Presentation on : Islamic insurance model operate through out the world

1. Presentation on:Islamic insurance model operate through out the world Presenter : • Fahim ullah khan • Abdul waheed • BSc economics • Group A 6th semester

2. CONTENTS • Fatwas on insurance • What is takaful? • Key features of takaful • Takaful glossary • Takaful models • Takaful worldwide • Challenges facing Islamic insurance

3. FATWAS ON INSURANCE 1977 – Fatwa of Higher Council of Saudi Ulama’ 1978 – Fatwa of Fiqh Council of Muslim World League 1985 – Fatwa of Islamic Fiqh Academy (OIC)

4. FATWAS ON INSURANCE (continued) 1985 – Fatwa of Islamic Fiqh Academy (OIC): “The commercial insurance contract… which is commonly used by commercial insurance companies, is a contract, which contains major element of risk, which voids the contract and, therefore, is prohibited (haram) according to the Shariah”.

5. WHAT IS TAKAFUL? Takaful (Arabic‘mutual provision of guarantees’): Islamic insurance. System based on the principles of solidarity and mutual assistance, under which the parties to the contract support each other when any of them suffers a loss (which means primarily a monetary compensation).

6. WHAT IS TAKAFUL? (continued) “takaful means 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 that purpose” (Takaful Act 1984, article 2)

7. KEY FEATURES OF TAKAFUL • takaful is free from excessive gharar (al-gharar al-kathir); • the installments paid, or a part thereof, may only be used in operations that are permitted by Shariah; • the takaful business is commonly based on a profit sharing mechanism known as mudharabah; • the business of a takaful company is supervised by the Shariah Supervisory Board; • takaful, as opposed to conventional insurance, does not contravene the Shariah law of inheritance.

8. SHORT HISTORY OF ISLAMIC INSURANCE 1979 – Islamic insurance company (Sudan) 1979 - Islamic Arab Insurance Company (UAE) 1984 – Takaful Act (Malaysia) 1985 –Takaful Malaysia Berhad (Malaysia) 1997 –Retakaful company (AseanRetakaful International, ARIL)

9. TYPES OF TAKAFUL BUSINESS • General takaful • Family takaful

10. GENERAL TAKAFUL • Motor takafulscheme; • Accidenttakafulscheme; • Marine takafulscheme; • Engineering takafulscheme; etc.

11. FAMILY TAKAFUL • Individual family takaful plans; • Takaful mortgage plans; • Takaful plans for education; • Group takaful plans; • Health/medical takaful.

12. TAKAFUL MODELS • Mudharabah model • Wakalahmodel • Modified Model (mudharabah+ wakalah) • Wakalah model with waqf

13. Mudaraba Model • The surplus is shared between the participants with a takaful operator. The sharing of such profit (surplus) may be in a ratio 5:5 , 6:4 etc. as mutually agreed between the contracting parties. Generally, these risk sharing arrangements allow the takaful operator to share in the underwriting results from operations as well as the favourable performance returns on invested premiums.

14. Mudaraba model A principal-manager agreement is used between the policyholder {rab al mal- capital providers} and the takaful operator {Mudrib-entrepreneur} foe both underwriting and investment activities. Contributions, claims and distributions. Qard al hasan Combinedfee Combined fee is a percentage share of the underwriting result, a combination of the technical result and investment return

15. Wakala Model • Cooperative risk sharing occurs among participants where a takaful operator earns a fee for services (as a Wakeel or Agent) and does not participate or share in any underwriting results as these belong to participants as surplus or deficit. Under the Al- Wakala model, the operator may also charge a fund management fee and performance incentive fee.

16. Wakala ModelA principal-agent arrangement { wakala} is used the policyholder and the takaful operator for both underwriting and investment activities. Wakala fee is a percntage of upfront Contributions. This sometimes includes A performance element to encourage efficient management . Contribution,claims and distributions. Wakala fee Qard al- hasan

17. Wakala -Waqf Model It is a WAKALAH model with a separate legal entity of WAQF in-between. • The relationship of the participants and the operator is directly with the WAQF fund. The operator is the ‘Wakeel’ of the fund and the participants pay contribution to the WAQF fund by way of Tabarru. • The contributions received would also be a part of this fund and the combined amount will be used for investment and the profits earned would again be deposited into the same fund which also eliminates the issue of Gharar. • Losses to the participant are paid by the company from the same fund. • Operational expenses that are incurred for providing Takaful services are also met from the same fund.

18. Wakala waqf ModelA waqf fund is estiblished by shareholder via an initial donations and is managed through the combine model. No Qaed al hasan is provided to support the policy holders funds. Contribution,claims and distributions. Wakala fee is a percntage of upfront Contributions. Wakala fee Initial donations Mudaraba fee is a percentage returns from investment

19. Combined Model • Combination of wakala and mudaraba contracts: In this model, the wakala contract is adopted for underwriting activities, while the mudaraba contract is employed for the investment activities of the Takaful fund. This approach appears to be favoured by some international organisations and is widely adopted by Takaful undertakings in practice.

20. Combined ModelA combinations of the principal-agent{wakala} and principal-manager{mudaraba} arrangement is used for underwriting activities and mudaraba is used for invetment. Contribution,claims and distributions. Wakala fee is a percntage of upfront Contributions. Wakala fee Qard al hasan Mudaraba fee is a percentage returns from investment

21. Investment By Company Profit From Investments Profits attributable to Shareholders Mudaraba Model Company Company’s Admin. & Mangt. Expenses Company’s Share from Surplus Participant General Takaful Fund General Takaful Fund Operational Cost of Takaful Surplus (Profit) Takaful Contribution paid by Participant Participant’s Share from Surplus

22. Wakala Model Profit From Investments Mudarib's’ Share of PTF’s Investment Income Wakala Fee (30% to 35%) Management Expense of the Company Profit/Loss attributable to Shareholders Company (Capital) Takaful Contribution paid by Participant Investment by the Company Investment Income Sharing on Mudaraba Basis Participants’ Takaful Fund General Takaful Fund Investment Income Operational Cost of Takaful/ ReTakaful Reserves Surplus (Profit) Surplus Distribution to Participants

23. Wakala-Waqf Model Share Holder S H A R E H O L D E R S’ F U N D (S.H.F.) Wakalah Fee Investment Income Mudarib’s Share of PTF’s Investment Income Management Expense of the Company Profit/Loss Takaful Operator Investment by the Company WAQF Claims & Reserves Surplus (Balance) Operational Cost of Takaful / ReTakaful Investment Income Participant P A R T I C I P A N T S’ T A K A F U L F U N D (P.T.F.)

24. TAKAFUL WORLDWIDE The number of takaful operators worldwide: - 75 takaful operators (including takaful windows) - 5 retakaful operators Total assets: USD 1,5 billion Contributions: USD 600 mln.

25. TAKAFUL WORLDWIDE Share of takaful in insurance industry • Malaysia: 27 % of total insurance market • Asia Pacific: 9% of total insurance market • Middle East: 63 % of total insurance market • EU and US: 1 % of total insurance market The takaful and retakaful market is expected to grow to $10-12 billion by 2011.

26. THANK YOU FOR YOUR ATTENTION!