i.

Cooperative (Taa’wuni) Model

Cooperative model of Islamic insurance is design in such a way that participants’

contributions are accumulated in the participant risk fund (PRF). The PRF takes

care of claims, re-Takaful contribution, and operating expenses whenever the needs

a raised. More so, PRT are invested in legal and lawful business of which profits

from the investments are shared between shareholders and participants. For

maturity, the participants will receive their respective amount from the PRF and in

the case of surrender, similar to the case of maturity. In the case of deficit, the

Qard loan (interest free loan) will be given from the Shareholder fund (SF).

Figure 1: Cooperative Islamic Insurance Model

ii. Agency (Pure Wakalah) Model

Under the agency (Pure Wakalah) model is referred to as the principal-agent

relationship in which Takaful operators (TOs) on behalf of the premium payers

render the services of agent through management as well as investment the

contributions of participants. Under this arrangement, contributions of the

participants are split into Wakalah fee, PRF and PIF. The agent is excluded from

sharing the investment profit and the surplus from PRF. For claims, it will be paid

out of the PRF. However, Wakalah fee is to cover commission fees, operating

expenses and management of investment from which the agent gets service

charges.

Figure 2: Agency Islamic Insurance Model

In the case of maturity, the participant will be receiving his respective amount

(portion from contribution which has been investment and profit from the
investment) from the PIF (if any) and the maturity value from the PRF. When the

participants surrender before maturity, he will get his respective amount (portion

from contribution which has been investment and profit from the investment) from

the PIF (if any) and surrender value from the PRF. However, in the case of deficit,

the qard loan (interest free loan) will be given out from the SF and it should be

paid back to the SF.

iii. Incentive Compensation (Modified Wakalah) Model

This model and the previously discussed mode, pure Wakalah, are the same except

the TOs have shares (as incentives) from the surplus from investment of the PRF.

Likewise, the Wakalah fee is to cover commission fees, operating expenses and

management of investment. The contribution received from the participants are

divided into Wakalah fee, PRF and PIF.

Furthermore, claims are paid out of the PRF. In the case of maturity, the participant

will be receiving his respective amount (portion from contribution which has been

investment and profit from the investment) from the PIF (if any) and maturity

value from PRF. Whenever, participant decided to stop contribution, payments are

made based on portion from contribution which has been investment and profit

from the investment from the PIF. However, in the case of deficit, the qard loan

(interest free loan) will be given out from the SF and it should be paid back to the

SF.
 Figure 3: Incentive Islamic Insurance Model

iv. Investment Profit-Sharing Model

Under this arrangement, the major relationship between the TOs and participants is

basically profit sharing where participants provide capital and TOs provide

logistics for managing the capital. The income of the TOs is solely based on the

share of the profit from the PIF. There is no Wakalah fee for the TOs. Claims are

paid from the PRF.

Figure 4: Investment Profit Sharing Model

In the case of maturity, the participant will receive his respective amount (portion

from contribution which has been investment and profit from the investment) from

the PIF (if any) and the maturity value from the PRF. However, in the situation

where participant decided to discontinue prior to maturity, capital of such

participant is paid based on his/her contribution as well as profit from the

investment. But in situation of deficit, the Qard loan (interest free loan) will be

given out from the SF and it should be paid back to the SF.

v. Modified Mudarabah Model

This model gives the TOs the privilege to charge the direct cost of handing the

claims and management fee before computing surplus or deficit. More so, TOs

have shares the surplus from the PRF and the profit from the PIF. The contribution

received from the participants will be split into monitoring fee (i.e. direct cost of

handing the claims and management fee), PRF and PIF. For claims, it will be paid

out of the PRF.

 Figure 5: Modified Profit Sharing Model

At maturity, every participant receive money in proportion to contribution from the

PIF (if any) and the maturity value from the PRF. Withdrawer of any participant

prior to maturity did not deny such participant of his/her contribution as well as

profit from investment. However, in the case of deficit, the Qard loan (interest free

loan) will be given out from the SF and it should be paid back to the SF.

vi. Hybrid Wakalah-Mudarabah Model

This is combination of the principles of Wakalah and Mudarabah models for

underwriting and investment components respectively. The TOs have the stable

income, i.e. Wakalah fee, compared to the Pure Mudarabah model. At the same

time, TOs are allowed to share the surplus from the PRF and the profit from the

PIF. Operating expenses including commission are paid from the Wakalah fee. The

contribution received from the participants will be split into Wakalah fee, PRF and

PIF. For claims, payments are made out of the PRF.

 Figure 6: Investment Profit Sharing Model

In the case of maturity, the participants receive profit based on contribution which

has been investment and profit from the investment from the PIF (if any) and the

maturity value from the PRF. When the participants surrender before maturity, he

will get his respective amount (portion from contribution which has been

investment and profit from the investment) from the PIF (if any) and surrender

value from the PRF. However, in the case of deficit, the Qard loan (interest free

loan) are given from the SF.

vii. Waqf Model

viii.
 Figure 6: Investment Profit Sharing Model

This model is an advance Hybrid Wakalah-Mudarabah model due to the fact that it

has additional feature in which shareholders need to put up the same amount of

money in the PRF to start the waqf. Other than the initial donation as waqf, the rest

will be similar to the Hybrid Wakalah-Mudarabah model.

Critical look at these modes showed that in Islamic insurance, no party gains at the

detriment of parties as the case is in the conventional insurance. Hence, Takaful

prohibits of Ribä (usury), Gharar (risk) and Qimar (gambling) as incompatible with

economic justice. However, it provides legitimate grounds for making money, and

achieving harmony between the material and the spiritual (Aly, 2001; Syed, Hafiz

& Sheila, 2015).