International Cooperative and Mutual
Insurance Federation
Mutuality Seminar
Tunis-May 21st 2004
Takaful Ta’awuni
“and the Differences and Similarities with Mutual or
Cooperative Insurance,
The Bank AlJazira Development Perspective”
Dawood Yousef Taylor-AGM.
Head of Takaful Ta’awuni.
Copyright Dawood Taylor and Bank Aljazira
7/11/2017
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Overview of Presentation
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Brief overview of Takaful Ta’awuni (TT)
Takaful in Islam
Takaful in Modern day Islam
Takaful Models
Sharia Approval
Takaful, Commercial or Mutual
Examples of Product Offerings
Key Features of the BAJ TT Programme
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Brief Overview of Takaful
Ta’awuni
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What Is Takaful Ta’awuni?
“An
Islamic alternative to a
conventional mutual life insurance
and savings/investment program,
based on a Sharia compliant,
approved concept.”
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Definition of Takaful Ta’awuni
•Takaful
Mutual guarantee or indemnification among
the group members
•Ta’awun
The act of mutual help and assistance between
the participants within the group
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Takaful in Islam
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Hadith of the Prophet
“Tie the camel and then
submit to the will of Allah”
This hadith implied a need to mitigate risk
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Historical Examples of
“Takaful”
Dawania-Mutual indemnification amongst officers
working in the same department during the rule of
Umar Ibn Al Khattab (the 2nd Caliph)
 Diyyah and Aquilah-Blood money and the concept of
removing hardship inflicted on the family of the victim
by payment of Diyyah, on a mutual basis, by the relatives
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of the offender
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Takaful in Modern Day
Islam
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Key Features of a Takaful Model
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Cooperative Risk-sharing for Protection.
(Cooperative alone is not sufficient to be a Takaful
operation)
Clear segregation between Participant and
Operator.
Sharia (Islamic) Compliant Investment strategies.
Avoids al Riba (interest) and al Maisir (gambling).
Al Gharar (uncertainty) is forgiven, using Tabar’ru
(charitable donation).
Sharia Advisory Oversight.
Fatwa – judicial opinion.
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Fiqh Academy Resolution 1985
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Islamic Fiqh (science of Sharia) Academy, emanating from
the Organization of Islamic Conference, meeting in its
Second Session in Jeddah, KSA, from 10 to 16 Rabul Thani,
1406 H (Dec 1985) issued a Resolution which in summary
stated the following:
• The commercial Insurance contract… is prohibited
(Haram) according to the Sharia.
• The alternative contract which conforms to the principles of
Islamic dealings is the contract of cooperative insurance,
which is founded on the basis of charitable donation and
Sharia compliant dealings.
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Points to Consider on the
Fiqh Academy Ruling
• The Fiqh Academy Takaful resolution did not specify the
contract of choice for Takaful operations.
• Pluralism of Fatwas has been an integral element of Islamic
law, resulting in the variations of Takaful models
throughout the industry i.e. Wakala and Mudarabah,
Mudarabah models charging expenses to the participants
pool.
• There is no mention of an operator or surplus distribution
• There is no mention of a savings element, only mutual risk
protection
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Takaful Models
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Takaful Islamic Models
• Wakala-A fee driven Islamic
contract
• Mudarabah-A Profit Sharing
Islamic contract
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Mudarabah Model- Non-Surplus Sharing
Family (individual) Takaful- Long Term Plans
Mudarab/
Operator
Participant
Risk A/C
Risk A/C
70% (Example)
Claims/
Direct
Exps.
Contribution
Savings A/C
Savings A/C
Surplus
100% to Participant
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In the single example of this model in Malaysia,
no expenses are charged to the participants pool.
There could be use of this model in Sudan with
charging of expenses to the pool for both Family
and General Takaful
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Points to consider with Non-Surplus
Sharing Mudarabah Model
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Excellent and laudable model
In many ways exceeds a Mutual insurance model as no
expenses are charged to the participants funds
Operator does not share in surplus therefore no Mudarabah
issue to debate
Very difficult business model as a stand-alone
Family/Individual Life Takaful operation (especially where no
charging of expenses to participants fund envisaged)
Possibly only potentially viable where a composite Takaful
operation is being considered.
Could take many years to realize a commercial profit from
such a business model as it relies on the build up of reserves
and savings funds
As a stand-alone model, would lend itself to a philanthropic,
state sponsored or participants providing capital, business
operation.
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Mudarabah Model- Operator Sharing in
Surplus
General/Group Takaful- One Year Plans
Mudarab/
Operator
Investment
Profits
Investment Profits
50% profit share
Participant
General/Group
Takaful
Less Claims/
Direct Expenses
Surplus,
Underwriting
and investment
results
To Participant
Example
50% profit share
Different models treat expenses differently. Some charge the
participants funds, others charge the shareholders funds.
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Points to consider with a
Mudarabah Surplus Sharing Model
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First and foremost, this is a Sharia issue, not an issue
between operators
Surplus is what remains of capital/contributions after
the deduction of claims and direct expenses.
Profit is the creation of a value in excess of the capital
provided.
As no profit (only surplus) is generated in the Takaful
underwriting operations , the application of a
Mudarabah contract is being debated by Sharia
scholars
Applying a Mudarabah contract to the investment
profits however, is accepted
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Surplus Differs from Profit, when
applying the principles of a
Mudarabah contract
Investment Dealings
Takaful Underwriting Surplus
Profits ?
Tabar’ru Contributions
$5 Gross
Income
Capital-$10 Million
$2 Mil
SURPLUS*
$1 Mil
DIRECT
EXPENSES
$7 Mil
CLAIMS
$2 Mil
PROFITS
$3 Mil
EXPENSES
* Under Mudarabah principles, only the Sahib al Mal (Capital Provider) may share in the original capital provided
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BAJ Wakala Model
Family Takaful- Long Term Plans/Group Takaful-One Year Plans
Fees
Full Operational
Expenses
Wakeel/
Operator
Fees
Participant
Contribution
Specified
As:
• Tabar’ru
• Savings
• Fees
Risk A/C
Tabar’ru
Individual
Savings A/C
IIA
IRIA
Risk A/C
Tabar’ru
Claims/
Direct Exps.
Individual
Savings A/C
Surplus
IIA
IRIA
Jordan Islamic Insurance charges a fixed expense fee for one year contracts and
reimburses the participants if expenses amount to less than this fixed fee.
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Points to consider with the BAJ
Wakala Model
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Fees only taken if a product is sold
No charging of expenses to the participants fund
Operator alone totally responsible for all start up
expenses and operational costs
No issue of agency or commission sales
Clear separation between participant and operator
Wakala Fee on Surplus accepted by Sharia
advisors
Total transparency on all aspects of the operation
and fee structure.
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Sharia Approval
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Final Sharia approval
BY THE NAME OF ALLAH, MOST MERCIFUL, MOST GRACIOUS
‫بسم هللا الرحمن الرحيم‬
WITH THANKS TO ALLAH, THE UNIVERSE CREATOR AND BLESSINGS ON THE MASTER OF MESSENGERS MOHAMMED AND ALL HIS KINS
AND COMPANIONS.
.‫الحمد هلل رب العالمين والصالة والسالم على سيد المرسلين محمد وعلى آله وصحبه أجمعين‬
BANK AL-JAZIRA’S SHARIA COMMITTEE HAS SIGHTED THE FRAMEWORK OF TAKAFUL TAWWNI PROGRAM, DEVELOPED BY BANK ALJAZIRA, THROUGHOUT ITS PAPERS AND DOCUMENTS. AFTER THE COMMITTEE HAS COMPREHENSIVELY STUDIED, REVIEWED THE
WHOLE INHERENT DETAILS OF THE PROGRAM AND RECOMMENDED SOME CHANGES WHICH HAVE BEEN FULLY TAKEN INTO
CONSIDERATION BY THE BANK, IT HAS APPROVED THE PROGRAM.
‫ فقد اطلعت الهيئة الشرعية لبنك الجزيرة على هيكل برنامج التكافل التعاوني الذي طوره بنك الجزيرة من خالل وثائقه ومستنداته وبعد دراسته دراسة شاملة ومراجعة كافة تفصيالته تمت الموافقة عليه‬، ‫أما بعد‬
. ً‫واعتماده بعد اقتراح تعديالت أخذ البنك بها جميعا‬
ACCORDINGLY, THE SHARIA COMMITTEE DEEMS THAT THIS PROGRAM IS IN COMPLIANCE WITH THE RULES OF THE ISLAMIC SHARIA AND
IS CONSIDERED A SUITABLE SUBSTIUTE, FROM THE SHARIA PROSPECTIVE, FOR LIFE INSURANCE.
.‫وبناء عليه ترى الهيئة الشرعية أن هذا البرنامج متوافق مع أحكام الشريعة اإلسالمية ويعد بديالً شرعياً مناسباً للتأمين على الحياة‬
WE WISH BANK AL-JAZIRA ALL SUCCESS AND PROSPERITY.
.‫مع تمنياتنا لبنك الجزيرة بالتوفيق والسداد‬
SHARIA COMMITTEE MEMBERS
‫أعضاء الهيئة الشرعية‬
SHAIKH ABDULLAH IBN SULIMAN AL-MANI’ - CHAIRMAN
‫الشيخ عبد هللا بن سليمان المنيع – رئيسا‬
PROF. MOHAMMED IBN SAID AL-GHAMDI - RAPPORTEUR
‫ مقررا‬- ‫ محمد بن سعيد الغامدي‬-‫الدكتور‬
PROF. ABDULLAH IBN MOHAMMED AL-MUTLAQ - MEMBER
‫الدكتور – عبد هللا بن محمد المطلق – عضوا‬
PROF. HAMZA IBN HUSSAIN AL-FIYIR - MEMBER
‫ عضوا‬- ‫ حمزة بن حسين الفعر‬-‫الدكتور‬
PROF. MOHAMMED AL-ALI AL-QIRI - MEMBER
‫ عضوا‬- ‫الدكتور – محمد العلي القري‬
PROF. ABDILSTAR ABU-GHUDA - MEMBER
‫ عضوا‬- ‫ عبد الستار أبو غدة‬-‫الدكتور‬
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BAJ Fatwa
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Takaful, Commercial or
Mutual?
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Comparing Takaful to Insurance
Examples only-list is not comprehensive
Issue
Commercial
Mutual
Takaful
Organization Principle
Profit for shareholders/
Risk transfer
Mutual for policy holders
Mutual for participants
Value Proposition
Profits for Shareholders
Affordability to Policyholders
Affordability and spiritual
satisfaction
Laws
Secular/Regulations
Secular/Regulations
Sharia plus regulations
Capital
Shareholders
Initial Premiums
Operator provides set-Up capital.
No paid up capital for TT fund
Ownership
Shareholders
Policyholders
Participants
Management
Company Management
Appointed
Management
Operator
Contract Form
Commercial
Exchange/contract of
compensation-adhesion
Mutual risk sharing with aspects
of commercial contractual
principles
Cooperative,
Islamic contracts of Wakala or
Mudarabah with Tabar’ru
donations
Investments
Equity/debt-no
restrictions
Equity/debt-no restrictions
Sharia compliant equities/no
interest
Surplus
Shareholders account
Policyholders account
Participants accountperformance fee for operator
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Examples of BAJ TT
Product Offerings
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Individual Takaful Products
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Corporate and Group Plans
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Key Features of the Bank
Al Jazira Takaful Ta’awuni
Programme
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Key Features of the BAJ
Wakala Model-1
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Same Wakala model for all plans, Group or
Individual
A single Wakala contract throughout for both
underwriting and investment operations.
Contribution is clearly broken down into Tabar’ru,
Fees and where applicable, individual investments.
Tabar’ru is only applied when the cost of risk is due.
Total transparency and clear breakdown of costs
and Wakala fees stated in contract schedule.
Participants therefore only pay actually costs plus
declared Wakala fees. No unknown loadings.
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Key Features of the BAJ
Wakala Model-2
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All administration, management and selling/marketing
expenses paid by operator.
Clearly distinguishes between operator and
participant.
Competitively priced-in many cases lower than
conventional products.
Recent decision of Sharia Advisory board to allow a
performance fee on surplus generated. (emanating from
AAOIFI/Malaysian Mudarabah review). Acceptable
under a Wakala contract.
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Key Features of the BAJ
Wakala Model-3
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Level of surplus generated is determined as
much by the charge structure as it is by the
claims experience.
Allows participant to donate his share of
surplus to a local Saudi charity.
Individual investment strategies for each
client.
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Key Features of the BAJ
Wakala Model-4
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IT System is unique to the Takaful Industry
Full features covering the spectrum of
Takaful/insurance activities
Thresholding of salaries to sales.
Easy development of new products through a
Plan wizard facility
Multi-Lingual
Multi-Currency
Lap top illustrations
Scanning of all documents
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Key Features of the BAJ
Wakala Model-5
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Fully Sharia compliant investment funds and strategies
with clear segregation of participant and operators funds.
Ability to provide participant statements at any time
Offers bonus units for regular savers
Sharia and Saudi Arab Monetary Agency approved
Follows AAOIFI recommended guidelines.
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In Conclusion
• There must be Cooperative
principles in Islamic
Insurance (Takaful)………
but there need not be Islamic
principles in Cooperative
Insurance.
•
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We welcome all delegates to this
prestigious conference to meet again at
the joint
Islamic Development Bank
and Bank Al Jazira
1st International Conference on Takaful
to be held in
Jeddah , Kingdom of Saudi Arabia on the
21st and 22nd of September 2004
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International Cooperative and Mutual
Insurance Federation
Mutuality Seminar
Tunis-May 21st 2004
Thank You
Dawood Yousef Taylor-AGM.
Head of Takaful Ta’awuni.
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Copyright Dawood Taylor and Bank Aljazira