in line with shariah. To address this
    issue, the IAIS and IFSB have cooperated to
    review the ICPs so that they do not conflict with
    Shariah. In this respect a Joint Working Group
    has been formed to deliberate on this matter.
  • After deliberating on the ICPs, the Joint Working
    Group concluded that many of the ICPs are
    university accepted to require no adaption to
    apply to takaful. Those ICPs which require
    adaptation are

  • ICP 1 Conditions for effective insurance
  • ICP 3 Supervisory authority
  • ICP 6 Licensing
  • ICP 7 Suitability of persons
  • ICP 9 Cooperate governance
  • ICP 10 Internal Control
  • ICP16 Winding-up and exit from the market
  • ICP 19 Insurance activity
  • ICP 21 Investments
  • ICP 22 Derivatives and similar commitments
  • ICP 23 Capital adequacy and solvency
  • ICP 24 Intermediaries
  • ICP 25 Consumer Protection
  • ICP 26 Information, disclosure transparency
    towards the
  • market

  • Apart from the IAIS and the FASB, the AAOIFI has
    played a major role in issuing standards for the
    Islamic financial services industry. Registered
    in 1991 in Bahrain, AAOIFI is responsible for
    developing accounting for the international
    Islamic banking and finance industry.

  • The common roles of Shariah Committee are as
  • (i) Ensuring that both the shareholders and
    takaful funds
  • are managed and administered in accordance
    with the
  • Shariah principles.
  • (ii) Providing expertise and guidance for the
    industry in all
  • matters relating to the Shariah principles,
    its structure
  • and investment process, and other
    operational and
  • administrative matters.
  • (iii) Consulting the authorities who may consult
    their Shariah
  • Advisory Council where is any ambiguity or
  • as to an investment, instrument, system,
  • and/or process.

  • (iv) Scrutinizing the companys compliance
    report as provided
  • by the compliance officer, transaction
    report provided by or duly approved by the
    trustee and any other report deemed
  • necessary for the purpose of ensuring that
    the investments
  • are in line with the Shariah principles.
  • (v) Preparing a report to be included in the
    companys annual
  • report certifying whether the takaful
    business has managed
  • and administered in accordance with the
    Shariah principles.
  • (vi) Ensuring the company comply with any
    guideline, ruling or
  • decision issued by the authorities with
    regard to Shariah
  • matters.
  • (vii) Vetting and advising on the promotional
    materials of the
  • company.
  • (vii) Assisting and attending to any ad-hoc
    meeting called by the
  • authorities and/or any other relevant

  • The global takaful (Islamic insurance) sector is
    expected to continue its rapid growth and become
    a significant contributor to the global "risk
    transfer" market place
  • Standard Poor's Ratings Services.

USD Billions
Moody reports 13 Growth to USD 7 Billion by 2015
Takaful Insurance
32.0 6.7
1.4 19.4
0.4 4.3
RM 35,700 RM 66,300
RM 877 RM 1331
5624 2868
18 off. 17 off.
  • Growth Rate (Last 3yrs)
  • Asset size GNI
  • Cont/Prem GNI
  • Ave Life Policy Size
  • Ave Life Cont/Prem
  • Agents per Company
  • Network Structure

Life Cos- 4900
Time Period World Muslim Diff Double (Years)
1970 2000 1.66 2.61 0.95 94
1990 2000 1.41 2.13 0.72 96
2000 2006 1.22 1.9 0.68 103
2000 2025 1.03 1.64 0.61 115
World Christian Encyclopedia
Natural Market Opportunities
  • The total number of Muslims is huge, a little
    more than one fifth (20) of the world's
  • If present growth rates for the world population
    and the Muslim population continued in about 115
    Years half (50) of the world's population will
    be Muslims.

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