0. Islamic Life Insurance
The World of Takaful
By Shivash Bhagaloo

1. Contents Market Overview What is Takaful Insurance?
How is Takaful Insurance Different?
Takaful Models
Regulation
Challenges

2. 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
From an HIV / AIDS perspective, Sub-Sahara Africa and North Africa are two extremes.
Sub-Sahara Africa and especially Southern Africa are the worst affected by the pandemic.
North Africa, on the other hand have prevalence rates similar to East Asia and the Middle East, and therefore count among the least affected regions.
In addition one should note that the rate of progression of HIV AIDS in North Africa is also very slow.
Therefore the prevalence rates of HIV in Southern Africa is unlikely to be reached in the future.

3. 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
From an HIV / AIDS perspective, Sub-Sahara Africa and North Africa are two extremes.
Sub-Sahara Africa and especially Southern Africa are the worst affected by the pandemic.
North Africa, on the other hand have prevalence rates similar to East Asia and the Middle East, and therefore count among the least affected regions.
In addition one should note that the rate of progression of HIV AIDS in North Africa is also very slow.
Therefore the prevalence rates of HIV in Southern Africa is unlikely to be reached in the future.

4. 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
Haram
(Forbidden / Unlawful)
investments in commodities or involvement in activities that are forbidden (alcohol, pork etc). -

5. 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

6. 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

7. Wakalah Model PARTICIPANTS Management Expenses Contribution
Wakalah Fee (eg 30%)
Shareholders’
Fund
Takaful
Fund
Claims
Shariah compliant
Investments
Reinsurance/
Retakaful
Reserves
Qard
Hassan
Investment Profits
Underwriting Profit
Surplus/(Deficit)
100% surplus
Charitable Donation

8. Mudharabah Model PARTICIPANTS Management Expenses Contribution
Shareholders’
Fund
Takaful
Fund
Claims
Shariah compliant
Investments
Reinsurance/
Retakaful
Qard
Hassan
(interest free loan)
In case of a deficit in the fund to be repaid from surpluses in future years
Reserves
Investment Profits
Underwriting Profit
Surplus/(Deficit)
X% of Surplus
100% - X% of Surplus
Charitable donation

9. Wakalah / Mudharabah Hybrid
PARTICIPANTS
Management
Expenses
Contribution
Wakalah Fee (eg 30%)
Shareholders’
Fund
Takaful
Fund
Claims
Shariah compliant
Investments
Reinsurance/
Retakaful
Reserves
Qard
Hassan
Investment Profits
Underwriting Profit
X% of Investment Profits
Surplus/(Deficit)
100% - X% of
Investment Profits
Charitable donation
100% of Surplus

10. 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

11. 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

12. 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

13. Questions ?
Do you have any questions?

14. 2008 Best Takaful Reinsurance Intermediary
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