Presentation for Arab Asian Financial Forum

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Presentation for Arab Asian Financial Forum
Singapore 16 18 /9/2006.
The
First
Islamic
Insurance
the
in
world
Company
Presented by Mohamed Salih Ishag
Deputy Manager Takaful
Islamic Insurance Co Ltd Sudan
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INTRODUCTION
Insurance has a great importance and significance
in the field of international trade and economics
throughout the world for both developed nations
and underdeveloped nations for the rich people
and for the poor (vulnerable) as well.
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THE human being during his life time is subject
to mishaps (risks), befalling himself or children
or wealth. In Surat Al-Bagarah, Allah says "Be
sure we shall test you with something of fear and
hunger, some loss on goods, lives and the fruits
(of yours toil), but give Glad tidings to those
who patiently persevere, - Who say, when
afflicted with calamity "To Allah we belong and
to him is our return ". Verse155-156.
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From the above verses the cooperation or mutual
help is a common need to meet the risks. The
pronouncement of the Holy Quran" Help ye one
another in righteous and piety" AL-Maidah verses
2 Narrated An-Nu'man bin Bashir the prophet (
s.a.w) said" you see the believers as regards
their being merciful among themselves and showing
love among themselves and being kind , resembling
one body , so that , if any part of the body is
not well then the whole body shares the
sleeplessness ( insomnia) and fever with it.
Commercial insurance being practiced in the West
to overcome the outcome of different risks.
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Definition of Insurance
Egyptian law defined Insurance as being
A contract where by the insurer obliges himself
to pay to the insured or to the beneficiary for
whom the benefit of insurance was directed , a
lump sum of money or a periodical income , or any
other financial gain on the occurrence of the
accident, or on falling of the risk provided for
in the contract. The insured shall undertake to
pay the insurer a given premium or any other sum
agreed to.
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Historical Background of Sudanese Insurance
market.
1- Private Insurance Companies operating as
agents for foreign companies by early fifties. 2-
Nationalization of the private Insurance
companies in 1970. 3- First National Insurance
Company was established in 1973. 4- Law of
control and supervision over Insurance works was
issued in 1992.All companies working in the
Sudanese market should work according to the
Islamic cooperative system.
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Faisal Islamic Bank Insurance
FIB as the first Islamic Bank to transact its
business according to Islamic Law (sharia) in
Sudan , faced the problem of Insurance in 1978
because the Sudan market practicing conventional
Insurance. Sharia Supervisory Board SSB
issued Fatwa ( ruling) forbidding insuring
the properties and Investments of the bank with
commercial insurance companies due to the
existence of Gharar in the contract of the
commercial or conventional Insurance, and obliged
to establish a cooperative insurance company ,
because AL-Gharar is prohibited in Islam.
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Narrated Ibn Abbas the prophet (s.a.w) forbade
the Selling of foodstuff before receiving
it. Narrated Abdullah bin Umar .Allah Apostle
forbade the Sale called Habal-al-Habla which was
a kind of sale practiced in the pre-islamic
period of ignorance. One would pay the price of a
she-camel which was not born yet would be born by
the immediate offspring of an extant she-camel.
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Definition of AL-Gharar.
It can be defined as "the sale of what is not
present ". As for example to sell fish that are
still unfished or a bird that has not been caught
yet.
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Is the cooperative insurance contract a Gharar
contract?
AL-Gharar is existing in the contract of
Insurance because when some one buy a policy he
will not be certain whether an accident takes
place or not during the period of the policy ,ex.
life Ins. Policy, Motor policy . The insurance
contract whether a commercial IC or cooperative
IC is a Gharar (risk) contract.
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According to Islamic jurisprudence, the element
of AL-Gharar disqualifies any contract if-
a) It is incorporated in a financial contract. b)
Its contractual effects can be very large and
substantial (abundant). c) It must be an integral
of the thing contracted for. d) There is no
crucial need for the contract.
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FIBSSB is of the view that the first three
conditions hold good in the case of an insurance
contract but the fourth the insurance protection
is now needed all over the world for both
government and individuals.
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How can AL-Gharar dose not disqualify an
insurance contract?
1- Insurance cover must be genuinely and really
required. 2- Insurance is the only way to
safeguard the interest of the persons. 3-
Insurance is transacted on a cooperative basis.
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Why cooperative insurance is acceptable in Islam?
1-The policy-holders would cooperate actively
among themselves for their common good. 2- Policy
holders pay their subscriptions in order to
assist those of them who need assistance. 3- It
falls under the donation contract, according to
Malikia AL-Gharar does not affect the donation
(Tabaru) contracts,
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it affects the financial transactions, and
according to the other schools it affects even
the donation contracts. 4- There is no aim to
drive undue advantage at the cost of others. 5-
The element of uncertainty will be eliminated so
far as determination of the contribution is
concerned.
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Conditions of Islamic cooperative Insurance
contract.
- Specialty conditions The company functions
according to Islamic cooperative principles. -
Partnership condition. Policy holders to
participate in surplus distribution and to
participate in case of deficit. - Investment
condition. Not to invest its funds in the
harmful and forbidden practice of usury (Riba) in
any form. - Representation of the policyholders
on the board of Directors of the company.
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Reinsurance
Reinsurance should be subject to the same rules
regulations and limitations as insurance, the
only difference is that primary insurance
contract is between the company and its client,
the reinsurance is between an insurance company
and reinsurance company.
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FIBSSB said since there is no Islamic Reinsurance
company (at that time) an Islamic Insurance
company may reinsure with companies functioning
on Western reinsurance practice and principles
till the establishment of IRC and the Islamic
world becomes self sufficient and self reliant in
reinsurance, but it must reinsure with the
Islamic reinsurance company when established.
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The Board urges FIB to act immediately 1978for
establishing a cooperative reinsurance company,
so as to make maximum use of reinsurance
facilities offered by it and make minimal use of
the western Reinsurance facilities only to the
extent the Islamic Reinsurance Company cannot
satisfy its needs.
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Regulations of an IIC with non Islamic
Reinsurance Company.
Not to receive any commissions from reinsures
and to reinsure on a net premium basis. should
not pay any interest on the premium reserves
retained by it from its reinsures. Should not
receive any profit/ commission from their
reinsures.
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FIBSSB Directive Regulations
The priority for reinsurance as follows
National reinsurance company Ltd of
Sudan. Islamic reinsurance companies
abroad. Cooperative reinsurance abroad. The
commercial reinsurance companies.
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Islamic Insurance Company-1979
-The SSB of the opinion that there is no function
for capital in the Islamic cooperative insurance
because the cooperative insurance company is
built by the insured themselves there were no
shareholders. -Laws of Sudan (1925) do not allow
the registration of any company without
shareholders and capital. -FIB after its SSB
Board fatwa contributed to the establishment of
the Islamic Insurance Company (98 of the company
capital share owned by FIB. -The IIC registered
under the companies' act 1925 as a private
company on 22/01/1979. -IIC commenced
operation on 21/09/1979 as the first Islamic
insurance (Takaful) company in the world.
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The challenges faced IIC
The translation and formulation of
contracts. The technical experts. Dealing
with the commercial reinsurance
companies. The severe reinsurance terms and
condition due to the devaluation of
the Sudanese currency. Others.
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Practical experience IIC
Types of insurance
IIC is practicing different types of
insurance. General Insurance 1979.
Fire, Aviation, Engineering, Motor, Miscellaneous
accidents, Legal liabilities, Marine, Fidelity
guarantee, Energy, Business interruption, Travel
insurance, (Medical insurance, and medical
malpractices, new covers).
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Takaful
-In Sudan the word Takaful used to differentiate
between life insurance and properties
insurance. -Takaful, means Islamic alternative
for life insurance. -General insurance , it is
the properties insurance ,
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Takaful IIC 1986.
Group takaful insurance - Basic
Death. Accidental Death.
PTD/ Sickness/Accident. PPD/Accident.
TPD/Accident. Dread
Disease. Individual policies- Takaful
in case of death. Family Takaful.
Mortgage protection.
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Takaful in Malaysia
It is the Islamic alternative to insurance, is
based on the concept of social solidarity,
cooperation and mutual indemnification of losses
of members. Group of persons who agree to jointly
indemnify the loss or damage, that may inflict
any of them out of the fund they donated
collectively. In Malaysia to differentiate
between life insurance and general insurance they
use the following -General takaful for
properties insurance -Family takaful
for life insurance.
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The company IIC faced with different challenges,
but fortunately able to achieve good results as
can be seen from the following tables.
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Premiums
There is steady growth in the premiums, but
during the last two years the rate of increase is
very high 38, 67 in the years 2004, 2005
respectively and this increase due to the
following 1-Opening new branches. 2-Spending
more on training internal and abroad. 3- Spending
more on advertisement. 4-Direct follow up from
Top Management. 5-Good reputation in Settlement
of claims. 6-Improving the work
environment. 7-Others.
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Claims
The Company classified as the first company in
the market in the field of claims settlement.
This certificate released by neutral body
Insurance Supervisory Authority.
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Commissions
The company is contributing to solve the problem
of unemployment, more than 150 producers and
agents, and their income is increasing due to the
increase in premiums.
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Reinsurance Premiums The company deals with the
following
Tyser (1820-brokers) based in London Marine
and Non Marine business. Reinsurance leaders
are Munich Mauritius Reinsurance
Co.Germany. Hanover rueckversickerungs Tokio
Marine Retakaful Singapore. Nichido Other
Reinsurance Companies P.T.A. Rein. Co. African
Reins. Corp. Arab Reins.
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Surplus
It is one of the main pillars of the ICI and it
is the share of the policyholders either to be
distributed to them or to be kept as a reserve
for their benefits according to their premiums,
or part of it to be distributed and the other
part to be kept as a reserve. According to the
Sudanese model Surplus to be distributed to
policyholders irrespective of claims paid.
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Investment
We can notice from the table the investment funds
are not big enough and this amount is belonging
to policyholders. A new Fatwa giving the
shareholders the right to receive a return from
investing the investment funds of the
policyholders or to increase their capital so as
to be invested with the company funds. FIB raised
its capital this year 2006 by 300000000 SDD
(1411765 USD).
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No. of employees
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The Sudanese Insurance (Takaful) Market
There are 14 Insurance Companies all of them
are IIC. Private companies
13 Government companies 01 There is
one reinsurance company (National Re.
Co.)It's share 50 of the reinsurance
market. No. employed
2455
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Islamic Insurance Company Market's Share
-The company is the first private company in the
market. -It is the second largest company in the
Market (Sheikan is the first company and it is
the only government company .The government
properties insured by government decree in
Sheikan Co.
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Models of Islamic Insurance (Takaful) companies.
1- The Sudanese Model.
-No function for capital in ICC except as an
official obligation, because the CIC built by the
insured. -Registration of companies in Sudan
requires capital and shareholders by
law. -Capital does not stand to gain or
loose. -Companies in Sudan are shareholding
companies practicing ICI. -Remuneration to be
paid to the Board of directors from the premium
for running the company. -Shareholders have no
right in the surplus. -Shareholders can receive
the return of their invested capital. -Payment of
premium as donation (Tabaru). -This model is now
applied in Sudan.
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Other Models
-Al-Mudharabah -AL-Wakalah -AL-MudharabahAL-Wak
alah. -Wakalah base on Waqf
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AL-Mudharabah
-Capital takes share of the surplus. -Capital
takes share of the profits. -Payment of premium
as donation (Tabaru). -This model is now
applicable in Malaysia.
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Wakalah Model
-Shareholders charge Wakalah fees from the
contributions to meet the expenses of the
business. -The surplus of policyholder's funds
investment after deducting management fee or
expenses goes to the policyholders. -The fee rate
is fixed annually in advance in consultation with
Sharia board of the company. -Payment of premium
as donation (Tabarru). -This Model is now
applicable in Jordan.
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Islamic Banking and Insurance ( Takaful) companies
-The establishment of Islamic Banks accelerated
the establishment of IIC. -Islamic Banks
transactions must be compliant with Sharia
rules. -Conventional Insurance does not comply
with Sharia due to the existence of AL-Gharar. -
Different meetings organized to discuss the issue
of Insurance.
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• Islamic researches Forum Cairo 1965 permitted
  the cooperative Insurance and suggested the
  continuing study of different kinds of insurance.
• The council of senior Ulemah in the kingdom of
  Saudi Arabia passed a resolution 1977 stating
  that after careful discussion the council decided
  to permit the cooperative insurance instead of
  the commercial one as its secures what the
  Muslims need in the field of insurance.
• Islamic Figh Forum 1985 in Jeddah prohibited the
  commercial insurance and approved the cooperative
  insurance and urged all Islamic countries to
  establish cooperative insurance companies.
• Others

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Islamic Insurance (Takaful) Cos. shareholders
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Islamic Insurance (Takaful) worldwide
-There are more than 80 companies practicing II
(Takaful). -There are many efforts taking place
to establish strong IR (ReTakaful)
companies. -There are efforts to enhance the role
of the International Federation of Takaful
companies.
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The challenges facing II (Takaful) companies
- Capital - Skilled staff - Different models -
Globalization - Weakness of awareness with
insurance - Retakaful - Corporate governance
issues - Marketing and Markets - Strong Takaful
Federation
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Conclusion
Islamic Insurance (Takaful) , at present is
practiced worldwide , even in non Muslim
countries , Russia , South Africa , Singapore
(NTUC Amanah Fund 50 Of investors are non
Muslims .) There is great potentiality for the
expansion of Takaful industry in the Arab region
and the Asian region and this require more
cooperation between Arab and Asian countries ,and
this cooperation can be extended to cover the
African region as well . Islamic Banks must
continue their efforts to establish very strong
Islamic reinsurance (ReTakaful ) Companies , so
as to meet the growing demand of the Takaful
Companies , and to reduce the transactions with
conventional reinsurance Companies to the minimum
possible level . This require the investment of
additional Capital from Islamic Banks .
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More efficiency is needed in the management of
Takaful and Retakaful companies and this require
additional spending on training of the staff.
More cooperation between the IBs and Takaful
companies for the spread of II(Takaful ) culture
among the targeted communities , good example is
cooperation in the Malaysian Market between the
banks and Takaful companies . IBs can benefit
from Takaful and Retakaful companies in different
ways from finding means to transact business
lawfully to the returns which can be gained due
to the adoption of the different models . IBs
and Takaful companies can benefit from the new
phenomena (Banksassurance /Takafulasurance )
which appeared over the past few years based on
the integration of banks and insurance companies
, each client can find all type of services from
loans and auto insurance to pensions funds under
one roof .
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Thank You