Transcript Document

Topic
Islamic Life Insurance
The World of Takaful
Sub heading – describing topic
By “Author”
By Shivash Bhagaloo
South Africa
Contents
• Market Overview
• What is Takaful Insurance?
• How is Takaful Insurance Different?
• Takaful Models
• Regulation
• Challenges
1
South Africa
Market Overview
• Market born in Sudan in 1979
• Global Presence
• Largest market in the GCC and South East Asia
• Global contributions of $2-3bn (2006) (60% GI, 40% LA and Pensions)
• Annual growth of 15-20% over the past 3 years
• African Presence
• Largest markets in Sudan, Egypt, Tunisia, Algeria, Senegal
• Smaller presence in South Africa, Gambia
• Industry driven
• High economic growth
• Increased awareness
• Increase in Sharia compliant financing
2
South Africa
What is Takaful Insurance ?
• Compliant with Sharia principles (Islamic law)
• Literally translated means “ joint guarantee”
• Similar to co-operative or mutual insurance
• Policyholders underwrite the risk
• Policyholders own the company
• Allowance for a charitable donation of surplus
• Terminology
• General Takaful – general insurance
• Family Takaful – life assurance and pensions
3
South Africa
How is Takaful Insurance
Different ?
• Certain aspects of normal insurance conflict with Sharia
principles
Maysir
(Gambling)
-
insurers make bets on the loss occurrence
and this is deemed to be gambling
Gharar
(Risk & Uncertainty)
-
timing and amount of the loss are
uncertain
Riba
(Interest)
-
investments in interest bearing securities
and possible interest on loans
-
investments in commodities or involvement
in activities that are forbidden (alcohol, pork
etc).
Haram
(Forbidden / Unlawful)
4
South Africa
How is Takaful Insurance
Different ?
• Important Practical Implications of
• Uncertainty – No term or endowment assurance products
allowed
• Interest – Bond investments not allowed, equity
investments permissible since market risk replaces credit
risk.
• Haram – Trading in futures is forbidden
5
South Africa
Takaful Models
• Differ in the way funds are shared between policyholders and the
Takaful operator
Wakalah (Fee based) Model
• Operator acts as an agent, administers funds on behalf of participants
• Receives a fee for operating expenses
Mudharabah (Profit share) Model
• Operator acts as Mudarib (entrepreneur) with participants as the capital
providers
• Losses paid by participants with a pre-agreed profit sharing agreement
Wakalah/Mudharabah (Fee based/Profit share) Hybrid
• Wakalah for insurance activities and Mudharabah for investment
profits
6
South Africa
Wakalah Model
Management
Expenses
PARTICIPANTS
Contribution
Wakalah Fee (eg 30%)
Shareholders’
Fund
Claims
Shariah compliant
Investments
Takaful
Fund
Reinsurance/
Retakaful
Reserves
Underwriting Profit
Investment Profits
Qard
Hassan
Surplus/(Deficit)
100% surplus
Charitable Donation
7
South Africa
Mudharabah Model
Management
Expenses
PARTICIPANTS
Contribution
Shareholders’
Fund
Claims
Reinsurance/
Retakaful
Takaful
Fund
Shariah compliant
Investments
Reserves
Underwriting Profit
Investment Profits
Surplus/(Deficit)
X% of Surplus
100% - X% of Surplus
Qard
Hassan
(interest
free loan)
In case of
a deficit
in the
fund to
be repaid
from
surpluses
in future
years
Charitable donation
8
South Africa
Wakalah / Mudharabah Hybrid
Management
Expenses
PARTICIPANTS
Contribution
Wakalah Fee (eg 30%)
Shareholders’
Fund
Claims
Shariah compliant
Investments
Takaful
Fund
Reinsurance/
Retakaful
Reserves
Investment Profits
100% - X% of
Investment Profits
Underwriting Profit
X% of Investment Profits
Qard
Hassan
Surplus/(Deficit)
Charitable donation 100% of Surplus
9
South Africa
Regulation
• First set of regulation was 1984 Takaful Act, Malaysia
• Mandatory compliance in certain countries (Saudi Arabia,
Sudan)
• Regulation is still in its infancy
• Takaful compliance is overseen by a Sharia Advisory Board
comprising Sharia scholars
• Lack of fiscal involvement
• Lack of harmonisation of rules globally
10
South Africa
Challenges
• Not as developed as conventional insurance
• Lack of global awareness
• Shortage of skilled resources in the Takaful market
• Limited Shariah compliant investments
• Lack of harmonised regulation of Takaful industry
11
South Africa
Summary
• Takaful Insurance is based on Sharia principles
• Market is developed in Far East and Middle East but less of a
presence in Africa
• Similar to a mutual or co-operative, where policyholders
underwrite risk
• Gambling, uncertainty, interest and forbidden activities are
removed
• Models differ in the way funds are shared between
policyholders and the Takaful operator
• Compliance is overseen by a Sharia Advisory Board
• Still require a harmonised global regulatory framework
12
South Africa
Questions ?
13
South Africa
Aon named
2008 Best Takaful Reinsurance
Intermediary
at the 2nd International Takaful Summit in London,
recognised for its reinsurance and consultancy
work in the Takaful and Retakaful
sectors
14