1. Summary of Presentation
Origins & Development
Global Takaful Industry
The Takaful Concept
Key Differences
Practicals of Takaful
Q & A
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Takaful Insurance of Africa

2. DEFINATIONS OF TAKAFUL
AOIFI defines Takaful as follows:
“ Islamic insurance is a system through which the participants donate part or all of their contributions which are used to pay claims for damages suffered by some of the participants.”
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Takaful Insurance of Africa

3. origin & current status
Global Takaful Industry
origin & current status
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Takaful Insurance of Africa

4. Contributions by Region
Source: World Islamic Insurance Directory 2012 4 4

5. Number of Islamic/Takaful companies
* GCC: 72 companies including all licensed companies in KSA
Source: World Islamic Insurance Directory 2012 5 5

6. DEVELOPMENT OF ISLAMIC FINANCE
Private Initiatives
Government Directives
People’s Driven

7. Government Directives (Partial Islamisation)
Revolutionary
(Full Islamisation)
Gradualist
(Partial Islamisation)
Pakistan
Iran
Malaysia
Sudan

8. A new dawn emerges in East Africa
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Takaful Insurance of Africa

9. Definition of Takaful AAOIFI defines Takaful as follows:
“ Islamic insurance is a system through which the participants donate part or all of their contributions which are used to pay claims for damages suffered by some of the participants.”

10. Islam As A Way of Life I S L A M h a r i P c t e s & v K H Q o l E D FB f n - G d W p U T C O N V
Yusuf Azzam P O L I T I C A L S O C I A L A C T I V I T I E S A C T I V I T I E S R I S K M A N A G E M E N T / I N S U R A N C E
Azman Ismail

12. Roles and Responsibilities of Shariah Supervisory Council (SSC)
Certification of permissible
Financial Instruments through fatwas
(ex-anteShariah Audit) &
verification of Transactions’ compliance
With Issued fatwa
(ex-post Shariah Audit)
Roles and Responsibilities of Shariah Supervisory Council (SSC)
Issue report to certify the conformity
of all transactions with the Shariah
principles
The calculation & payment
Of Zakah
Advice on the distribution of income
& expenses among s/holders
Disposal of Non-
Shariah Compliant
earnings

13. Fatwas and resolutions on conventional insurance
1972 Fatwa by National Council for Islamic religious affairs of Malaysia that life insurance is not lawful as it contains gharar, maysir and riba.
1985, OIC Fiqh academy, in its resolution No.9 (2/9) rules that commercial insurance is haram as it contains gharar etc.

14. What is gharar? Uncertainty, deception, risk, hazard, ignorance.
Gharar is where the buyer does not know what he bought, or the seller does not know what he sold (Ibn Hazm).

15. ARGUMENTS FOR GHARAR
Identify the gharar element in conventional insurance.
Will insured get the compensation as promised?
How much will the Insured get?
When will the compensation be paid?
Can the above be considered gharar? If yes, what extent of gharar, minor or major?

16. Riba
Investment of premium in riba-based financial instruments (e.g, interest bearing accounts and conventional bonds).
May impose charges for late payment of premiums.

17. Investment
Premiums are invested in non-shariah compliant instruments – what about shariah investment link?
Can the legal maxim “whatever leads to haram, is haram itself” be applied here?
Degree
EG OF LEGAL MAXIM
Azman Ismail
Topic 2 17

18. Maysir (gambling)
How does conventional insurance involve gambling?
By purchasing the policy with non-proportionate premium in the hope of getting much higher compensation should peril occur.

19. ELEMENTS OF GHARAR, RIBA MAYSIR IN TAKAFUL?
These elements do not exist in Takaful as long as it is a contract of taburru’ (gratuitous contract), not a contract of exchange (‘aqd mu’awadah) as in conventional insurance.

20. Between Takaful & Conventional Insurance
Key Differences
Between Takaful & Conventional Insurance
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Takaful Insurance of Africa

21. Takaful Insurance of Africa
Company
Payments
Unfortunate
Loss
Claim Paid
Customer
Any Difference?
Takaful
Risk Fund
Payments
Unfortunate
Loss
Customer
Claim Paid
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Takaful Insurance of Africa

22. Insured sells his Risk / Insurer Buys the Risk
Operation of ‘Insurance’
Risk Trading Concept
(Financial Risk)
Insured sells his Risk / Insurer Buys the Risk
(financial risk)
Unfortunate
Loss
Insurance
Company
Insured
Indemnify
Premiums
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Takaful Insurance of Africa

23. Operation of ‘Takaful’ Risk Pooling Concept
(Financial Risk)
Participants/Members
Indemnify
Unfortunate
Loss
Tabarru Fund
(Contribution Fund)
Company
Management Fee
Fund Manager
Contributions
Pooling of Risks
Refund of Surplus
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Concept of Mutual Assistance
Takaful Insurance of Africa

24. Takaful Insurance of Africa
TIA Ushirika Model
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Takaful Insurance of Africa

25. Takaful Insurance of Africa
Operations
CONTRIBUTION
TAKAFUL OPERATOR -
INSURANCE COMPANY
TABARRU (DONATIONS)
MANAGEMENT FEE
( - )
CLAIMS & REINSURANCE
( - )
INVESTMENT INCOME
( + )
PROFIT / SURPLUS
( = )
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Takaful Insurance of Africa

26. Takaful Insurance of Africa
When there is a will, there is way
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Takaful Insurance of Africa

27. Q & A ?s

28. PRACTICALS OF TAKAFUL
After concept and development what practical actions make each insurance stage compliant:
Promotion / Marketing Stage
Products Development
Risk Assessment / Underwriting
Finance / Accounting
Reinsurance & Claims
Concept in Family Takaful

29. AT PROMOTION/MARKETING
Explain/Demystify Takaful Concept
For all but sharia compliance makes it especially acceptable to Muslims.
Offers same classes under different – Compliant - Business Model:
Contribution into own fund instead of premium payment
Possibility of Surplus Share at end of year – Bond beyond premium payment
Unethical and harmful pursuits excluded

30. AT PROMOTION/MARKETING
There is dual governance – by Internal Auditor to the Board of Directors and by Head of Sharia Department to Sharia Supervisory Council
Quarterly Sharia audits and rulings
Despite additional costs to ensure Sharia Compliance we ensure competitive pricing.
Participate in and abide by industry regulations and Insurance law of the country
An equal opportunity employer.

31. WHILE DEVELOPING PRODUCTS
Ensure CLARITY - Strive to remove any apparent ambiguities to reduce contentions at claim
Develop Membership Certificate and Cover Summary in addition to usual working docs – PF, PD, Schedules, Cover Notes, Clauses,
PF & PD to contain the Sharia Compliant Declaration.
PF & PD to contain the key non compliant exclusions – Pork, Gambling, Alcohol, pornography, Khat, Riba, unethical businesses and pursuits harmful to society
Use compliant terms such as Contribution instead of Premium, Participant instead if Insured ** Sum covered

32. COMPLIANT DECLARATION
Recognises the agency relationship between Participant and (appoints) Operator to run fund
Participant vouches info given is true to the …
Sets out the premium segregation ratio–40/60
Allows investment in compliant instruments
Authorises purging of uncompliant income and channeling it to charity.
Agrees sharing ratios for investment income
Entrenches the sharing of any surplus from the risk fund.

33. QUOTING & COMPLETING P. FORM
Capture sufficient participant and risk info to facilitate bonding beyond insurance and availing shared surplus
Quotation to contain key non compliant exclusions. Not exhaustive and Participant to be guided by the ejusdem generis rule for others.
Highlight need to continuously advise change of use or business to reduce contention at claim
Affirms importance of completing proposal form – Info capture & Compliant Declaration

34. RISK ASSESMENT / UNDERWRITING
Ensure completeness of Documentation and details – Subject of Sharia Audit. Also IRA & KRA audits
Accept only compliant risks and reject others. Where in doubt consult Sharia Department.
Being ethical, adhere to industry guidelines including Motor terms, Listed Risks, WIBA Tariffs
Exercise Equity in rating – avoid huge subjective rate disparities. NCD, fleets & volume discounts allowed
Issue Cover Summary as you book any new business.
For Comprehensive motors valuation letter at inception and renewal to minimise contention at claim

35. FINANCE – PREMIUM DISTRIBUTION
Segregation of funds - 5 different accounts
Premium Receiving Account. From here distributed to respective accounts. Commissions, Levies, Stamp duty and purchases of Yellow Cards & Motor Certs drawn from here.
Other accounts are Operator, Risk Fund, Charity Account.
Operator Account – office Rent, stationery, salaries, marketing & promotion, transport, office running
Risk Fund – Direct Claims expenses, Reinsurance.
Surplus Account – If and once Surplus amount is determined it is moved from the Risk Fund to this account for sharing among qualifying participants

36. CLAIMS
Claims payment is considered one of the justifications for the existence of Takaful – not a wasted expense. Reality of covered events and need to cushion oneself.
There are no ex- gratia considerations. A claim is either payable or not. Equity demands that what you do to one, be ready to do to the entire group
Payments are out of the risk fund and must be sanctioned by the Sharia Department upon satisfying themselves
The highest body of appeal on any claims issue is the Shariah Supervisory Council whose ruling is final unless one wishes to pursue in a court of law
To cushion the Fund some of the Surplus at the end of the period is retained in the Risk Fund and rest is distributed among qualifying participants.

37. REINSURANCE / RETAKAFUL
Reinsured/Cedant becomes Takaful Operator and Reinsurer becomes Retakaful Operator
The Retakaful Operator must be Sharia Compliant – we expect surplus from them as we share surplus with our participants
Led Inward facultative support to other players but obtain outwards facultative only from compliant operators who will support the Surplus already shared
Give the Mandatory cessions to Kenya Re, Zep Re and Africa under their Sharia compliant windows / operations

38. PECULIARITY OF LONG TERM TAKAFUL
Promotion, Product Development, Underwriting and Reinsurance are more less as in General
Group Life and Credit Protection surplus share not to individuals but companies and lenders who are in actual sense the participants. Are annual
Pension & Annuities and Endowment Plans are long term investments. Funds are not segregated.
No Surplus Share is envisaged. Only substantial growth each year and end term bonuses.
PA Rider may be considered for Surplus Share

39. END
QUESTIONS & ANSWERS ?s