Introduction
Insurance plays an important role in our lives. It involves financial protection that can occur unexpectedly or during unpredicted loss. When a person buys insurance, he or she pays an insurance company a monthly premium which can guarantee financial compensation in cases of uncertainties which can occur such as bodily damage or property loss among other misgivings.
This paper explores the conventional and Takaful insurance. It points out the aims of and objective of conventional and takaful insurance. Besides, it gives a brief history of takaful and explores Takaful Company of South Africa as one of the company which has embraced takaful in delivering services compliant with Sharia. Further, the paper discusses the products that Takafol produces such as commercial takaful and personal takaful. The papers further assess Takafol with compliance with Sharia principles.
In conclusion Takaful helps in promoting solidarity and comradeship among the Islam community by embracing Sharia. Besides, efficient and customized Takaful product provides a competitive advantage for Takaful to gain international presence in untapped markets such as Europe and the Americas.
Conventional insurance
Conventional insurance entails an agreement whereby an insurer in return for a premium accepts to pay the insured a sum of money or its similar in any kind in case of happening that might occur. This is contrary to the other party, in this case the insured i.e. “Financial interest” (Archer et al, 2009, p.36). Conventional insurance is action based for instance; most clients of conventional insurance expect that their policy will be rewarded when their premiums are paid. For example, if an accident or a fire ensures after the policy period ends it will compel the policy owner to be covered under any other relevant policy that can apply except when the policy was renewed.
Conventional policy applies where awareness of the insured event such as accident or fire is possible to track the event by itself (Archer et al, 2009, p.44). This helps in inducing a claim on the insurer to be instituted during the period of the policy or rather after it results. But, other types of insurance cover are emblematic because theyy deliver unlike in tandem with their founding objectives. For example, cargoes or ships in case they are lost or not, may be insured and specialized indemnity insurance is provided on claims made basis. Conventional insurance is noted as commonly non-compliant because certain aspects for example the shareholder benefit more than the policy owner. Also, it encourages discrimination when weighing risk i.e. Diverse premiums are cited based on gender, age and financial grade of an individual (Archer et al, 2009, p.77).
Aims of Conventional Insurance
Conventional insurance aims at encompassing its business operations under the guidance with the principle of contract (Culp, 2006, p.56). A contract ensures the business is legally compliant and both parties are protected. Secondly, conventional insurance aims at increasing profit for its shareholders and policy owners to promote its expansion and growth (Culp, 2006, p.68). Lastly, conventional insurance aims at transferring the risk of indefinite economic losses in return for a preset premium. This ensures uncertainties are mitigated.
How Conventional Insurance works
Under conventional insurance, the company invests in surplus premiums when the paid premium exceeds the planned expenses (Muslehuddin, 2006, p.87). Thus, the insurance company invests in various assets that it conserves for each entity insurance strategy.
The venture which is accrued is credited to the employer. But, if an employer earns more than the interest fixed, it is worthwhile to condense the transfer of funds to the insurer (Muslehuddin, 2006, p.980).
Takaful Insurance
Takaful is an Islamic insurance which is founded along the compliant principle and on the code of separation between the resources and procedures of the shareholder (Aly, 2004, p.37). This therefore transits the ownership of the insurance resources or money and processes to the policy owner.
The premiums collected from the policy owner are regarded as donations and they settle the insurance fund by which privileges are compensated. The money held by the company after the financial year is returned to the policy owners in form of premiums and distributions (Aly, 2004, p.44).
The investments a possession that represents Takaful insurance fund accrues in capitals, excess, and supplies that are invested by the stakeholders who oversee management of the company on behalf of policy owners. The stakeholders are rewarded with an agreed percentage of the profit accruing from the investments (Aly, 2004, p.56).
History of Takaful
Takaful has been in existence for over 1400 years. The first official Takaful insurance company came into existence in 1979. The Islamic Insurance of Sudan was the first company to adopt Takaful business (Billah, 2003, p.47). Takaful was founded on the principle of solidarity, comradeship and common backing. This principles provides for collective financial help and support to the contributor in time of need (Billah, 2003, p.57)
It integrates Sharia doctrines which are unlike conventional insurance History points out that Muslims of Medina and Mecca had started communal support program. The communal program called for Takaful existence to provide an effective way of handling unforeseen uncertainties (Billah, 2003, p.68). Besides, trade practice between the Asians and Arabs which was provoked by increased risks of loss and robbery contributed to Takaful emerging.
The Sharia guiding principle for introducing Takaful was; Gharar. Gharar means doubt, it referred to the economical improbability which was impulsive and had no measurable prospect. Maisir, which means gambling, was wealth that had a possibility of being taken and Riba, which means interest which stipulated that no interest should be charged in any given transaction (Jaffer, 2007, p.87).
The Takaful consist of two parties; the Ra’sul mal and Mudharibu. The Ra’sul mal earmarks a party or an investor who can provide the capital which in Takaful insurance means “premium”. Mudharib is a part which provides the needed skills or efforts in a business scheme (Jaffer, 2007, p.96).
The Takaful history brings into focus two models which are used as methods in making the Takaful system work. The Mudharabah and Wakalah. Mudharabah ensures the profit accrued in the business is shared equally using a percentage depending on the contract agreement (Jaffer, 2007, p.106). Wakalah earmarks that a fixed fee is shared by the shareholders in case of a profit or a loss.
Takaful Global
Takaful business has developed significantly as an Islamic substitute to conventional insurance. It has advanced from being regional to a global outfit. The resurgence in communally accountable Financing and customer claim for Sharia obedient has heightened the communal grounded business request of Takaful and its linked products (Chin, 2004, p.68).
Major markets of Takaful are found in Iran, Saudi Arabia, Malaysia, Indonesia, Pakistan and Sudan among others. The yearly average of distinctive market evolution ranges between 15-30%. Takaful Insurance has a leading market slice of the global product in Iran and Middle East regions.
Aims and Objective of Takaful
Takaful business is guided by its aims and objectives in meeting its business goals. First, Takaful aims at performing its business objectives in line with Sharia.
Secondly, Takaful is aimed at fixing a business which guarantees comradeship, unanimity and shared relief which delivers a common financial relief to members by encouraging equal contribution to mitigating an agreed purpose (Siddiqi, 1985, p. 67).
Thirdly, the Takaful aims at safeguarding people life, faith, future and their property. By encompassing social morals, Takaful improves public interests and contributes to a business which is socially accepted. A society which is free from exploitation provides an environment for satisfactory capital development (Siddiqi, 1985, p. 79). Mohammed, the Islam prophet detested begging and influenced forming capital. For example history points out that he advised a poor acquaintance to dispose off his property to buy an axe for which he would use to collect firewood and sell to potential customers in the market.
Fourthly, Takaful aims to provide equitable wealth distribution. Islam inspires people to selfless help one another by encouraging the sense of sympathy. Takaful therefore provides a platform whereby people can be exhilarated to give money for a common help during time of uncertainties (Siddiqi, 1985, p. 87).
Fifthly, Takaful aims at combating the growth of wealth and absorption in the hands of minority. Takaful gives an insight that alters the dissemination of wealth in a method that is unidentified in other legal framework. For example, it can divide a property of a deceased person among his or her recipients and not to a single heir. Wealth is regarded as an element which serves the interest of the whole community.
History of Takaful Insurance Company
Takaful is an insurance company that incorporates Islamic principles in its business operations. The company is based in Johannesburg, South Africa.
Takaful is committed in strengthening uprightness; transparency and fostering establishing long-term association which is grounded on respect and trust. The commitment and trust ensure Takafol fulfills its objectives and goals (Takafol, 2010).
The company has formed strategic alliance with other companies such as ABSA Insurance Company which helps Takafol provide insurance license and LIREAS HOLDINGS which helps provide stability and improve Corporate Governance responsibility.
Aims of Takaful Company
Takaful Insurance aims at strengthening transparency and integrity in fixing a long lasting partnership with its associates and other players in the insurance industry. This ensures that it delivers quality and affordable products for its swelling customers (Takafol, 2010).
Further, Takafol aims at urging Islamic code in tandem with insurance to simplify understands in of customers needs and wants in protecting customers possessions. And lastly, the company aims at ensuring that its services and products correlate to Sharia law to promote Islamic Economic environment.
Takaful Products
Takaful provides four major products this products include; personal takaful, commercial Takafol, Takafol assist and Takafol lifestyle. Personal Takafol involves insuring all risks. It covers personal portables that a person carries as he or she moves from his or her home. Portable possessions comprise items which are general which can be worn or carried along either in a car, handbag or a sports bag (Takafol, 2010). Portables listed under this category include; watches, clothing, jewelry, iPods, photographic equipments among others. Personal takaful is made up of two all Risk covers.
The first one is; Unspecified items. It covers items which are fewer than R 100 of each item. The item covered is, clothing, personal effects designed to be carried by a person and items which are won while a person is engaging in sports. Secondly, mentioned all risks stuff includes stuff which has a value beyond R1000 which either belongs to an individual or an immediate member of a family.
The item under mentioned all risks are independently listed and its cover extends worldwide despite of where a loss or damage can occur. The Takaful agreement will guarantee your custody is either repaired or replaced. Items in this category comprise of; contact lenses, cellphones, cameras, MP3, coin and stamp collections and navigations devices (Takafol, 2010).
When a person undertakes to contribute in All Risk Takaful, he or she makes payment to universal takaful fund in a form of participative payment (Tabarru’). A contract is undertaken (Agad) to be eligible participant. This ensures that common agreement is made to help one another in case any of the participants bear a loss or damage to his or her contents.
Commercial takaful entails all business risks. It provides coverage of business items that are always carried around. The cover in this category is diverse except the risks that are distinctively disqualified. It is one of the major broad forms of property cover that has worldwide coverage (Takafol, 2010). Items covered under this category include; laptops, trade tools, mobile phones and photographic items among other items. Commercial takaful idea is that when a person contributes to the broad takaful fund, he or she is responsible in mutually obliged to help one another. It applies in cases where the other party bears a loss or damage to his or her property.
Takaful Assist plays an important role in relieving customers in case of emergencies. Takaful assists in various ways. It includes; AA fleet Road Patrols. It is a 24/7/365 days service. The aim of the service if need on the spot mobility at roadsides. Takaful provides this service in key metropolitan cities such as Johannesburg, Cape Town, Durban and Nelspruit among other leading metropolitan cities. Services that AA fleet Road Patrol provides include; minor roadside repairs, change of tire, key-lockout service, fuel help and roadside repairs.
The second assistance service provided by Takaful assist is the locksmith service. It is a 24/7 service. It occurs when the AA patrols may not open a vehicle and regain the keys for the vehicle. The locksmith service is constrained to R 300 and covers the first 40 Km.AA is not held accountable for repairs, lock replacement and cutting of new keys (Takaful, 2010.
The third Takafol assist involves AA tow trucks. It is a 24/7 service and provides the service of towing a vehicle to a nearest franchised merchant or nearest allowed AAQA repairer. The service is only available in major metropolitan cities such as Johannesburg, Durban, Tshane and George among other cities it is constrained to R500.
The fourth takaful assist entails car hire service. This service is exercised when a car has broken down more than 100km from a customers’ home and the vehicle has been towed by AA. AA takes responsibility of hiring group B car hire service for the customer to simplify completion of his or her journey. The service is subject to accessibility and the customer should own a valid driver’s license and credit card. The service is restricted to R500 and houses the costs insurance fees and car rental.
Other services that fall under Takafol assist includes overnight accommodation, vehicle repatriation, accident tow and message relay service.
Takaful and Sharia Compliant
Takaful has slighted the conventional insurance because the model does not cater for the needs of Islam. Takaful has embraced Takaful practices because of its compliant with Sharia laws. Takaful practices help strengthen brotherhood and cohesion among the Islam community which entails bearing your neighbors load for the benefit of the community (Takaful, 2010.
Takaful has incorporated Muslim ethical practices such as fixing two different funds in conformity with Takaful. One fund is settled for the policy holder and the fund for the shareholder. Takaful has created Sharia board to ensure the company continues to improve in delivery of blended products compliant to Muslims and Non-Muslims to foster communal and friendship.
Underwriters
Underwriters refer to a business or any other unit that govern the issuance and grant of securities from a company or other issuing organization. An underwriter has to work directly with the issuing business. This is important so that he or she can decide the value presented for the securities or buy them from the issuer and later sells them to a shareholder by means of the underwriter’s distributor’s network (Venardos, 2010, p.53).
However the major roles associated with the underwriters include; supply of information about companies. Investors and customers get great information from the underwriters towards financial and policies of different businesses. Secondly, underwriters help in exchange of securities. They do this by providing a stability of security prices by upholding equilibrium towards supply and supply therefore keeping the market healthy (Venardos, 2010, p.66).
Lastly, they provide other useful services such as financing projects that a company is undertaking and telling of investors about existing opportunities. Takaful underwriters contribute to the growth and development of the company. They are important in providing useful information and advice to manage the company (Venardos, 2010, p.74). Besides, they contribute in setting up a cordial business between the company and the outside world.
Claims Process and How It Work
To streamline the claim, Takafol recommends that all and necessary documents be provided to simplify efficiency in-service delivery. For example, motor theft or hijack involves filing; a claim form, SAPS case number, a copy of drivers license, an identification document, vehicle registration documents among other documents (Takafol, 2010).
When these documents are presented, they are verified to find out their authenticity. After confirmation is done, a registered claim number is posted by means of a broker. In cases where a missing or awaiting documents is noticed, a customer maybe asked to present it. A follow up will be followed if no documents are received. This happens within 24 hours timeline.
An investigator is then appointed to find out the motor vehicle theft and once he or she finishes, a report is sent to Takaful. This takes 7 days at the onset of investigation. After a report is received, a confirmation report will be sent to a broker and if vehicle merits financing, suitable formalities will be sought in terms of payment. This takes place within 48 hours.
When all correct documentation is settled, an accord of loss will be drawn and delivered to broker. It normally happens within 24 hours. And finally, the payment will be paid back to all parties concerned once the necessary documentation is received. This takes 3 days on receiving necessary supporting documentation (Takafol, 2010).
Takaful Model and how it works
Takafol uses the wakalah model of Takaful. The Wakalah model ensures that the takaful operator acts as a Wakeel for other of the participants. The Wakeel responsibility is ensure proper management of the dealings of the team with a distinct fee.
The fee for Wakalah maybe stipulated upfront mostly ranges within 30-5% of the total teams contribution. It is then transferred or deposited to shareholders account. The remainder of the share may be deposited to the takaful account which is then used to facilitate payment of claims, takaful expenses and other.
The amount remaining may be either located aside to benefit the members or retained as an emergency reserve. The balance is disseminated to members in ratio to their contributions (Takafol, 2010). The shareholders accountability is to ensure that operating cost linked to; their salaries, marketing, management among others would emanate from expenses being lower than the fee and investment capital.
Takaful insurance vs. Conventional Insurance
Differences arise between Takaful and conventional insurance. In Takaful, the insured party sells his or her risk at a fee to a counter party; this includes “Gharar” which means uncertainty, in an agreement (Ayub, 2010, p.96).
Under Sharia, an agreement of improbability exists when counter party does not know the counter price that they are trading. For instance, a house may be brought down by a fire, causing the insurer to pay much than expected. Alternatively, it may not burn therefore; in this case the party insured and paid a premium may collect nothing as a return.
Conventional insurance is not clear and transparent. Companies exercise discrimination when analyzing risks cause (Ayub, 2010, p.102). For example, altered premiums may be quoted based on gender, age and financial strength. Besides, most insurance company is involved in other different investments which accrue interests which are contrary to Sharia.
However, conventional insurance is not communally favorable. Because shareholders for instance benefit instead of others I.e. conventional insurance gives priority to shareholders first before the policy owners. Conventional insurance is largely influenced by commercial reasons such as increasing client base therefore gaining more profits (Ayub, 2010, p.119). Takaful centers its business duty by guiding Islamic principles which foster social acceptance and universal solidarity. This increases harmony in Islam and the society.
The Future of Takaful Globally
Potential markets are still untapped by Takaful. Prospective and unexploited markets still exist for Takaful products in the United States, Europe and Asia. However, Takaful is creatively designing its products with appeal, customer preferences and convenience, attractive packaging to ensure that they gain entry and provide a competitive advantage across, life and health industries (Ayub,2009,p.35). This will swell more market penetration for both Muslim and Non-Muslim customers worldwide.
European countries such as the UK, Germany and France have sizable Muslim populace. In Asia, India, China and Indonesia provide more opportunities for Takaful business. Muslim countries such as Malaysia, Bahrain and UAE have transformed themselves into centers of Islamic product excellence therefore providing much needed products for the Muslim world (Ayub, 2009, p.51). Besides, countries such as Saudi Arabia and Pakistan are changing so fast with creative Takaful product design hence providing an apt environment for future expansion to other strategic market regionally and around the world.
Conclusion
Takaful insurance encompasses Islamic principles such as brotherhood, solidarity and respect which are Sharia compliant. This builds a sense of community and common backing to one another. Besides, Takaful has grown and gained international presence, not only in Asian countries, but it is penetrating the western world such as the United Kingdom and United States.
Takaful insurance is widely embraced by the Islamic community than the conventional type because of its sense of communal belonging and inability to impose extra costs to the policy holders. By using creativity in product customization, Takaful has the potential of penetrating the unexploited and potential markets across the world.
Reference List
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