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The President of Pakistan had promulgated the Insurance Ordinance, 2000 on 19th August 2000 repealing the Insurance Act 1938. The objectives of this ordinance are said to be: * To regulate the business of the Insurance industry. * To ensure the protection of the interest of insurance policyholders. * To promote sound development of the insurance industry. The new ordinance has divided life insurance business and non life insurance business into following classes:
LIFE INSURANCE BUSINESS:
1. Ordinary Life Business. 2. Capital Redemption Business. 3. Pension Fund Business. 4. Accident and Health Business.
NON-LIFE INSURANCE BUSINESS:
1. Fire and Property Damage Business. 2. Marine, Aviation and Transport Business. 3. Motor Third Party Compulsory Business. 4. Liability Business. 5. Worker’s Compensation Business. 6. Credit and Surety-ship Business. 7. Accident and Health Business. 8. Agriculture Insurance including Corp, Insurance. 9. Miscellaneous Business.
A public company or a body corporate can start insurance business in Pakistan. For sound and prudent management fit and proper persons with appropriate experience and qualification will be employed to conduct their duties with due diligence and skill. 80 Million Rupees will be attained up to 31st December 2004. Every insurer will maintain a minimum deposit equal to 10% of its Paid-UpCapital with State Bank of Pakistan. NON-LIFE INSURANCE BUSINESS: ( 80 MILLION RUPEES). 2. 100 Million Rupees will be attained up to 31st December 2002. The deposit in excess of amount required can be asked for with permission from SECP for refund. A certificate of registration as insurer will be obtained within six months for life business and non-life business separately.000. . and reinsurance: arrangement appointment of auditors and to comply with Provisions of this Ordinance. 1. 1. A registered insurer shall have to pay an annual supervision fee to SECP at the rate of Rs. 1 per thousand of gross premium written in Pakistan during the calendar year with a minimum of Rs. solvency. 50 Million Rupees will be attained up to 31st December 2002.up-capital required for registered insurer is as under: LIFE INSURANCE BUSINESS: (150 MILLION RUPEES). 2. 100. 150 Million Rupees will be attained up to 31st December 2004. statutory deposits. requirements. The minimum paid. The registered insurer will meet the requirements of minimum paid up capital.
This Ordinance also provides for appointment of administrator and winding-up of an insurer. * The Person complies with the conditions to be prescribed. The penalties for offence against the Ordinance are also prescribed. Wideranging powers have been granted to the Federal Government and SECP. In addition to Authorized the Commission will register surveying Officers according to the prescribed procedure. New types of insurance will be introduced in the country like credit Insurance and Crop Insurance etc. The small insurance companies may amalgamate with large companies or those may be converted into broker houses. The brokers should have obtained license from the commission. Special provisions have been laid down for protection of policyholder’s interest. The Government of Pakistan will appoint the insurance Tribunal and the Insurance Ombudsman. . * The person carries professional indemnity liabilities. The culture of Insurance Broker will be introduced in the market. The requirements of Paid-UpCapital. The Commission should license the persons acting as insurance surveyors. * The person should be a member of the approved professional Association. A person can apply for a license after fulfilling the following conditions: * The person is a company with a prescribed minimum share capital. This will promote sound development of insurance industry. statutory deposit professional indemnity insurance and other matters are to be prescribed by the Government for registration of brokers. This ordinance has almost changed the insurance structure of Pakistan.REINSURANCE ARRANGEMENTS There are provisions for appointment of agents and brokers.
So. However. On analysis of 39 insurance companies registered at Karachi Stock Exchange. Foreign investments are also anticipated. In such conditions the stock markets of the country were not attracting investments both foreign and local. There are other 22 companies. The public and private sectors are expected to be involved in the reconstruction of Afghanistan. exports were stagnant. only 9 companies have the capital more than the amount required as per Insurance Ordinance. The foreign exchange remittances have been increased and the exchange rates have been stabilized. The SECP will consider any objection or suggestion received from any person in respect of this draft before expiry of the said period. The SECP has published in Gazette of Pakistan a Draft Notification in February 2002 with the title of "Draft Insurance Rules. 2000. . which have Paid-up Capital as required for brokers. The construction of the third seaport at Gwadar has also been started. inflation and price spiral was soaring. However still the Insurance Regulations are required to be made. unemployment was on rise. now the economic environment of the country is changing. 2002" for information of all persons likely to be affected and notice has been given that these draft Rules shall be taken into consideration after 30 days of its publication in the official Gazette. The Motorway and other highway projects are being completed. imports were rising and number of sick industries was shooting up. Draft Insurance Rules although have been prepared and hoped to be finalized and implemented within a period of one month. it was difficult for insurance companies to generate further capital. In the recent past the economic environment for trade and industry was sluggish.The formation of Insurance Rules and Regulations are necessary to implement the Insurance ordinance 2000 in letter and spirit. The sick industries are being revived through CIRC (corporate and Industrial Restructuring Corporation). These companies can easily convert themselves into brokerage houses or they can also make mergers.
the Malaysian National Fatwa Council deemed insurance. A lot of effort. Sales agency model which can result in quantum-leap growth should be explored by scholars and put into practical applications to cover the needs of various levels of society Islamic scholars has began to agree on the viewpoint that Takaful is compliant to Shariah principles. many scholars are not in agreement whether insurance is permissible or prohibited in Islam. especially life insurance. While pro-insurance scholars agree that insurance provides protection which is beneficial to the public. with various Shariah councils and Islamic Conferences endorsing the Islamic values in the operation of Takaful Main objections to conventional insurance: As the concept of insurance did not exist in the time of the prophet. as a Fasid practice which is prohibited (Haram) as it contains elements of Gharar. and in an insurance contract. Takaful-. There is a huge potential which must be explored by Muslims to take the advantage of this opportunity. Gharar – Gharar is defined as “uncertainty” where the results are hidden or not known.g. compromises to be endured and must be undertaken to promote more Muslim participations in Takaful services.Takaful (Islamic Insurance): Introduction: Takaful business is still at its introductory stage whereby there were 60 Takaful operators (including under windows) worldwide (in 23 countries).aims to resolve the following elements which exists in conventional insurance. Business Model e. the uncertainty are as follows: * Uncertainty in the outcome – The contract is deemed invalid as neither the insurer nor the insured knows the outcome of the contract * Uncertainty in the existence – The contract is deemed as invalid as the . Maisir and Riba’. studies.
gold against gold. It can also be further explained as participants mutually contribute.” Origins of Takaful: The alternative to conventional insurance. it is the insured that loses. This concept pre-dates the Islamic era when the rough model of Takaful was practiced by Arabic tribes. the benefit is derived on luck. the insurer loses while if no mishap occurs. If the mishap happened to the insured. more appropriately in modern times. for the purpose of mutual indemnity to other participants in cases of peril or harm. the result of the exchange is still uncertain. holding to the . as a donation. * Uncertainty in Contract Period – The contract is deemed invalid as the time frame of the contract is not known. silver against silver or. The AAOIFI definition is as follows: “Islamic insurance is a system through which the participants donate part or all of their contributions which are used to pay claims for damages suffered by some of the participants.e. Riba: – Riba is explicitly prohibited in Islam.insured do not know if there will be compensation as the outcome of the contract is not known * Uncertainty in the Results of the exchange – The contract is deemed invalid as at the point the contract is made. Maisir: – Maisir is defined as “gambling” where in the context of insurance. is based on the concept of Ta’awun meaning mutual assistance. Generally. Definition of Takaful: Takaful is a form of mutual assistance (Ta’awun) in furthering good virtues by helping others who are in need or in hardship. Riba is defined as “interest” or “late payment” which is above the agreed payable sum of two similar product i. money against money. Takaful. especially in instances of life insurance.
derived from the word “Kafala”. practitioners have taken the step further to expand the model into a more commercially viable model of Takaful. where a group of subscribers contribute to a pool of funds.e. the funds in the pool are invested in an Islamic manner and without exposing the policy holders to any extra significant risk. In the meantime.e. The concept of Takaful: The principles of guarantee. the responsibility imposed among the immigrants for their word. which explicitly mentions that the money collected is to 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”. This form of co-operative insurance is already in existence in several countries. is the basis of Islamic insurance i. and the provision for ransom for the rescue of life of a prisoner. Takaful. permissible by Shariah. The concept of Takaful has also been incorporated in its earliest form in the constitution of Medinah by the Prophet (PBUH) where social insurance by the Jews. Unclaimed profit are then distributed among the policy holders. . they draw money out of the pool. Taking into account these basic Takaful concepts. This model of Islamic Insurance follows closely the concept of cooperative insurance. Among the examples of early Takaful were the merchant of Mecca pooling funds for victims of natural disasters and assistance extended to families of murder victims. Christians and Ansars were introduced. the majority shares the burden of the unfortunate minority via the pooling of funds. Takaful means that the majority guarantees the loss of the minority i. This principle is further enhanced to incorporate the concept of “Tabarru’” meaning donation.principle of pooled resources to help the needy on a voluntary and gratuitous basis.Whenever one of the members makes a legitimate claim.
Common terminologies used in the Takaful: Terminology changes: Life Insurance/ Life Assurance Policy Premium Assured Life Assured / Insured Policyholder Sum Assured Payer Life Proposed Policy Document Premium Notice Premium-RedirectionFirst Premium Receipt Insurance Charge/Fee Family Takaful Certificate / Scheme Contribution Person Covered Participant Certificate Owner Sum Covered Contribution Contributor Person Proposed Contribution-Redirection Participant’s Membership Document First Contribution Receipt Contribution Key elements of Takaful: A Takaful system of risk protection consists of the following elements: * Sharia compliance in Takaful operations and investments * Financial and Risk sharing under the principle of Shariah * Contributions are in the form of Tabarru'. or donations for mutual assistance to the needy members of the group * Application of ethics and full disclosure .
etc. . accidents. death.? * Waqf: An endowment which is setup and collects all the contributions which come from the participants.Parties in a Takaful Contract: A contract is made between two parties but a Takaful scheme involves: * The Takaful Operator: Providing the service to the community. * The participant: Who wishes to have cover against risk of suffering a financial loss resulting from fire. burglary.
• Fatwa Archive. 1997 • Companies Ordinance 1984 . • SECP Insurance Rule2002 • Takaful Act 1984-Malaysia • Takaful Rules 2005 • Insurance Ordinance 2000 • Security Exchange Commission of Pakistan.Regulatory framework of Ttakaful in Pakistan • Shari’ah Supervisory Board.
) There are claims that life insurance means to ensure one’s life against death There are some contradiction to the concept of Wasiyah (bequest) and Mirath (inheritance) The Islamic insurance does not contain Riba but is based on the concept of al-Mudharabah which basically means profit sharing Life insurance is not meant to determinate one’s life expectancy.W. Prof Dr Mohd Ma’sum Billah.Controversies and Refutation in Takaful: Prominent writer. or to promote the idea that participants are protecting his/her life. in his writing on ulama acceptance to the concept of Takaful. and Those that accept insurance so long as they are in conformity with Shariah. the gambler hopes to gain materially at the expense of other co-gamblers whereas in insurance co-operation is emphasized for the benefits of all parties involved.e.e. Those that accepts general insurance but rejects life insurance. rather the participants and the insurance operator work hand in hand to provide for unexpected calamities. the participants hopes for material gain from his contribution There are elements of uncertainties or Gharar There are elements of gambling (Maisir) There are elements of Riba There is no justification for insurance from the Quran or Sunnah Insurance is contrary to Tawakkul i. There is an element of betting involved i. which is allowed in Islam. • There is no element of gambling (Maisir) in insurance. putting one’s trust in others instead of Allah (S. has categorized ulamas broadly into three categories in respect of their stand on the validity of insurance: • • • • • • • • • • • • • Those that rejects insurance entirely. . In gambling.T.
riba. In response to claims that there is no divine justification for insurance per se. * The concept of shared responsibility. Ma’sum Billah further augmented his arguments on the validity of Islamic insurance by pointing out that the foundation of Islamic insurance is derived from the Arab custom (“urf”) of Al-Aqila. the author has pointed out provisions in the Quran as well as Sunnah on the concept of co-operation and concept of Al-Mudharabah financing Prof. The primary purpose is to lessen the burden of members of the community caused by the occurrence of certain loss or damage. The Holy Prophet (S. the urf is permissible.• • There are no uncertainties or Gharar in insurance as the insurance contract is definite and certain. Islamic Insurance is also based amongst others on the doctrine of (Masalih alMursalah) or public interest.) said The basic notion of Takaful is to provide an avenue to share responsibility. all of which makes Takaful invalid. . solidarity and mutual cooperation to safeguards participants against a defined risk. but ensures financial security. Dr. unjust enrichment. Shariah ruling that came to support the concept of Takaful placed the following conditions which must be adhered to: * Takaful doesn’t protect. So long as the urf does not contravene any provisions in the Quran or Sunnah. mutual cooperation and solidarity makes it more significant compared to conventional insurance * Takaful transaction is free from element of uncertainty. Based on this.W.A.
Al Milkiyah (ownership) 2. Al Wasiyah (bequest) Under Takaful. as follows: * the total benefits are calculated together with other wealth held by the policyholder while he/she is alive. except in instances of waqaf (charitable trust). which should be separated from the distributable surplus With the distributable surplus.Concepts of beneficiaries in Takaful: Beneficiary in a policy is usually determined on the test of whether the person has an insurable interest on the subject matter. This is determined under the following principles: 1. the distribution will be made according to the principles of bequest (Al Wasiyah) and inheritance (Al Mirath) respectively. which needs to be settled immediately * the surplus is to be used to pay off any funeral expenses. Under waqaf. the principle of sole ownership remains true but the benefits of the policyholder is moved to the beneficiaries of the properties left by the policyholder. Al Mirath (inheritance) 3. the benefits of the policy are the sole ownership (Al Milkiyah) of the policyholder After death. the property becomes the ownership of Allah and no longer belongs to an individual. . * the total wealth is used to pay off any outstanding debts by the policyholder as debts to other individuals is considered as “debt to creatures”.
The profits will be shared accordingly between the operators and the contributor * However. based on the pre-determined share. while is the full owner of the benefits of the policy when alive. only 1/3 can be given away as per policyholder’s bequest. funeral expenses and execution of the policyholder’s will. under Islamic law. establishment and administrative expenses) which means the profit distributed to customers are actually “gross profits”. after deduction of expenses. The expenses will instead be deducted from the operators share of profit. Types of Takaful Model: Ta’awuni Model (Co-operative Insurance): * Originating from Sudan and Saudi Arabia. * Al Mirath: After deduction for payment of debt. only up to 1/3 of the surplus can given away via a “will”. guided by the provisions in the Quran.* Al Wasiyah: Of the surplus properties. which is used to generate profits (in net surplus situations after deduction of claims). which means the returns to the operators is the net profit. the profit to be distributed does not include deduction of expenses (such as staff costs. may choose to “will away” the whole surplus properties to third parties or in favour of certain heirs and not in favour of the policyholders rightful heirs. Therefore. This is to reduce the possibility of injustice where the policyholder. . the remaining property is to be distributed to the living heirs according to Islamic law. this model emphasizes cooperation where donors contribute to the fund.
The model operates as follows: * The agent is responsible to identify potential participants and disseminate information regarding the product concept and policy to avoid misconceptions. the agent is only entitled to commissions whereas a Takaful agency views its agents as employees of the company. the expenses such as agent’s salary will be deducted upfront from the Takaful pool of funds. * In this model. . this model uses both the Pure Mudharabah and Modified Mudharabah approach.Wakalah Model (Agency): Wakalah is the contract of agency where the company appoints representative. This model is applicable for both general Takaful and family Takaful (with minor variation).e. The major difference between a conventional insurance agency and a Takaful agency is that in a conventional agency. The agent can also collect the contribution on behalf of the company. to sell the Takaful product. Tijari Model (Business): * Commonly used in Malaysia. either full-time or part-time. * As for the general Takaful. the Modified Mudharabah approach is used where deduction of expenses in taken into consideration. The net funds (underwriting surplus) will be used for investments and the profits will be distributed accordingly. which will result in a more expensive premium contribution from participants as to cover operational expenses. participants enjoy the gross surplus of the funds. thus entitled to a salary. * The family Takaful portion of the business uses the Pure Mudharabah approach where the participants are entitled to 100% of the surplus as no operational expenses are deducted i.
claim and re-Takaful.e. which will be distributed to participants based on the Mudharabah principle. the division is responsible to invest the contribution paid by participants to earn profits. The various underwriting plans are grouped into several main classes i. individual Takaful and group Takaful. General Takaful Division: The operation of the contributions is managed by 3 different functions. motor Takaful.e. General Takaful. fire Takaful. Individual Takaful protects the individual participants while a group Takaful protects an individual and also his/her family or other groups from a defined risk.e. Family Takaful.e. and equipment all-risk Takaful Finance & Administration Division: The finance division is divided into 2 key parts i. Finance & Administration. “Investment” and “Account”.General Structure of Takaful Company: A Takaful General Manager oversees 4 major departments i. For “Account”. . and Marketing Division. For “Investment”. the division manages the different accounts in the company’s book such as Participant’s Account (PA) based on the Mudharabah principle and the Participants’ Special Account (PSA) based on the Tabarru’ concept. Life Takaful Division (Family Takaful): Consist of two classes i. The contribution paid will be divided into 2 distinct account with principles of Mudharabah in one and Tabarru’ in the other. defined as underwriting. miscellaneous or accident Takaful.
whether the risk is covered. the following are considered: whether the policy is enforced (expired or not). the company considers whether the cover is adequate and whether it meets all other conditions. To determine the quantum and avoid excess in claims. and quantum. Although not widely acceptable. including reporting and recording. either using agency or corporate promotion. whether there is a warranty or limitations based on regulations and. whether there is excess. Accounting Treatment: Various companies use various accounting treatment such as cash-basis. actual realised profit and accrual-basis. business transactions and other matters. the accrualbasis method is used by Takaful National in Malaysia based on estimates on the quantum of cover. Claims: The claims procedures falls under two categories which are payable or not payable.The Administration division caters for other functions in the company such as employees. Responses: . To determine whether a claim is payable. Key factor in this division is trust (amanah) and well trained people Marketing Division: The company’s marketing division is responsible in planning the promotion of Takaful products and services. such as self-insurance conditions.
But alas! even in Islamic countries business are making two balance sheets to prevent themselves to pay themselves by paying compulsory zakat to the government and making three balance sheets if are going to amagamate or affiliation with another foreign entity. and not to save the innocent people from possible hazards of life. The employees of Takaful at upper level are all from conventional insurance who join takaful mainly to get benefit of their worldly gain like higher salary. salary plus higher commission to grab more share of the market but to give losses to the contributors (insurers).I think that conventional insurance and takaful are working in the same manner. higher position etc though then post themselves as Islamist but by heart they are still the same. The main purpose of both takaful agent and also for insurance agent is the same to grab the monies by motivating the innocent people. So at all fronts we are deceiving nobody but ourselves. . The actual tabarau and actual cooperation can only be achieved if the Muslims are steadfast in paying their zakat regularly and in full and then by contributing generously in any disaster and emergency. Further Takaful offer more monies to their agents like. though Takaful restrict themselves from investment in riba but still for re insurance they are approaching the same place as are going the conventional operator.