Letters to the Editor

Hasan Jamyl, via email

I am working in IT Department of an Insurance company in Saudi Arabia. This company claims that it is completely Shariah-compliant. I don’t know how far they are true in their statements. Is it permissible to work in such companies?

YMD

If you do not trust your company’s statements, because of their ambiguous or incomplete statements, then, you need to do some research in order to find what exactly is going on. Maybe you should speak to the accountants.

However, if you fail to elicit complete information, you may go by what the company officials state. If they assure you that it is run on Islamic principles, then go by their word. Unless you have compelling reasons to disbelieve, you may go by trust.

What are the Islamic rulings for Cooperative Insurance?

YMD

Islamic Cooperative Insurance, also called as Takaful companies, state that the following differences can be noticed between Takaful and Conventional Insurance:

(i).  CONVENTIONAL INSURANCE: It is a Risk Transfer mechanism whereby risk is transferred from the policy holder (the Insured) to the Insurance Company (the Insurer) in consideration of ‘insurance premium’ paid by the Insured.

TAKAFUL: It is based on mutuality; hence the risk is not transferred but shared by the participants who form a common pool. The Company acts only as the manager of the pool (Takaful Operator).

(ii).  CONVENTIONAL INSURANCE: It contains the element of uncertainty i.e. “gharrar” which is forbidden in Islam. There is an uncertainty as to when any loss would occur and how much compensation would be payable.

TAKAFUL: The element of ‘uncertainty’ i.e. ‘gharrar’ is brought down to acceptable levels under Shari`ah by making contributions as “Conditional Donations” (tabarru`) for a good cause i.e. to mitigate the loss suffered by any one of the participants.

(iii). CONVENTIONAL INSURANCE: It contains an element of gambling i.e. “maisir” in that the insured pays an amount (premium) in the expectation of gain (compensation/payment against claim). If the anticipated loss (claim) does not occur, the insured loses the amount paid as premium. If the loss does occur, the insurer loses a far larger amount than collected as premium and the insured gains by the same.

TAKAFUL:   The participant pays the contribution (tabarru`) in the spirit of purity and brotherhood; hence it obviates the element of ‘maisir’ while at the same time without losing the benefit of Takaful in the same way as conventional insurance.

(iv). CONVENTIONAL INSURANCE: Funds are mostly invested in fixed interest bearing instruments like bonds, TFCs, securities, etc. Hence these contain the element of “riba” (usury) which is forbidden in Islam.

TAKAFUL: Funds are only invested in non-interest bearing, i.e. riba-free instruments.

(v). CONVENTIONAL INSURANCE: Surplus or profit belongs to the Shareholders. The insured is covered during the policy period but is not entitled to any return at the end of such period.

TAKAFUL: Surplus belongs to the participants and is accordingly returned to them (in proportion to their respective shares of contributions) at the end of the accounting period.

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