Takaful

CHAPTER 1 : RISK AND INSURANCE
Definition of Risk
-Is the potential of losing something of value, weighed against the potential to gain something of value.
-Risk and uncertainty are fundamental facts of life. All human activities are subject to risk, which may lead to financial or physical losses to him.
Concept of Risk
Divided into 2 :
  1. Pure Risk
  2. Speculative Risk
Pure Risk : (can not be avoided)
A pure risk is something that will necessarily be bad if it happens. There is the possibility of loss or no loss, with no possibility of gain.
Outcomes : Loss/ No loss
Origin of risk : Unvailable
  • : Natural Distater ( ex: earthquake/flood )
(If something goes will suffer losses, if not occur have nothing to lose)
Speculative Risk : (can be avoided )
Three possible outcomes exist in speculative risk: something good (gain), something bad (loss) or nothing (staying even)
Outcomes :Loss/Gain Origin of risk :Avoidable by action Example :Stock price fluctuations
Other related of concept risk
Divided into 2 :
  1. Fundamental Risk
  2. Particular Risk
Fundamental Risk
-Fundamental risks affect the entire economy or large numbers of people or groups within the economy. -Examples of fundamental risks are :
  1. high inflation
  2. unemployment
  3. war
  4. natural disasters such as (earthquakes, hurricanes, tornadoes, and floods)
Ex: Causing flooding in the village all the people stand to lose
\
Flooding causes people exposed spared.
Particular Risk
-The chance of loss which might arise from a situation with any specific event. For instance, you are at a particular risk at home from robbery, fire or a break in. -The term“exposures” is used to include all units subject to some potential loss.
-Exposures are units that are exposed to possible losses. They can be people that are at risk of experiencing losses:
  1. Businesses,
  2. Properties
  3. Nations.
Ex:
Risk occurs only involve two parties only.
Differentiate between fundamentalandparticular risk.
-The distinction between a fundamental and a particular risk is important, since government assistance may be necessary in order to insure fundamental risk.
-For example, the risk of unemployment is generally not insurable by private insurance companies but can be insured publicly by federal or state agencies.
-In addition, flood insurance is only available through and/or subsidized by the federal government.
DIFFERENCE BETWEEN INSURANCE AND TAKAFUL
INSURANCE
Meaning
Transfer of risk from individual to insurance company. Insurance company indemnifies from define loss in exchange for premium payment.
Concept
-Sale/buy protection
Condition of valid insurance
-Seller ( insurance ) -Buyer ( insured ) -Price ( premium ) -Subject matter ( protection )
Unvalid of insurance
According to these Fiqhi bodies Conventional Insurance is unlawful because of involvement of prohibited elements like:
-Gharar -Riba -Maisir -Unlawful appropriation of others’ property -Violation of law of inheritance in case of life insurance
Premium
Insured Company
Protection
IF:
Risk : The insurance company give indemnity . No Risk : The insurance company will get the profit.
Ex:
Anisah buy the protection ( Insurance life ) from the insurance company ( Prudential ). Every month , Anisah paid RM 150 to Prudential . If Anisah have risk such as accident , she will get the indemnity from Prudential. If Anisah not have risk, so, the premium every month will tranfer to Prudential as a profit. So, Anisah cannot get anything benefit from the Prudential because the concept of insurance is “sale and buy” protection.
TAKAFUL
Meaning
Takaful comes from Arabic root-word ......
Kafalah
Guarantee
So, its means mutual protection and joint guarantee
Operationally, it is a scheme based on brotherhood and mutual assistance , where provides mutual financial assistance to participation in case of need.
Concept
-Tabbaru’at ( part of your contribution as participative contribution ) -Mudharabah -Wakalah
Manage
Contribute
Takaful Operator
Takaful Fund
Participate
RISK HANDLING METHOD
There are 4 ways :
  1. Risk avoidance - Avoiding risks also means losing potential profits if they receive (retaining) the risk may be allowed. -The decision not to proceed with the business in order to avoid the risk of loss also means avoiding the possibility of gain.e.g. do not buy property or start a business, not wanting to incur liability contained therein.
  1. Risk/ (Loss ) control - Evaluate potential losses and take action to reduce or eliminate such threats. -An action taken to improve the level of risk in order to achieve an acceptable standard. -The process of continuous evaluation is needed to ensure the desired standard can be achieved. It involves a method to reduce the severity / severity of losses or to prevent the possibility of the loss. e.g . Installing sprinkler systems to put out the fire in order to reduce the risk of loss due to fire.
  1. Risk retention
-Willingness to accept losses if it really happened. -Is a viable strategy for small risks where the cost of insuring these risks may be greater in the future compared to the amount of loss.
  1. Risk transfer- -Use takaful/Insurance to transfer risk to another party to reduce the loss. -It involves the transfer of risk to the organization (insurer) or individual. When risk is transferred, the losses will be paid by organizations or individuals to transfer their risks.There are two ways to transfer risk.
  • Contract Insurance / Takaful-e.g : homeowners can transfer the risk of loss if the house caught on fire which destroyed his home to buy fire takaful plans.
  • Contract Not Insurance / Takaful- e.g: , a supermarket may transfer risk (liabilities) arising from the sale of products stand to defect with a contract agreement with the manufacturer where the manufacturer agrees to pay damages to the supermarket from liability that may arise from products damaged.
RISK MANAGEMENT PROCESS
  1. Risk identification
  • Identify risks that occur
  • e.g- risk of accidents
  1. Evaluating the potential losses
  • Assess the risk of potential losses to occur.
  • Evaluate e.g- accident caused what?
  1. Selecting risk handling techniques
  • Selecting the appropriate techniques to mitigate these risks.
  • eg, the accident caused a dark road, so, the best method is to install street lights.Implementing the risk management programme
  1. Controlling the risk management programme
  • • Controlling and monitoring techniques used whether or not the technique is effective in managing risk.
CHAPTER 2: FUNDAMENTAL AND PRINCIPLES OF TAKAFUL
2.1 BASIC INSURANCE PRINCIPLE
  1. INSURANCE INTEREST
  • Insurance is something of interest in the insurance must be in the right insurance.
Example: A mother can take insurance for their children.
  • There is a risk that the relationship should be insured.
Insurance Interest
Subject Matter Relationship
Car children à mother
House employer à employee
People husband à wife
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Insurable interest is where you have a valid reason to insure and stand to suffer a direct financial loss if the event insured against occurs. Insurable interest exists when an insured derives a financial or other benefit from the continuous existence of an insured object. For example, a person has an insurable interest in their own car – but not in their neighbor’s car.
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Insurable interest means that the person opting for insurance must have pecuniary interest in the property he is going to get insured and will suffer financial loss on the occurrence of the insured event. This is one of the essential requirements of any insurance contract. Therefore, a person can go for insurance of only those properties where he stands to benefit by the safety of the property, and will suffer loss, damage, injury if any harm takes place to such property. Thus, if you want to insure Taj Mahal or Red Fort, you will not be allowed to do so as you do not have any pecuniary interest in these properties.
  1. UTMOST GOOD FAITH
  • Utmost good faith is absolute trust. There are two parties in the insurance is the insurer and the insured.
For example: The insured must giving personal information to the insurer honestly, don’t give the false information. If the insurers ask all your details, the insured need to give but have to know the purpose.
  • People who want to make the insurance should fill out the form honestly. If not honest, the insurance can be canceled.
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The principle of utmost good faith requires anyone seeking insurance to disclose all relevant facts. These are facts that would influence the judgment of a prudent underwriter in fixing the premium or determining whether they will take on the risk. Where material non-disclosure can be proved, a contract can be voided.
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Like in other contracts, the insurance contract must be based on good faith. If the insurance contract is obtained by way of fraud or misrepresentation it is void.
  1. INDEMNITY
  • Indemnity there is any risk of the insured will be paid compensation. For example: There is fire the compensation will be calculated according to the caught fire stuff.
  • Compensation cannot exceed the price of the goods at the time. Compensation in the event of the insured risk cannot be from the loss at the time.
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Indemnity is considered to be the exact compensation required to restore the policyholder to the financial position they enjoyed immediately before a loss occurred. Indemnity settlements can be reduced where it can be proved that there is under-insurance, and therefore the insurers are only receiving a premium for a proportion of the entire value at risk. If this is the case, any claims payment will be reduced in direct proportion to the under-insurance.
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The insurance contract should always be a contract of indemnity only and nothing more. According to this principle, the insurance contract should be such that in case of loss due to the eventualities mentioned in the contract, the insured should be neither better off nor worse off after receiving the insured amount. The main object of this principle is to ensure that the insured is not able to use this contract for speculation or gambling.
  1. PROXIMATE CAUSE
  • Proximate cause is a fire caused by a person or non-self. For example: Fire caused by the negligence of the premises themselves will not be able get insurance.
  • Compensation where the incident must be due to what is reported is not due to other events.
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An insurance policy will define the perils or insured events that cover is provided for. For example, a building insurance policy will provide various covers as standard
– Such as fire, lightning strikes and earthquakes.
– And cover for additional risks, such as escape of water, storm or accidental damage, can be requested. All contracts are subject to terms and conditions that will exclude certain causes of loss. Therefore, in the event of a claim, it is important to ascertain the cause of the loss in order to determine if that cause is insured or excluded. There may be multiple elements involved in a claim, so it is the ‘proximate cause’ that is taken into account. The proximate cause is the dominant cause that sets in play a chain of events. For example, if lightning damaged a building and weakened a wall, following which the weakened wall was blown down by high winds, lightning would be considered the proximate cause.
  1. SUBROGATION
  • Subrogation is the distribution ratio of the insurer to the insured. For example: There are 2 for general insurance company cover your car. Accidental damage RM50,000 Company will divide the damages according to the damage of the accident.
Example KURNIA Insurance RM35,000
ABC Insurance RM15,000 = RM 50,000
  • 1st party is insurance to the whole place. 3rd party is insurance applicable to the risk. Ali hit motor Abu. Ali take 1st party insurance and Abu 3rd party insurance. Ali will bear the loss of motor cars and Abu. otherwise, Abu hit Ali. Abu only liable for Ali cars only.
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If a policyholder has a claim paid by their insurer, they may also have a right to pursue funds from another source, such as a third-party who caused the incident. The principle of subrogation allows the insurer to pursue any rights or remedies which the policyholder may possess, always in the name of the insured. This also ensures that the policyholder only receives the indemnity settlement entitled to and therefore they will not profit from the incident.
  1. CONTRIBUTION
  • Contribution is the damages to be paid by the company in accordance with the rates.
  • Ali drives a car, and then Ali experienced car accident. Ali took a lot of insurance companies. The loss of the car was RM3000; each company will give a little bit, until RM3000.
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An insured party may have policies with two or more insurers covering the same risk, although not necessarily with equal degrees of liability. Therefore, in the event of a claim, all of the insurers should pay an equitable proportion of the claim payment. Contribution is the right of an insurer to call upon the other insurers to share the costs of such a claim payment. The fundamental point is that, if an insurer has paid a claim in full, it can recoup a proportion of the costs from the other insurers of the risk.
  1. HISTORY OF TAKAFUL
  1. The Compensation ( Al – Diat )
  • The seller agreed to walk with him, but for those who do not sell it used to bring relief goods seller. In the event of another robbery sellers help sellers to sell items stolen earlier there (trade).
  1. The Common Fund ( Al – Kanz )
  • Migrated from Mecca to Medina. Bring whatever they have, to the Medina. No money, clothes and others. In Medina people Ansar (help) Muhajirs (migratory).
  1. The Aqila System ( Al – Aqila )
  • Long time ago life is tribal. A faction suddenly killed tribal family B Tribal B can ask for compensation from the tribal A, must pay (blood money). It is calculated to help tribal B because tribal B kill people help tribal for killing the person who helped her family. The Prophet allow.
  1. MODERN
  1. 1979 àThe first insurance company in the world based in Sudan islam ( Islamic Insurance Company).
  2. 1980 à UAE in Mesir (Arabic Islamic Insurance Comperation).
  3. 1984 à Malaysian Takaful Company bhd.
  1. BASIC PRINCIPLE OF TAKAFUL
  1. Join Guarantee ( Takaful )
  • Involving all participant
  • Stems from the word kafal or to take care of one’s needs.
  1. To Donate ( Tabarru’ )
  • Donations / funds paid
  • The participants of takaful plan make an aqad (agreement) to deposit as donation a certain portion of takaful contributions or installments into a risk fund.
  1. Profit Sharing Contract ( Al – Mudharabah )
  • Profit sharing - Coin Participant will be invested and the profits will be shared.
  • Is a contractual agreement between provider of a capital and entrepreneur for the purpose of business venture whereby both parties agree on profit sharing arrangement.
  1. Agent ( Wakalah )
  • Cooperative risk sharing occurs among participants where a Takaful Operator earns a fee for survives ( agent ) and does not participate or share in any underwriting result as these belong to participants as surplus or deficit.
CHAPTER 3 :TAKAFUL INDUSTRY IN MALAYSIA
CHANNEL OF DISTRIBUTION IN TAKAFUL
Direct marketing
Participant
Agent and Broker
Bancatakaful
  1. Direct marketing
Def :
- a sales methods which advertised approach potential customers directly with product and services.
Examples:
- online, televisyen, paper and etc.
  1. Participant
Def :
- Who contribute the premium to the fund. - No concept of buying and selling. - Participant reserve fund. - Participants can help orphan. - Participants can help people in distress.
Mudharabah
Provident funds 80 : 20 ( Annually word )
Charity funds 50 : 50 ( Maturity etermity )
Tabarru’at ( Contribution donation )
Agent
  1. Agent and Broker
Def :
- Someone who solicit takaful business or invites potential customer to enter into takaful contract with operators.
Characteristics :
- Good knowledge of takaful. - Understand your needs and interest.
- Ensures your understands what you are buying. - Delivers quality and timely services.
  1. Bancatakaful
Def :
- As the delivery and distribution of a suitable range of tailored 'bankable' protection and long term savings and pension products designed to meet the lifecycle needs of the customer base of a bank or other financial institution.
Product Bancatakaful:
  • Pesona Lady
  • Premier PA Plus
  • Privilege PA
  • Senior PA
STRUCTURE OF THE TAKAFUL MARKET
STRUCTURE OF THE TAKAFUL MARKET
Re-Takaful
Takaful Operator
RE-TAKAFUL
Def:
  • -Re-Takaful is where a Takaful company is backed or reassured from any insufficiency in paying the claims or insolvency by another Takaful company. The re-Takaful company is sharing the risk and responsibility with the Takaful company.Illustrated as follows:
Why Re-Takaful:
  • -Takaful company can’t bear the whole risk of covering its participants’ claims.’
  • -If disaster strikes, the takaful fund may be depleted quickly and become insolvent, in which case everyone — the participants, the shareholders, and the takaful operator — loses.
  • Re-takaful contract, participants (policyholders) are various takaful companies, and the fund operator is the re-takaful company.
-In Malaysia, have 4 Re-Takaful operators such as :
  • ACR Re-takaful SEA Berhad
  • MNRB Re-takaful Berhad
  • Munchener Ruckversicherungs-Gesellschaft (Munich Re Retakaful)
  • International Takaful Operator in AIA Takaful International Bhd.
Comparison Re-Insurance between Re-Takaful :
Re-Insurance
Re-Takaful
Types of risk
-Insurables
-Only risk permitted by shariah
Investment assets and criteria
-Prudential allocation with no ethical restriction
-Prudential allocation with is study compliant shariah principles.
Capital Structure
-Debit securities ( bond ) fixed income.
-Equity based and separation between shareholders capital and risk pool.
Shariah Advisor
NO
YES
TAKAFUL OPERATOR
Def :
  • Participants contribute a sum of money into a common fund, which will be used to mutually assist the members against a defi ned loss or damage.
  • A takaful operator is entrusted to manage the fund, who runs the operation commercially as a business venture for profit.
Sources of income for the operator are from:-
-profit from the investment of its shareholders’ funds -agency/wakalah fee. -share of investment profit of takaful funds. -surplus of the takaful funds.
Requirements of takaful operator :
- A company registered under the Companies Act 1965 or co-operative society under co-operative Societies Act 1993. - Registered under Takaful Act for class of business- Family or general or both. - Maintain at all times a surplus of assets ( cash or securities ) over liabilities of not less the amount as may be prescribed from time to time & Takaful ( surplus of assets over liabilities ) Regulation 1985.
ORGANIZATION RELATING TO TAKAFUL
ORGANIZATION RELATING TO TAKAFUL
MTA ( Malaysia Insurance and Takaful Association )
MITBA ( Malaysian Insurans dan Persatuan Takaful Broker )
PIAM ( Persatuan Takaful Am )
MII ( Malaysian Insurance Institution )
  1. MTA
- Conceptualized in 2003 as a confederate that promotes and counsels the Takaful industry in Malaysia. -12 registered operating members. -Worlwide recognition as the body of reference pertaining to the fundamentals of Takaful.
Objectives :
-To promote the foundation of a sound takaful structure in Malaysia with co-operation and consult from the Director-General of Takaful
- To promote and represent the interests of members registered or connected to MTA by all means and methods that is consistents with the laws and Constitution ofMalaysia.-To render to members when possible, such advice or assistance mey be deemed necessary and expedient.
  1. MITBA
-Previously known as The Insurance Brokers Association of Malaysia ( IBA ) - Registered with the Registered of societies on 3rd December 1974.
Roles :
- To elevate the status of insurance. - Takaful Brokers through profesional development and by establishing improved standards of qualification and ethical practice.
Functions:
- Collective voice of the industry . - Advising members ,the regulator , consumers, trade association and other stakeholders on key insurance issues. - Provides training, technical advice, guidance on regulation and business support.
Objectives :
-To elevate their status , safeguard and advance their interest, procure their general efficiency and proper professional conduct.
-To ensure that employees of members are professionally qualified, conversant with insurance laws and practices.
-To provide a platform for the promotion of dicipline, professional conduct and etiquette
-To promote the healthy growth of the insurance undustry in line with National object.
  1. PIAM
-The Persatuan Insurance Am Malysia (PIAM) was formed in May 1979 in compliance with section 3(2) of the Insurance Act, 1963.-PIAM constitute the statutory association recognised by the Government of Malaysia for all registered insurer who transact general insurance business in this country.
Objectives :
- To promote the establishment of sound insurance structure in Malaysia co-operation and consultation with BNM. - To promote and represent the interest of members in or connected with Malaysia by all means and methods consistent with the laws and constitution of Malaysia --To make rules, regulation and bye-laws in accordance with these Articles in consultation with BNM .
  1. MII
-Founded in 1968 as a non-profit organisation. - MII is the leading professional body and education institution for the Malaysian insurance industry. -MII provides internationally recognised qualifications in insurance, risk management and financial planning. -It is highly respected as a regional centre that offers an extensive range of quality education programmes and training courses for professionals in the insurance and financial services industry.
Vision: To be the preferred insurance institute for human capital development and professional standards in insurance in Malaysia and Emerging Markets.

Mission: Strengthening the industry and adding value as strategic partners with the insurance community by:

1) Raising the level of professionalism standards
2) Delivering effective human capital development programmes
3) Promoting insurance related knowledge and information
4) Providing a platform for social and networking opportunities
5) Supporting the national agenda in promoting insurance training and education
CHAPTER 4: LEGAL ASPECT OF TAKAFUL
4.1 TAKAFUL ACT 198
  • Date of Royal Assent 24 DISEMBER 1984
  • Date of publication gazette 31 DISEMBER 1984
  • Came into force on 1 JANUARY 1985
  • An act to provide for the regulation of Takaful business in Malaysia and for other purpose relating to connected with Takaful.
4.2 68 SECTIONS & 4 MAIN PARTS
  1. 4 Main Parts
  • Premilinary
  • Returns, investigations, winding up & transfer of business
  • Conduct of takaful business
  • Cellaneous & general
  1. 68 Sections
  • DEFINES TAKAFUL
(Part I, Section 1)
Scheme based on brotherhood and mutual assistant which provide for mutual financial and assistants to participants in case of need. Whereby, the participants mutually agree to contribute for that purpose.
  • CARRYING ON TAKAFUL BUSINESS
(Part II, Section 4&5)
Only by registered takaful operator which can be either a company under the companie act 1965 or co-operative society under co-operative societies act 1993.
  • RESTRICTION ON “ TAKAFUL “ TERM
(Part II, Section 6)
“Takaful “ or its derivative in any language indicating that person carries on takaful business in the name description or title under which it carries on bussiness in malaysia is not allowed unless with consent of the director general of takaful.
  • INDEMNITY
    (Part 4, Section 55)
The Director General, any officer of the Central Bank appointed under subsection (5) of section 54, any person appointed under section (3) of section 46, or any person authorized or appointed under subsection (6) of section 54 shall not be liable for anything done or omitted to be done in good faith in the exercise of any power or the performance of any function or duty conferred or imposed by this Act or any regulations made there under.
4.3 TAKAFUL OPERATOR
Organize and manage calamity relief fund contributed by the takaful participants agreed to jointly guarantee and help them over a loss is determined.
4.4 REQUIREMENT OF TAKAFUL OPERATOR
SPECIFIC IN SECTION 4 TO 68
4.4 THE SUPERVISORY RELATIONSHIP BETWEEN BANK NEGARA AND TAKAFUL.
FUNCTION OF BNM
  1. Protect consumer interest
  2. Determine the insurance & takaful companies financially sound
  3. Bank of issu
  4. BNM’s efforts to develop islamic banking and takaful industry efficient , progressive and comprehensive
  5. Banker, agent and adviser to the government
  6. Custodian of the cash reserves of commercial banks
  7. Custodian of foreign balances of the country
  8. Lender of the last resort
  9. Central clearance, settlement and transfer
  10. Controller of credit
4.5 THE ROLE OF THE SHARIAH ADVISORY COUNCIL
  1. The Nature Of The Supervision Of Shariah Committee
  • Establishment Of Shariah Committee
Every Islamic financial institution is required to establish a Shariah Committee. In the case of a BAFIA IBS bank, it may establish one Shariah Committee for the banking group. However, if a takaful operator is part of that group, the takaful operator must establish its own separate Shariah Committee, due to the legal requirement under the Takaful Act.
  • Roles Of Shariah Committee
  1. To advise the Board on Shariah matters in its business operation
The Shariah Committee shall advise the Board on Shariah matters in order to ensure that the business operations of the Islamic financial institution comply with Shariah principles at all times.
  1. To endorse Shariah Compliance Manuals
The Islamic financial institution shall have a Shariah Compliance Manual. The Manual must specify the manner in which a submission or request for advice be made to the Shariah Committee, the conduct of the Shariah Committee's meeting and the manner of compliance with any Shariah decision.
  1. To assist related parties on Shariah matters for advice upon request
The related parties of the Islamic financial institution such as its legal counsel, auditor or consultant may seek advice on Shariah matters from the Shariah Committee. The Shariah Committee is expected to provide assistance to them so that compliance with Shariah principles can be assured completely.
  1. To advise on matters to be referred to the SAC
The Shariah Committee must advise the Islamic financial institution to consult the SAC on any Shariah matters which have not been resolved or endorsed by the SAC.
  1. To endorse and validate relevant documentations
To ensure that the products of the Islamic financial institutions comply with Shariah principles in all aspects, the Shariah Committee must endorse the following:
  • The terms and conditions contained in the proposal form, contract, agreement or other legal documentation used in executing the transactions
  • The product manual, marketing advertisements, sales illustrations and brochures used to describe the product.
  • Example Of Shariah Committee In Bank Muamalat
USTAZ AZIZI BIN CHE SEMAN CHAIRMAN
  1. Tn. Haji Azizi bin Che Seman is currently a lecturer at the Islamic Studies Academy, University of Malaya, a position he has held since 2002.
  2. He has been with Bank Muamalat Malaysia Berhad (BMMB) since 1 April 2005. Until now, he is entrusted to be the Chairman for the Bank's Shariah Committee.
  3. In terms of qualification, he holds a Master Degree in Economics from International Islamic University of Malaysia in 2001 and a Bachelor of Islamic Studies from University Malaya in 1996.
  • Shariah Committee For Etiqa Takaful
Tan Sri Dato' Seri (Dr) Haji Harussani bin Haji Zakaria
  • Shariah committee for TAKAFUL IKHLAS
Ybhg. Dato' Haji Mohd Mokhtar Shafii
  • Qualification Of Syariah Committe
  1. A member of a Shariah Committee shall be an individual. A company, institution or body shall not constitute a Shariah Committee for the purpose of these Guidelines
  2. The proposed member of the Shariah Committee shall at least either have
qualification or possess necessary knowledge, expertise or experience in the
following areas:
(a) Islamic jurisprudence (Usul al-Fiqh)
(b) Islamic transaction/commercial law (Fiqh al-Mu'amalat).
  1. It should however be noted that paper qualification on the above subjects will not be mandatory as long as the candidate has the necessary expertise or experience in the above areas.
  1. The General Role Of The Shariah Advisory Council
  • Introduction
Shariah Advisory Council is a body established in accordance with the establishment of an Islamic-based finance company. It is made up of economic experts who were also adopted in the field of Shariah. Shariah Advisory Council of Bank Negara has a higher than sharia committee of commercial banks. If there is a difference between the results of the Bank's Shariah Advisory Council of the Shariah Committee of other banks, the results of the Bank's Shariah Advisory Council shall apply.
  • Role Of Shariah Advisory Council
  1. List the list of Syariah-compliant securities
  2. Provide advice on the Capital Market Products
  3. To advise the Takaful Operation
  4. To advise the Boards of Directors and Financial Institutions .
  5. Shariah-compliant Validate Manual
  6. Validate related documents.
  7. Assist Parties in respect of Shariah matters
  8. Provide advice on matters referred to the Syariah Advisory Council, Bank Negara Malaysia.
  9. Provide Written Opinion of the Shariah.
  10. Assist the Syariah Advisory Council of Bank Negara
  11. Malaysia when consulted foradvice.
  12. Provide advice on Shariah Audit.
  13. Provide advice on Zakat.
SHARIAH ADVISORY COUNCIL
  1. Example Bank In Malaysia
BNM
Dr. Mohd Daud Bakar (Chairman)
Dr. Mohd Daud Bakar is the Chairman of the Shariah Advisory Council (SAC) of Bank Negara Malaysia (Central Bank of Malaysia), Securities Commission Malaysia (SC) and the Shariah Supervisory Council (SSC) of Labuan Financial Services Authority (Labuan FSA). He is also a registered Shariah adviser with the SC. He serves as a member of the International Shariah Research Academy for Islamic Finance (ISRA) (Malaysia) Council of Scholars; Shariah Board of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) (Bahrain); International Islamic Financial Market (Bahrain); Dow Jones Islamic Market Index (New York); Unicorn Investment Bank (IIFM) (Bahrain); Oasis Asset Management (Cape Town, South Africa); BNP Paribas; Malaysian Rating Corporation (MARC) and in other financial institutions both in Malaysia and internationally.
  1. At present, Dr. Mohd Daud Bakar is the Chief Executive/ President of International Institute of Finance (IIIF) and Amanie Business Solutions Sdn. Bhd. His areas of specialisations include Islamic legal theory; banking and finance; law of zakat and medical law. Apart from that, he is also actively advising in capital markets product structuring such as sukuk in Malaysia and internationally.
  1. Prior to this, Dr. Mohd Daud Bakar was the Deputy Rector (Student Affairs and Discipline) and an Associate Professor at the International Islamic University, Malaysia (IIUM).
  1. He received his Bachelor of Shariah from the University of Kuwait, Kuwait, Bachelor of Jurisprudence from the University of Malaya and PhD from the University of St. Andrews, Scotland, United Kingdom.
CHAPTER 5 : TYPES OF TAKAFUL PLANS
FAMILY TAKAFUL PLANS
What is family takaful ?
Family takaful provides you with a protection and long term savings. Yo and your beneficiery will be provided with the financial benefits if you suffer a tragedy. At the same time, you will enjoy a long term personal savings because part of your contribution will be deposited in an account for the purpose of savings. You will able to enjoy investment returns from the saving portion based on a pre-agreed ratio.
If you participate in family takaful , you will be eligible for personal tax relief as lifeinsurance.The maximum amount of relief for an ordinary family takaful is RM6,000 per yearless any contributions paid to retirement benefit schemes i.e Employees Provident Fund. For medical education plans, the tax relief is RM3,000 per year.
The takaful plans designed by the takaful company would enable participants to participate in a takaful scheme with the following aims:
  • To save regularly
  • To invest with a view of earning profits which are syariah-compliant.
  • To avail of cover in the form of payment of takaful benefits to heirs should a participant die before the maturity date of his takaful plan.
Takaful concept in family takaful
When you participate in family takaful, you will contribute a certain amount of money to a takaful fund. You will undertake a contract (aqad) for part of your contribution to be in the form of participative contribution (tabarru’) and the other part for savings and investment.
Your contribution in the form of tabarru’ will be placed in a fund (Participants’ Special Account or PSA) that will be used to fulfil your obligation of mutual help, should any of the participants face a misfortune arising from death or permanent disability. If you survive until the date of maturity of the plan, you will be entitled to share the net surplus from the fund, if any.
The takaful operator will invest your savings and investment contribution (Participant’s Account or PA) and the profit will be shared between you and the takaful operator according to a pre-agreed ratio.
Benefits covered under family takaful
Should you pass away before your takaful plan matures, the takaful operator will pay to your
nominee (wasi) with the following benefits:
  • From your PA
-The amount accumulated in your PA plus your share of profits from the date of inception
of the takaful plan to the due date of payment prior to death.
  • From your PSA
-The sum covered under the risk or tabarru’ portion.
-If you survive until the date of maturity, you will be entitled to the following benefits:
  • From your PA
-The amount accumulated in your PA plus your share of profits from the investment.
  • From your PSA
-The net surplus allocated to you, if any.
FAMILY TAKAFUL PLANS
Term policy
Whole Life policy
Endownment policy
Investment linked takaful
Medical and Health takaful
Takaful annuity
  • Term policy
- Provides coverage for a certain period of time, or a specified "term" of years.
- If the insured dies during the time period specified in the policy and the policy is active - or in force - then a death benefit will be paid.
  1. Tenor : 10/20/30 years.
  2. Maximum 30 years.
  3. Age : maximum 60 years.
  4. Known as simple policy.
  5. Use account PSA.
  • Whole Life policy
-Whole life policy provides coverage to the entire life of the contract
-If nothing happen when the contract holder alive, so, the payment made every month not able to refund and will donated to another participants as a “donation “.
- The contract will be avoid when the contract holder die and no maturity date.
  1. Tenor : Whole life
  2. Use account PSA
  3. Compensation to the heirs of deceased close.
  • Endownment policy
-An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Some policies also pay out in the case of critical illness.
How Endownment Policy work?
  • You make monthly or annual payments.
  • Part of your monthly payment is used to buy life assurance. How much depends on your age, sex, and how long the endowment is for.
  • The rest of your payment is invested either on a with-profits basis or a unit-linked basis (see ‘How your money is invested’ below). The size of the lump sum you get at the end of your endowment often depends on the performance of these investments.
  • The size of the lump sum you get at the end of your endowment often depends on the performance of these investments.
  1. Tenor : Minimum 10 years.
  2. Paid premium until maturity date.
  3. Use 2 account PSA and PA
  4. If died will get indemnity from account PSA and PA.
  5. I accident, will get indemnity from account PSA.
  • Investment linked takaful
-An investment-linked takaful is a family takaful plan that combines investment and takaful cover.
-Your contribution gives you a takaful cover, which includes death and disability benefits, and also an investment in a variety of Shariah-approved investment funds of your choice.
  1. Tenor : 10/20/30
  2. Use 2 account PSA and PS
  3. Must know where the takaful operator invest.
  4. If accident will get indemnity from account PSA.
  5. If nothing happened risk, participatewill get profit
  6. If died, the heirs will get indemnity from PSA,PA and profit.
  • Medical and Health takaful
-Medical and health takaful gives you cover for the cost of private medical treatment, like hospitalisation, surgery and treatment, if you are diagnosed with certain illnesses or are involved in an accident.
-The cover acts as a stand-alone policy or can be added to a basic family takaful plan, providing better coverage and benefits from both policies.
-The exception from get the benefit from this policies:
  • Maternity
  • Plastic Surgery
Critical illness
This plan provides a lump sump benefit in the event you are diagnosed to have suffered any of the critical illness spesified in the certificated.
This plan covers the expenses that you incur for hospital services and professional fees arising from injury or illness in such a ward charges, surgical fees and internal charges.
Main types cover are:
Hospital services and professional fees
Hospitalisation benefits
Under this plan, provided with daily cash allowances for each day that you are confinedin hospital due to illness .
  • Takaful annuity
-A contract that provides a stream of periodic income upon retirement for a term dependent upon human life.
-This policy involves participants pension.
  1. Tenor : untill died
  2. Can gets returns after maturity on a monthly basis.
  3. Can get a lump sump
GENERAL TAKAFUL PLANS
GENERAL TAKAFUL PLANS
Fire takaful
Motor takaful
Burglary takaful
1 . FIRE TAKAFUL
Fire Takaful Scheme provides Takaful coverage on properties such as residential buildings, shops, shopping complexes, industrial plants and what kind of business premises and its contents.
Benefits
This certificate shall indemnify the property according to the value of the property destroyed or replace the property destroyed by fire or lightning / thunder.
The scheme does not cover the following events:
  • Loss caused by theft during or after the fire.
  • Where the property destroyed by heating or drying process .
  • Combustion properties ordered by any authorities .
  • Underground fire.
  • Loss or damage caused by contamination by radioactive material and nuclear waste .
  • Loss or damage caused by pollution
Risks referred
  • Oil Mills
  • Plant rice
  • Sawmill / Plywood
  • Candle factory
  • Factory tobacco / cigarettes
  • Factory of plastic goods
  • Factory rubber goods
  • Rubber smoke house
  • Shops and stores gasoline
Risk is rejected
  • Bars, pubs, discos and karaoke
  • Cinema
  • Houses betting / gambling
2 . MOTOR TAKAFUL
Motor Takaful covers you against loss or damage to your vehicle due to accidental fire, thief or accident.
It also covers bodily injury or death of a third party as well as loss or damage of a third party’s property.
Similar to general motor insurance, there are two types of cover for a motor takaful plan namely:
  • Third Party Cover
This protects you against the third party’s death, bodily injury and/or property damage.
  • Comprehensive Cover
This protects you against third party’s death, injury and/property damage as well as loss and/or damage to your vehicle due to accidental fire, theft or an accident.
Takaful Concept in Motor Takaful
Motor takaful not only protects your motor vehicle from losses or damages such as accidents, but also helps other participants of the plan. This is because as a participant in the plan, you contribute towards a general takaful fund in the form of participative contribution (tabarru'), which will be used to help other participants whose vehicles are involved in an accident.
If you have not made a claim during the period of takaful, you are also entitled to a share of the surplus in the general takaful fund. The surplus shared is based on a pre-agreed ratio between you and the takaful operator
Loss or Damage
The company will handle the payment of compensation to the Participant in the event of loss or damage to the Motor Vehicle under the following circumstances:
  • collision or overturning caused by mechanical breakdown or wear and tear.
  • By fire, explosion or lightning, burglary. theft or burglary
  • The act of bad faith
  • During the trip (including the process of loading or unloading) by roads and canals.
  • Sea crossing the straits between Penang Island and the mainland.
  • Damage caused by the impact of falling objects provided no natural konvalsi involved.
Risks referred
-High-powered vehicles, drive 4 rods, luxury cars and sports cars
-All vehicles with an engine capacity exceeding 3000 should be referred to the underwriter before acceptance of risk.
The following models should also be addressed regardless of engine capacity to the company.
e.g.
  • All models Alfa Romeo, Audi, BMW, Citroen, Mercedes Benz, Saab, Volvo, Renault, Volkswagen Golf, Opel Calais, Rover, Land Rover Discovery, Cherokee, Opel Vectra
  • Ford Cosworth
  • Honda Accord 2.0, Prelude, Civic VTi, CRX, CRV, MPV.
  • Toyota Corona 2.0, Camry, Sera, Lexus, 4 Wheel Drive (Prado, Land Cruiser
  • Mazda - Cronos, Lantis, Miata, MPV
Note: The above list subject to review and may be modified at any time.
3 . BURGLARY TAKAFUL
-Its a fact that burglary and unexpected occurrences happen and any property or business owner stands a chance of becoming a victim of such occurrences.
-It is our responsibility to prepare ourselves against such eventualities and to safeguard our welfare.
-The burglary and other Takaful Policies give us the opportunity to take precaution and enjoy the peace of mind that comes with preparation.
Note: Burglary Takaful Scheme can only be accompanied with Fire Takaful.
Exclusion of benefits
This certificate does not cover the following events:
  • The loss incurred by the employee's own
  • war or civil commotion
  • Loss of manuscripts, books, records or accounts record book
  • radioactive waste or nuclear
  • Loss or deficiency due to an error
  • Damage caused by vandalism or malicious
Risks referred
  • An antique dealer, or a tapestry of wool
  • The financial institution
  • The dealer / distributor of cigarettes.
  • oil pumping station.
  • The dealer / distributor of photographic products
  • Store videotape
  • The dealer / distributor of vehicles
  • Mini market or supermarket
  • Goods in the open j) other risks or items that have a high risk of theft robbery and burglary.
Risk is rejected
  • Gold or gems Stores
  • Pawnshops
  • Store / distributor pens and clocks
  • The Company's securities professional
  • Store / liquor distributor
CHAPTER 6: NATURE AND STRUCTURE OF TAKAFUL DOCUMENT
6.1 NATURE AND STRUCTURE OF MAIN INSURANCE DOCUMENTS
  1. PROPOSAL FORM
  1. Content of the proposal form is the authority of section 28, Act 1984.
  2. Not take effect until the certificate is issued.
  3. Given to the operator and complete the form with correct information according to policy.
  4. No information with malicious intent to deceive for profit operators.
  5. Signing the proposal form and save a copy
  6. The proposal form a certain
  • Particular proposal
  • General question
  • Declaration and authorization
  • Risk to cover
  1. POLICY FORM
  1. More to takaful.
  2. While before get the certificate of insurance or takaful.
  3. Possible after the application is approved takaful and make the first payment.
  4. Insurance or takaful certificates are valid documentation by law.
  5. Save the place that is easily available and inform the spouse or immediate family heirs that self is a participant in takaful.
  6. Document conditions, exclusions, the scope of consumer protection where each description is based on the users themselves.
  1. COVER NOTE
  1. Document evidencing the issuance of insurance policies and a summary of the information provided in a certificate of insurance.
  2. The Purpose Of Cover Note
  • A claim the cost of an accident or theft, the insured can use the cover note if the insured wants to take claim of accident or theft.
  • Can show at any time during the inspection policy, because the insured are valid insurance.
  1. CERTIFICATE OF INSURANCE
  1. Document issued by an insurance company or broker that is used to confirm the existence of insurance coverage under the terms provided for listing date.
  2. Types of insurance coverage provided and the type and dollar amount of the liability.
  1. ENDORSEMENT
  1. A document showing any agreed amendment to the standard term of a policy
  2. This may be during the period of the policy.
  3. Changes made may be related to one of the following.
  • Changing in the amount of protection.
  • Expansion of coverage to include additional perils.
  • Expansion of the risk.
  • Transfer of property to another.
  • Change the name and address.
  1. RENEWAL NOTICE
  1. A document, usually in the form of an invoice , sent by an takaful company asking the participant to renew the policy for a particular period of time.
  2. Renewal notice show all the detail of the policy and must be signed and return.
  3. This notice is usually sent approximately one month before the expiry of the contract.
  4. The notice contain all necessary information about the contract, includes :-
  • Participant’s name
  • Contract number
  • Expired date of contract
  • The amount of coverage and contribution
  1. CLAIM NOTE
  1. Form that containing a set of question to establish circumstances and size of loss.
  2. Must be completed by participant in the event of the insured risk
  3. Underwriting departments and then be processed to give protection money claimed.
  4. Claim form procedure
  • Immediate notification
  • Duty for honest an sincere
  • Checking coverage and validity
  1. COMPLETION SATISFACTION NOTE AND DISCHARGE
  1. Completion note
  • Document that produce by takaful operator when policy has expired.
  1. Satisfaction note
  • Tell about the takaful period.
  1. Discharge note
  • Every claim need approval document
  1. STATUTORY NOTICE
  1. The document must be given when buying a life policy.
  2. The notice is not required in certain instances including when buying term insurance or when purchasing long term cover such as group life insurance.
  3. You have around 15 days reconsider the purchasing or cancel the policy and request pay back.
CHAPTER 7 : GENERAL PRINCIPLES OF UNDERWRITTING AND CLAIMS
UNDERWRITING
-Underwriting is the process an insurer uses to determine if and on what basis it will accept applicants.
-The purpose of underwriting is to develop and maintain a profitable portfolio of business and for underwriting to achieve its purpose.
PROCEDURES RELATING TO SETTLEMENT OF CLAIMS
  1. Notification of loss
-Notice sent to an insurer informing them that a loss has occurred. -How and when this notice must take place is usually specified in the policy. -The main function of a notice of loss is to alert the insurance company to the destruction of something that is covered under the terms of the insurance policy.
  1. Validation of coverage
-Risks that occur must exist in the policy of protection is taken.
- Prior to the action, make sure everything is legitimate.
  1. Claim register
-A formal request to an insurance company asking for a payment based on the terms of the insurance policy. -Insurance claims are reviewed by the company for their validity and then paid out to the insured or requesting party (on behalf of the insured) once approved. -Attach the support form. eg : death: deathcertificate, doctor,
  1. Investigation of claim
-Process through which an insurance company or examiner obtains necessary information to evaluate a claim. -In the event of dishonesty in the claims, the contract can be canceled.
  1. Ascertaining the amount of losses
- Ensure that the total loss of the risk occurring. -eg: theft: attach a letter of recommendation in support of the police.
  1. Ascertaion the subrogation rights and contribution rights
CONCEPT TO SETTLEMENT OF CLAIMS
A claim settlement is an agreement between two or more parties to settle a legal claim with payment and other terms. Claim settlements can come up in a number of legal contexts. It is important to be aware that settling a claim usually also eliminates the right to make future claims about the legal matter in the future. If people are not satisfied with the terms of a settlement, they should renegotiate, rather than accepting and resolving to pursue the matter further at a later date.
One of the most common forms of claim settlement involves claim. When people make claims against an takaful policy the company reviews the claim, determines if it is covered, and offers a settlement to pay the claim. Sometimes this is a straightforward process, as when someone with complete prescription coverage has prescriptions paid for by the insurance company. In other cases, people may dispute the circumstances or amount of the claim and the case may end up in court.
  1. Method of settlement a claim
  2. Concept of average
  3. Nature of disputes
  4. Post-settlement action
CHAPTER 8: COMPARATIVE ANALYSIS
8.1 ISLAMIC VIEW OF INSURANCE PRINCIPLES
  1. AL –GHARAR
Gharar (Uncertainty)
Conventional insurance contract contains gharar because if there is no claim, a party is the insurer will get all of the premium and the policyholders do not get any profit.
Policyholders do not know clearly whether will get the promised payment, do not know the payment and did not know the time for payment of claims.
Proposition That Banned Gharar
Abu Huraira r.a. said: "The Messenger of Allah forbade throw from slipping in the business and business is uncertain." (Narrated by Muslim)
  1. AL – MAISIR
Maisir (gambling) can occur where the policy holder can lose 100% of the premium paid to the insurer. eg is there a policy that states if the termination is done before one year then the surrender value is empty.
Proposition That Banned Maisir
"Who you believe! that there is alcohol & gambling & idolatry & divining rods arrows are (all) dirty (bad) from the act of the devil. Hence, you should avoid it that you may be successful." (Surah Al-Maidah: 90)
  1. AL – RIBA
Riba 'in insurance occurs when the surrender value at maturity accompanied by interest (interest) not to mention a source of income is from business insurer worldly & funds are mostly invested in financial instruments (bonds & stocks) are conventional. Riba elements' also occur if the participant had to pay interest if you want to withdraw money (premium auto loan).
Evidence which prohibits riba:
"Truly Evidence that prohibits riba:
"Indeed Allah has permitted trading and forbidden riba." (Surah Al-Baqarah: 275)