Summary of Presentation Origins & Development Global Takaful Industry The Takaful Concept Key Differences Practicals of Takaful Q & A 4/26/2017 Takaful Insurance of Africa

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.” 4/26/2017 Takaful Insurance of Africa

origin & current status Global Takaful Industry origin & current status 4/26/2017 Takaful Insurance of Africa

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

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

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

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

A new dawn emerges in East Africa 4/26/2017 Takaful Insurance of Africa

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.”

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 F B 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 www.iifin.net

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

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.

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).

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?

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.

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 www.iifin.net Topic 2 azmanwong@yahoo.com 17

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.

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.

Between Takaful & Conventional Insurance Key Differences Between Takaful & Conventional Insurance 4/26/2017 Takaful Insurance of Africa

Takaful Insurance of Africa Company Payments Unfortunate Loss Claim Paid Customer Any Difference? Takaful Risk Fund Payments Unfortunate Loss Customer Claim Paid 4/26/2017 Takaful Insurance of Africa

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 4/26/2017 Takaful Insurance of Africa

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 4/26/2017 Concept of Mutual Assistance Takaful Insurance of Africa

Takaful Insurance of Africa TIA Ushirika Model 4/26/2017 Takaful Insurance of Africa

Takaful Insurance of Africa Operations CONTRIBUTION TAKAFUL OPERATOR - INSURANCE COMPANY TABARRU (DONATIONS) MANAGEMENT FEE ( - ) CLAIMS & REINSURANCE ( - ) INVESTMENT INCOME ( + ) PROFIT / SURPLUS ( = ) 4/26/2017 Takaful Insurance of Africa

Takaful Insurance of Africa When there is a will, there is way 4/26/2017 Takaful Insurance of Africa

Q & A ?s

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

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

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.

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

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.

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

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

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

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.

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

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

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