Dynamics of the Cooperatives,

Mutual Insurance & Takaful

Mutual Insurance and Takaful in a changing world

Istanbul, Turkey
November 12 2012
 Overview of presentation

• Overview of the cooperative and mutual

insurance sector
• Why is Takaful different to conventional
insurance?
• Where Takaful is Mutual and where it is not
• Opportunities for working together
Takaful and Mutuality
What is the connection?
 Takaful is not conventional
insurance because....
• Maysir (gambling) – underwriting of risks by
shareholders in anticipation of a profit is
prohibited
• Gharar (uncertainty) – the insured pays
premiums in exchange for indemnity against
risks that may not occur
• Riba (usury) – the company engages in
investments that derive their income from
interest and/or prohibited industries
 Takaful in principle is Mutual
• Solidarity and joint guarantee
• Self reliance and self sustaining for community
well being
• Assist those that need assistance
• Community pooling system
• Shari’ah approved investments and products

“Bear ye one another’s burden”

 1978 Islamic Cooperative
Insurance Fatwa (Sudan)

The Legal Control Committee for the Faisal Islamic

Bank, comprising a number of legal and Sharia
experts, ruled against insuring the bank's assets
with commercial insurance companies and
forced the bank to deal with Islamic cooperative
insurance companies.
Fiqh Academy Resolution 1985
• The Commercial Insurance Contract, with a fixed
periodical premium, .... is prohibited (Haram)
according to the Sharia.

• The alternative contract, which conforms, to the

principles of Islamic dealings is the contract
of co-operative insurance, which is founded on
the basis of charity and co-operation. Similarly is
the case of re-insurance based on the principles
of co-operative insurance.
 European Council for Fatwa
and Research

It is well known that in most non-Islamic countries there

are co-operative and mutual insurance companies.
There is no harm from the Shari`ah point of view to
participate in these services. So, it is unlawful for a
Muslim living in a country where there is such a co-
operative insurance company to make an agreement
with a commercial insurance company.
 In Principle Takaful is Mutual

“Principles of mutuality should permeate every aspect of takaful, and be

practised within Takaful corporations.”

Syed Moheeb (Former President and CEO, Takaful Ikhlas)

“Takaful is a cooperative model, it is a mutual model based on

solidarity, designed for community welfare, equity, justice and
fairness, both cooperatives and Takaful share that.”

Hassan Bashir (CEO, Takaful Insurance of Africa)

“Takaful will never converge into the conventional model. If it is going

anywhere other than the theoretical takaful model, it will be
(towards) the mutuals"

Sheikh Dr Mohamed A Elgari

 In Principle Takaful is Mutual

“The best form of Takaful would ideally be an

existing mutual or cooperative insurer which
invested its premiums compliant with Islamic
principles.”
Dawood Taylor
ICMIF Takaful & Mutuality Seminar, Tunisia 2004
 Takaful has evolved into a
mutual hybrid...
• Marine Insurance – Early second century (9
A.D.) – mutual fund to cover robberies and
mishaps
• 1979 first Takaful operator established
• 1984 first Mudharabah model
• 1990s Wakala model established
• Multinationals enter the market
• Large reinsurers commence Retakaful
 The difference between
Takaful and mutual models

• External Shareholders are providers of capital

• Sharing of underwriting surplus
• Shareholder provides interest free loan in the
event of underwriting losses
• Governance is with shareholders
Global Takaful Operators (2008) and Contributions (2009)

Current contribution concentrations

Source: Ernst & Young's World Takaful Report 2011

Where can the two movements
work together?
 Opportunities for cooperation
Status of sector
• Mutual insurance has been formally established for many
centuries
• Key success factors
• Experience from period of demutualisation

External environment
• Customer trend is now towards more ethical and transparent
financial providers
• Value based proposition
 Opportunities for cooperation
Operational
• Staff loyalty and belief in principles
• Mutuals actively work with each other.
• Governance
• Surplus distribution

Strong representative voice

• ICMIF has 90 years of experience representing the movement.
• Unified representation

Addressing Market Gaps

Mutual market share 2010

Source: ICMIF Mutual Market Share 2010

Muslim population in the world

Percentage of Muslim population

1.5% 1.8%
7.6%
Europe

Asia & Middle East

Latin America and

32% Carribean
Africa
52.4%
Oceania

North America
0.4%

Source: www.muslimpopulation.com
 Potential Takaful markets
have minimal mutual insurance

Source: The World Takaful Report 2012, Ernst & Young

 Microtakaful – the need
• Large sectors of poverty in many Muslim countries
• Almost half of world’s lowest developed countries have a
majority Muslim population
• Increasing inequality in Middle East and Gulf countries and
between Muslim countries
• Low penetration of insurance
• Religion plays a fundamental role in the lives of the poor
• In line with the teachings of Islam and principles of Takaful
 Takaful Network Seminar 2011
Returning to our Roots: Realizing our Potential
 COLOMBO DECLARATION
23rd November 2011, Lakeside Cinnamon Hotel, Colombo, Sri Lanka

Following the first FOIITC,GTG, ICMIF Takaful Network Seminar hosted

by Amana Takaful the three associations have agreed to join efforts
and resources towards the promotion of Takaful (Islamic Insurance)
and Mutuality (cooperative and mutual insurance) worldwide. Further,
the Joint committee have highlighted the following objectives:

• To improve access to Takaful in emerging countries

and underserved markets.
• To facilitate cooperation and collaboration between
Takaful/Retakaful operators and associations from
across the globe.
• To raise awareness and understanding of Takaful
values and principles worldwide.
• To effectively represent the Takaful movement to all
stakeholders and supervisory authorities.
• To strengthen and reinforce the mutual values at the
heart of Takaful.
A Global reach for
local strength
Thank you

www.icmif.org
www.takaful.coop
www.microinsurance.coop