Diff. Btween Islami & Conventional Insurnc System

7/31/2019 Diff. Btween Islami & Conventional Insurnc System

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Difference Between

Islamic & ConventionalInsurance______________ ______________ (2)

Insuranceis a risk transfer mechanism hereby the

individual or the businessenterprise can

shift some of theuncertainties of life on the

healthier, comfortable andeasy life tomeet this


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requirement different

enterprises produce and provide goodsand services. They

makeinnovation andinvention, which take

great risk. Largeresponsibility falls on the

shoulder of innovatorsand inventors. A small

error or lapse may cause

numerous side effects andcause deathor disability.


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These types of risks

highlight the importanceof insurance. If there hadnot beeninsurance at the

back of all innovators theworld would have never

progressed. After assuringthis in securityfactor the enterprises

started looking for newand more high-tech

machines robotsandgargets, atomic


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technology, space

traveling computers, deepsea exploration,development of concordsand jumbos and medical

technology for hydro hear led diseases. All

thesedevelopments could be possible with supportof insurance.In peace the

insurance provides

protection to trade andindustry, which ultimately


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contributestowards human

progress. Thus insuranceis the most lendingforce contributing

towardseconomics, socialand

technological progress of man. Without insurance

cover allindustrial,economic and

social activity of

the world will come to agrinding halt.An insurer,


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by nature, tries too split

and diversify its risks inmany ways a veryimportant way isto splitthem horizontally and

vertically withinreinsurance companies

and horizontally totheir competitors.The

following principles applyin insurance:

Insurable Interest.

Utmost good faith


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Proximate cause

Indemnity

Contribution

SubrogationThe insurancemarket comprises the

following types of

insurers:Lloyds.

Ordinary Life & GeneralCompanies


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Industrial Life Assurance

companiesFriendly societies

Mutual IndemnityAssociations

Captive Insurancecompanies

Self Insurance

The State.The premium

received goes into a fundor pool from which the


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claims are paid. Because

of largenumber of clientsin any particular fund or pool, the insurers can

predict, withreasonableaccuracy by

applying the law of largenumbers and actuarial

calculation methods, theamount of claims likely to be incurred in the coming

year. However, there will be some variation in


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claimcosts from year to

year for which a smallmargin is to be built up inreserve. As a result of

better performance of insurance company some benefit is paid back to

the policyholders in shapeof bonus in life insurance

and no claim bonus ismotor/property insurance.

HOW INSURANCEIS AGAINST THE


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PRINCIPLES OF

SHARIAH?

DifferenceBetween Islamic& Conventional

Insurance______ ______________

________ (3)


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by the earlier Islamic

Jurisprudents. Itwas for the

firsttime

examined by aHanafi Jurist syed

Ibn Abdin (dead1252 H


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corresponding to1836 A.D.) attherequest of some

muslimmerchants who

sought his poinion about the

validity of marineinsurance


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under Islamiclaws. He

discussed theessence of marine

insurance and

concluded Iseethat it is not

permitted to anymerchant to get


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indemnity for hisdamaged

property againstthe payment of a

certain sum of

money known asinsurance

premium; because this is


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a commitmentfor what should not be committedto.The attitude

towards illegality

of insurance fromIslamic point of

view continuedfor full


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centuryafter ibnAbdin. However

in view of thetremendousimportance

assumed byinsurance for

themodernfinance, trade


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and industry thecontract of

insurance has been subject

matter of

extensiveand indepth studies

and discussionsamongst the


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IslamicJurisprudents

during the pastseveraldecades.In

1396 H (1976)

the firstinternational

conference onIslamic


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Economics washeld in

Makkah,whichwas attended bymore that 200

Islamic Juristsand Economists.

They reached at


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thefollowingdecision on it:The conference

sees that thecommercial

insurance whichis practiced by

thecommercialinsur


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ance companiesin this era doesnot conform to

the shariahprinciple of

cooperationandsolidarity

because it doesnot fulfill the


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shariahconditions which

would make itvali dand

acceptable.

This conferencealso suggested

that a committeecomprising of


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shariah Experts &MuslimEconomis

ts should beconstituted in

order to suggest a

system of insurance that

will be freeof Riba., Usury


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and gharar thematter continued

to receive theattention of

numerous groups

of IslamicJurisprudents in

cooperation witheminent and


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distinguishedeconomists and

insuranceexpertswho came

up with different

conclusion, viewsand opinions.

Some of themapproved allform


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s of insurancesubject to certain

conditions,limitations andqualifications,

otherstotallydisapprove

d all of them.However


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an overwhelmingmajority of

Islamicshariah.Theobjection is

against theexistence of the

weaknesses in the


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insurance contract namely:

Gharar(Uncertainry);

Mainsir(Gambling);

Riba (Usury).


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Introductionto Islamic

Insurance (Tak aful):

Muslim juristsacknowledge that

the basis of shared

responsibility in


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the system of "aquila"

as practiced between Muslims

of Mecca and

Medina laid thefoundation of

mutual insurance.


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Islamic insurancewas established

in the earlysecond century of

the Islamic era

whenMuslimArabs

expanding tradeinto Asia


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mutually agreedto contribute to a

fund to cover anyone in

thegroup that

incurred mishapsor robberies

along thenumerous sea


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voyages (marineinsurance).

Takaful Insurance

DifferenceBetween Islamic

& ConventionalInsurance______


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______________ ________ (5)

any one of themas defined in the pact. Takaful is

operated on the basis of shared

responsibility, br otherhood,


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solidarity andmutual

cooperation.Fatwa onTakaful:

The Islamic FiqhAcademy

emanating fromthe Organization


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of Islamicconference,

meeting initsSecond Sessionin Jeddah, Saudi

Arabia, from 10to 16 Rabiul

Thani, 1406 H(correspondingto


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22-28 December,1985) issued a

resolution whichin summary

stated the

following:After reviewingthe presentations


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made by participating

scholars duringthe session onthe

subject of

Insurance/Re-insurance;


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And after discussing the

same;

And after closelyexamining all

types and formsof insurance and

deeply examining


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the basic principles upon

which the arefounded and their

goals and

objectives;And having

looked into what


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has been issued by the Fiqh

Academies andother instituitions

in ths regard;

Resolves:1.The

commercialinsurance


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contractis prohibited(Haraam)

according to theShariah.2.The

alternativecontract which

conforms to the principle


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of Islamicdealings is

thecontract of cooperativeinsurance

(Takaful), whichis founded on the

basis of charitabledonatio


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n and Shariahcompliant

dealings.Muslim jurists thereforeconcluded that:

Insurance should be based on the

principles of


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mutuality andcooperation.

Insurance products should be founded on the basis of Tabarru,

an Arabic nounmeaningdonatio


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n, gift,contribution.

The insurancecompany mustconduct all itsaffairs in line

with the Shariah


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The participantsmutually

contribute to thesame fund for the purpose of

mutualindemnityin case of risk

and harm. 3
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1.It is a

Risk Transfermechanism

whereby risk is

transferred fromthe policy holder

(the Insured)tothe Insurance


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Company (theInsurer) in

consideration of 'insurance

premium' paid by

theInsured. 3

http://www.takaful.com.pk/Fatwa.html


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Differencebetween

Insurance &TakafulDifference

Between Islamic

& ConventionalInsurance______


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______________ ________ (6)It is based on

mutuality; hencethe risk is not

transferred butshared

by the participants who


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forma common pool. The

Company actsonly as themanager of

the pool (TakafulOperator).

2.


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It contains theelement of

uncertainty i.e."gharrar"

which is

forbidden inIslam. There is

anuncertainty asto when any loss


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would occur andhow much

compensationwould be

payable.The

element of 'uncertainty' i.e.

'gharrar'


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isbrought downto acceptablelevels under

Shariah bymaking

contributions as"Conditional

Donations"(tabarru) for a


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good cause i.e. tomitigate thelosssuffered by any

one of the participants.

3.It contains an

element of gambling i.e.


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"maisir"in that the insured pays an amount(premium) intheexpectation of

gain (compensation/payment

against claim). If the anticipated


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loss (claim)doesnot occur, the

insured loses theamount paid as

premium. If the

loss does occur,the insurer loses a

far larger amountthan collected


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as premium andthe insured gains by the same.The participant paysthe contribution

(tabarru) inthe spirit of Ne'ea

(purity) and brotherhood;henc


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e it obviates theelement of

'maisir'while at the same

time without

losing the benefitof Takaful in the

same way as


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conventionalinsurance.

4.Funds are mostlyinvested in fixed

interest bearinginstruments like

bonds, TFCs,securities,


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etc.Hence thesecontain theelement of

"riba"(usury) which is

forbidden inIslam

Funds are onlyinvested in non-


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interest bearing,i.e.

riba-freeinstruments.

5.

Surplus or profit belongs to the

Shareholders.The insured is


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covered duringthe policy period butis not entitled

to any return atthe end of such

period. Surplus belongs to the

participants andis accordingly


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returned to them(in proportion totheir respective

shares of contributions) at

the end of theaccounting period

Documents

Diff. Btween Islami & Conventional Insurnc System