Sep 22

TAKAFUL (Islamic Insurance) Paradigm


There was a lot of potential for Islamic Insurance or well known as Al-Takaful to be part of the global system with this style of insurance aggressively taking shape in the rest of the world. For example, Takaful or Islamic insurance was fast gaining ground in Malaysia. The concept of tabarru’ has brought to the insurance transaction. Tabarru’ has shifted the focus of buying cover from ‘me’ (individualistic) to ‘us’ (mutual help) that leads to the success of Takaful in Malaysia.
The question of what makes the tabarru’ concept appealing to Muslims is the double benefits they get when participating in a Takaful scheme. Firstly, they get insurance cover that is halal (permissible) and, secondly, the benefit of doing a good deed at the same time.
Tabarru’ is derived from Arabic noun that means “donation, gift, and contribution”. This one word apparently actually islamises the insurance contract by removing most of the objectivity element. This is actually the fundamental difference between insurance that is shariah compliant insurance (takaful) and conventional insurance.
Islamic insurance is based on cooperation, charity, mutual help and shared responsibility. Under the Takaful insurance structure there are two types of insurance, which are family insurance and general insurance.
Another positive benefit is the feeling of ownership in the Takaful fund that the participants have contributed to.
Being part as the owners, the participants’ attitude when making a claim would be different from that of their counterparts in conventional insurance. The sharing of responsibility with the sincere intention of seeking the pleasure of Allah is deemed an act of piety in Islam.
This factor can be a strong motivation for Muslims to participate in the Takaful scheme because if the contribution is made with sincerity, it would not only entitle him to insurance coverage but also reward from the All-Mighty as a good deed. Tabarru’ has the potential to bring about a positive mindset towards insurance not only in Muslims but all Malaysians. This is because Malaysians are generally charitable.
For example, Malaysians generously respond to calls for a donation is it for locals or people in faraway lands such as Bosnia, Albania, and Afghanistan and recently for the victims of earthquake in Taiwan.
Global models of Takaful
All the ASEAN countries adopt the mudharabah or modified mudharabah models. Currently there are three different types of models being adopted.
The first model is the pure mudharabah model where the takaful company and the participant share direct investment income only and the participant is entitled to a hundred percent of the surplus. No deduction for operational expenses is made prior to the distribution of the investment income. This model was chosen for family takaful because it is basically life insurance coverage provided to the participants. The concept is that the fund is solely attributable to the participants.
The second model is a modified mudharabah model where the investment income is ploughed back into the takaful fund and the takaful company share with the participant the surplus from the takaful fund. One company deducts operational expenses and the other does not prior to the distribution of the surplus.
The third model is a modified mudharabah where the both the company and the participant share in both the investment income and the surplus. Deduction for operational expenses is made prior to the distribution of the surplus.
For general takaful business, the second model is recommended with deduction of expenses. The reason is that the it is normally a short- term contract and the risks are inherent.
For family takaful business, the second or third model with deduction of operational expenses prior to distribution of surplus is used. The second reason, the mudharabah model that was in the minds of our scholars who prohibit