Available at: http://www.dawn.com/2009/01/23/ed.htm#5Page 1 of 2
DAWN
January 23, 2009
Growth of Islamic insurance
By Syed Imad-ud-Din AsadINSURANCE is a risk-transferring arrangement between two parties: one party agrees, inexchange for a fee or premium, to indemnify the other against a specified loss. It is a device bywhich individuals and organisations shift the burden of a potential hazard to others.Many Muslim scholars are against conventional insurance as they see elements of maisir, ghararand riba in it. According to them, Islamic law allows insurance when it is undertaken in the formof takaful, which is an arrangement based on the principles of cooperation, shared responsibilityand reciprocal indemnification. It is not a transaction in which one party buys protection from theother.Takaful is an agreement by a group of people to shield each other from a specified potential lossor damage through the setting up of a defined pool of money. Any member of the group whosuffers such a loss is compensated in the form of monetary help from the common fund. Also,money from the common fund can be invested in shariah-approved avenues. This is one of themain differences between takaful and conventional insurance. This way income can be generatedresulting in the growth of the fund.It must be mentioned that takaful, as it is based on the notions of mutual help and socialsolidarity, is originally seen as a non-profit activity. However, there is no harm in undertaking itas a commercial venture. There are different models of takaful in vogue. These include tabarru-based takaful, mudaraba-based takaful and wakala-based takaful. Similarly, there is a wide rangeof takaful products available for individuals and organisations. For example, personal takaful,group takaful, motor takaful, fire takaful, workmen’s compensation takaful, public liabilitytakaful, etc.Just like there is reinsurance in the world of conventional insurance, there is re-takaful in theworld of takaful. It involves another arrangement between a takaful operator and a largeroperator where the former is financially incapable of compensating for all possible losses out of his/her own resources.The modern takaful industry started in Sudan in 1979 with the establishment of The IslamicInsurance Company. It was followed by Saudi Arabia where The Islamic-Arab InsuranceCompany was set up in the same year. Today, there are takaful operators in more than twentycountries.In 2002, the global takaful market was estimated at $2.1 billion of premiums. It is estimated toincrease to premiums of $12.5 billion by 2015. In fact, despite the global financial turmoil, theMiddle Eastern insurance market is expanding. In 2006, as reported by Swiss Re, the marketgenerated $6.9 billion in premium income. And, according to Standard & Poor’s, the UnitedArab Emirates and Saudi Arabia are showing the fastest growth, i.e., 20-25 per cent per annum.
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