Shari'ah Principles Governing Takaful Models
Takaful is an Arabic word that means mutual protection and indemnity: one party, while providing help to others, is also indemnified by them. This idea of mutual protection is in clear contrast to the profit motive which underlies conventional proprietary insurance. The concept of takaful is fundamentally different from conventional proprietary insurance, although it has affinities with conventional mutual insurance. To put it simply, conventional proprietary insurance is the business of selling protection or indemnity for a certain amount of money. The insured will benefit from the protection and indemnity to be provided by the insurer, while the insurer will benefit from the premium paid by the insured. The element of mutuality is absent because the insurer views the insurance contract as a purely commercial contract with its own risk and reward profile. Takaful, on the other hand, is centered on the principle of mutuality and avoids any commercial contract between the insurer (the insurance company) and the insured (the policyholders). The concept of providing indemnity under takaful does not involve any commercial relationship between the insurer and the insured. In fact, the takaful operator is not an insurer as understood in conventional insurance markets, but merely an operator who manages the takaful operations (underwriting, risk calculation, investments, claim processing, and ...