Compensation on death:
Shariah model of Life insurance or Family Takaful does not insure one’s life, but it is a financial transaction undertaking to protect widows, orphans and other dependents. It is a kind of endowment policy in which the man gets back his paid premiums and the profit but there is no other extra benefit like we see in the conventional insurance system that the man gets double the amount if the death occurs in an accident. This is because the family suffers more in case of accident than in case of normal death. In Taka-ful, the death is a death whether it is natural, accidental or by suicide, all are considered same. Takaful system has to develop a better life insurance policy to suit the necessities of the common man.

Riba:
Although the Takaful insurance companies have come into existence, but their operations so far have been limited to a few inves-tors and to a small area of the concerned countries. How far they are successful in getting rid of the interest is still not known. All the claims of being free from interest on the basis of ‘Al Mudhareba’ are yet to be proved. Unless these companies come into public, and market the idea as well as the product, it is difficult to be convinced that they too are free from the interest unlike the conventional insurance system.

Loans to the state:
As a large reserve fund is formed with the insurance companies out of the premium collections, they will have to invest somewhere. The state is the first deserving candidate to be loaned. If the Muslim state takes the loan and spends on the infra-structure, how it will return the money? With addition or without? This addition is interest or not?

Performance of Takaful in Saudi Arabia:
The Fatwa signed by six prominent scholars of Saudi Arabia, available on www.islam-qa.com has increased the concern about the future of the Takaful or the coop-erative insurance concept. It is a moment of serious consideration as the world has just started relying on the Islamic insurance concept. NCIC (National Cooperative Insurance Company) established on the basis of the Takaful General insurance was supposed to be functioning on Islamic principles. The deviation in applying the Islamic rules, as stated by the six scholars, makes everyone suspicious whether it is a failure of the management or the failure of the system itself.

The scholars gave the following reasons not to join this company:
1. The contract is not cooperative but commercial: Even though the company was established by separating the funds for instalments paid by shareholders from the financial activities of the insurance company (which has to do administering the funds paid by members of the insurance scheme)
– as is the case with the cooperative insurance – the system of insurance practiced by this company is nothing more or less than commercial insurance contrary to what its name may indicate.
Only 10% of the profit is distributed among the policy holders, 90% among the shareholders. This is the true nature of the commercial insurance. Giving back a small portion of the profit is nothing more than an attempt to give an air of Shariah legitimacy to the contract. In the cooperative insurance, the entire surplus must be given to the policyholders, either being paid out in cash or placed in a contingency fund.
2. This company has the contract of reinsurance with those foreign companies, which are purely commercial and collect more than half of the insurance payments. For example, NCIC collected 1.54 million Saudi Riyals from the customers and paid 716,584 to its reinsurers in the year 2003. The insurance payments were sent outside the country. Therefore, it is a pure form of commercial insurance.
3. The company invests in stocks and bonds, which are Haraam (illegitimate).

Signed by:
1. Dr. Mohammad Ibn Sa’ood Al Usaymi, General Director of Shariah council of the National Bank;
2. Dr. Yousuf Abdullah Al Shubayli, Faculty of Judicial Matters Committee, Imam Mohammad Bin Saud Islamic University;
3. Prof. Dr. Sulaiman ibn Fahd Al Eissa, Imam Mohammad Bin Saud Islamic University;
4. Prof. Dr. Saleh Ibn Mohammad Al Sattan, Prof. of Fiqh, University of Gassim;
5. Dr. Abdul Azeez Ibn Fawzaan, Imam Mohammad Bin Saud Islamic University;
6. Dr. Abdullah Ibn Moosa Al Ammaar, Imam Mohammad Bin Saud Islamic University.

(Note: The above report is included for the sake of alarming all those who are planning to establish the Takaful or Cooperative insurance companies based on the Islamic principles so that they can be aware of the possible mistakes or the negligence by the management and administration, and take steps to avoid further mistakes. But, on the other hand, there are successful examples too.)

Qatar Islamic Insurance Company, established in 1992 has been successful in the field of General as well as life (takaful) insurance. They are operating in Life, Cargo, Marine, Car, etc. The scholars are satisfied from the profit distribution system which is on the basis of Islamic Al Mudhareba whereby the premium payers get equal share of profit like the shareholders of the company.
Recently they introduced two important life policies ‘Aman’ and ‘Sanabel’. These policies are getting good popularity among the local Arabs. Up to 14% profit has been shown in their last financial report on the website.

Reinsurance or Retakaful
There is a lack of capacity within the Takaful industry for rein-surance. Therefore, a certain proportion of risk is placed with the international reinsurance companies that operate on the conventional basis. The reinsurance from Takaful companies ranges from 10% in the Far East where Takaful companies have relatively smaller com-mercial risk (so far), to the Middle East where up to 80% of the risk is reinsured on the conventional basis.

Lack of proper marketing
According to the surveys the penetration of the life insurance in terms of premium in Muslim countries is less than 1% of the GDP. It is therefore clear that Takaful had immense potential but remained untapped. The conventional life insurance is going to complete its 200 years and has penetrated almost 80% of Europe, Japan, America, Singapore, etc. Yet the Muslim world’s penetration is less than 1%. They are still pondering over the arguments of legitimacy. A solution should have been developed and come into action long ago. Takaful industry has completed almost 15 years so far when the first Takaful companies were established in Sudan and Malaysia.
This indicates that the marketing of Takaful has not been professional and convincing. It seems there is not adequate training in the field of insurance marketing.

Too much stress on profit distribution
The most stressed point in the presentation of Takaful has been the lure of the distribution of profit among the policy holders whereas the conventional insurance like LIC stresses mainly on the potential risks. As the prime interest of a common man in buying the life insurance is not the profit but the risk coverage, everyone can not be lured of the profit alone.
As far as the profits are concerned, the eventual return to a policy holder in the conventional insurance is still higher (if compared with LIC) than the Takaful. Therefore, the expatriate Muslim community is more inclined to the conventional life insurance than the Takaful. In Mallapuram district of Kerala which is known to be a Muslim majority area with most of the religious groups operating there, the record of premiums is the highest in all 100 branches of LIC in Kerala.

Too much stress on Islamic Shariah slogans
The Shariah is used as the main marketing tool for Takaful. In much of the literature available on Takaful, the main stress is given to the strong opposition of conventional insurance on the basis of Halaal Haraam, virtues of cooperation, solidarity and brotherhood. However, these are mere concepts that can not simply be equated and therefore can not be applied as a basis of legal principles in a contract. Principles of Al Mudhareba, Al Mushareka and Al Wakala, etc. are much publicised but a consensus on a common method is still lacking among the scholars and the companies.
With due respect to all these slogans, we can not deny the fact that by default it invokes communal feelings. The world is a global village where the solidarity and brotherhood are universal, and not limited to any particular region, religion or community. The conventional in-surance does not segregate anyone on the basis of the region, religion or community. A strong economy, fair political and social systems and a sense of humanity as a whole can bring together different com-munities. Instead of establishing a model which can silence the critics on the basis of the facts and figures, if we simply raise the religious slogans, no business is going to succeed.

Operator’s share of profit is not clear
Although basically under both the systems, the sharing of profit between participants and operators is an entitlement embedded in the contract, there is however a structural difference in the way such profit (surplus) is determined. The difference lies in the fact that under the principle of Al Mudarebah, the operator as the Mudharib or entrepreneur, can not charge its management expenses from the Takaful fund. On the other hand, under the Al Wakalah principle, the operator being an agent of the participants, can use part of the fund to cover its management costs. Further, under this system, underwriting the surplus of the Takaful fund, if any, shall be distributed back to the participants only, based on the promise that the funds actually belong to the policyholders. Finally, the paid up capital is considered as the donation of the shareholders who are not supposed to expect any share in the profit. However, they can be entitled in the capacity as operator or managers.
Observing the performance of Takaful operators, it was found that their returns to the participants were comparatively low. On an average, the rate of profit declared to their participants was below 10% p.a. On the other hand, it is also understood that there could be operators who might not be able to declare any profit to their participants.

Lack of professional expertise and manpower
In a world of tough competition in terms of concept as well as business, it is inevitable to have most qualified, talented and competent human resources. To sell the idea of a revolutionary concept like Takaful, it is not enough to have the university degrees only, but one must have motivation, involvement and personal attachment to the subject. Unfortunately, the kind of people we often come across are those who are appointed on the basis of their academic qualifications. This is the tragedy of not only Takaful but of every big Islamic organisation. The organisations do not realise that the people working for them must have the “Dawah” talent along with their degrees. There should be a highly competitive test like the Indian Civil services exams to select the best intelligent candidates.
The second hurdle in the way of Takaful, as in almost any other organisational activity, is the nationalisation of the jobs. A qualified talented person can not get a powerful position unless he is a native of that country. And a large number of those who qualify on the basis of the nationality are usually not ideal for the jobs. Therefore, the law enforcing bodies make it impossible to run any organisation successfully.
America and Europe are dominated by the anti-Islamic forces but their doors are always open for the qualified and experienced manpower of any country anytime but, unfortunately, in the Arab countries, the visa and immigration rules and regulations are so strict that no one likes to go there if he has a choice. America and Europe welcome the talents and extend their shelter to even citizenship to any qualified person whether he comes from Somalia or India or Arab. Their attitude towards a foreigner is such that he will help to increase their resources, whereas a foreigner on arrival in the Arab country feels from the attitude of the citizens as well as the immigration and police department that they take him as somebody who will share their livelihood and, as a result, their livelihood will be reduced.
However, due to lack of talented qualified manpower Takaful is not effective in the marketing.

Claim’s settlement not easy
It is said that in both the insurances the claim will be settled promptly. On experience, we found that it is not true. The official requirements are so much that one has to exhaust himself for several months. There are instances where the people had to wait for years for the compensation. Most of the delays are due to bad management, lazy clerks, and unnecessary paper work. The common man gets so much disappointed from the experience of others that he prefers keeping himself away from the insurance.