Takaful Islamic insurance Oppurtunity unlimited: Autos and International Coverage Reviews

Takaful Islamic insurance, Oppurtunity unlimited

After Islamic banking, it’s the turn of Islamic insurance. Even as the Reserve Bank of India is exploring Islamic banking opportunities for Indian banks, the Life Insurance Corporation of India has set the ball rolling on takaful (Islamic insurance).This Arabic word means ‘guaranteeing each other’ or joint guarantee.As Islamic finance continues to expand, there is likely to be a huge takeoff of other products such as pensions, education, marriage and health Takaful plans.

Takaful- Islamic insurance, Oppurtunity unlimited

Origin of Takaful

Originated from the Arabic word Kafalah, which means “guaranteeing each other” or “joint guarantee”. Takaful originated within the ancient Arab tribes as a pooled liability that obliged those who committed offences against members of a different tribe to pay compensation to the victims or their heirs.

Takaful is founded on the cooperative principle and on the principle of separation between the funds and operations of shareholders, thus passing the ownership of the Takaful (Insurance) fund and operations to the policyholders

In modern-day conventional insurance, the insurance vendor (the insurance company) sells policies and invests the proceeds for the profit of its shareholders, who are not necessarily policyholders. There is therefore a clear disjunction between policyholders and shareholders

Principles of Takaful

Policyholders co-operate among themselves for their common good. Every policyholder pays a part of the contribution as a donation to help those that need assistance. Losses are divided and liabilities spread according to the community pooling system. Uncertainty is eliminated in respect of subscription and compensation. It does not seek to derive advantage at the cost of others.

Difference between conventional insurance & Takaful

Conventional insurance involves the elements of excessive uncertainty (gharar) in the contract of insurance; Gambling (maysir) as the consequences of the presence of excessive uncertainty that rely on future outcomes Interest (riba) in the investment activities of the conventional insurance companies; Conventional insurance companies are motivated by the desire for profit for the shareholders;

Mode of Operation

The policyholders agree to guarantee each other and, instead of paying premiums, they make contributions to a mutual fund or pool & create the Takaful fund. The amount of contribution that each participant makes is based on the type of cover they require, and on their personal circumstances. As in conventional insurance, the policy (Takaful Contract) specifies the nature of the risk and period of cover.

 The Takaful fund is managed and administered on behalf of the participants by a Takaful Operator who charges an agreed fee to cover costs. These costs include the costs of sales and marketing, underwriting, and claims management. Any claims made by participants are paid out of the Takaful fund and any remaining surpluses, after making provisions for likely cost of future claims and other reserves, belong to the participants in the fund, and not the Takaful Operator, and may be distributed to the participants in the form of cash dividends or distributions, alternatively in reduction in future contributions

Retakaful or Reinsurance

When insurers insure a risk again with another company, it is called reinsurance which allows the insurance industry to spread its losses, lessening the impact of claims on any one company.

There is currently a shortage of retakaful capacity and the lack of companies in the market presents a challenge as well as an opportunity. The challenge is to have a large enough Takaful market to justify ReTakaful business. There is also a global need for strong and credible retakaful operators to assist the growth and expansion of takaful business

Growth Prospects

As Islamic finance continues to expand, there is likely to be a huge takeoff of other products such as pensions, education, marriage and health Takaful plans. There is also a huge scope for mortgage Takaful.Islamic principles strong emphasis in Takaful on the economic, ethical, moral and social dimensions, to enhance equality and fairness for the good of society as a whole should also have appeal for the ethically minded.

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Takaful Islamic insurance, Oppurtunity unlimited

Category International Coverage Reviews

International Coverage Reviews

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