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International Cooperative and Mutual

Insurance Federation

Mutuality Seminar

Tunis-May 21st 2004

Takaful Ta’awuni

“and the Differences and Similarities with Mutual or

Cooperative Insurance,

The Bank AlJazira Development Perspective”

Dawood Yousef Taylor-AGM.

Head of Takaful Ta’awuni.

Copyright Dawood Taylor and Bank Aljazira

9/17/2016 1

Overview of Presentation

• Brief overview of Takaful Ta’awuni (TT)

• Takaful in Islam

• Takaful in Modern day Islam

• Takaful Models

• Sharia Approval

• Takaful, Commercial or Mutual

• Examples of Product Offerings

• Key Features of the BAJ TT Programme

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Brief Overview of Takaful

Ta’awuni

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What Is Takaful Ta’awuni?

“An Islamic alternative to a

conventional mutual life insurance

and savings/investment program,

based on a Sharia compliant,

approved concept.”

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Definition of Takaful Ta’awuni

•Takaful

Mutual guarantee or indemnification among

the group members

•Ta’awun

The act of mutual help and assistance between

the participants within the group

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Takaful in Islam

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Hadith of the Prophet

“Tie the camel and then

submit to the will of Allah”

This hadith implied a need to mitigate risk

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Historical Examples of

“Takaful”

 Dawania-Mutual indemnification amongst officers

working in the same department during the rule of

Umar Ibn Al Khattab (the 2nd Caliph)

 Diyyah and Aquilah-Blood money and the concept of

removing hardship inflicted on the family of the victim

by payment of Diyyah, on a mutual basis, by the relatives

of the offender

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Takaful in Modern Day

Islam

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Key Features of a Takaful Model

• Cooperative Risk-sharing for Protection.

(Cooperative alone is not sufficient to be a Takaful

operation)

• Clear segregation between Participant and

Operator.

• Sharia (Islamic) Compliant Investment strategies.

• Avoids al Riba (interest) and al Maisir (gambling).

• Al Gharar (uncertainty) is forgiven, using Tabar’ru

(charitable donation).

• Sharia Advisory Oversight.

• Fatwa – judicial opinion.

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Fiqh Academy Resolution 1985

• Islamic Fiqh (science of Sharia) Academy, emanating from

the Organization of Islamic Conference, meeting in its

Second Session in Jeddah, KSA, from 10 to 16 Rabul Thani,

1406 H (Dec 1985) issued a Resolution which in summary

stated the following:

• The commercial Insurance contract… is prohibited

(Haram) according to the Sharia.

• The alternative contract which conforms to the principles of

Islamic dealings is the contract of cooperative insurance,

which is founded on the basis of charitable donation and

Sharia compliant dealings.

9/17/2016 11

Points to Consider on the

Fiqh Academy Ruling

• The Fiqh Academy Takaful resolution did not specify the

contract of choice for Takaful operations.

• Pluralism of Fatwas has been an integral element of Islamic

law, resulting in the variations of Takaful models

throughout the industry i.e. Wakala and Mudarabah,

Mudarabah models charging expenses to the participants

pool.

• There is no mention of an operator or surplus distribution

• There is no mention of a savings element, only mutual risk

protection

9/17/2016 12

Takaful Models

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Takaful Islamic Models

• Wakala-A fee driven Islamic

contract

• Mudarabah-A Profit Sharing

Islamic contract

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Mudarabah Model- Non-Surplus Sharing

Family (individual) Takaful- Long Term Plans

Mudarab/

Operator

Claims/

Participant

Risk A/C Direct

Risk A/C 70% (Example) Exps.

Contribution

Savings A/C Savings A/C

Surplus

100% to Participant

In the single example of this model in Malaysia,

no expenses are charged to the participants pool.

There could be use of this model in Sudan with

charging of expenses to the pool for both Family

9/17/2016 and General Takaful 15

Points to consider with Non-Surplus

Sharing Mudarabah Model

 Excellent and laudable model

 In many ways exceeds a Mutual insurance model as no

expenses are charged to the participants funds

 Operator does not share in surplus therefore no Mudarabah

issue to debate

 Very difficult business model as a stand-alone

Family/Individual Life Takaful operation (especially where no

charging of expenses to participants fund envisaged)

 Possibly only potentially viable where a composite Takaful

operation is being considered.

 Could take many years to realize a commercial profit from

such a business model as it relies on the build up of reserves

and savings funds

 As a stand-alone model, would lend itself to a philanthropic,

state sponsored or participants providing capital, business

operation.

9/17/2016 16

Mudarabah Model- Operator Sharing in

Surplus

General/Group Takaful- One Year Plans

Mudarab/

Investment Profits

Investment Profits Operator

50% profit shar

Participant

Surplus,

General/Group Less Claims/ Underwriting Example

Takaful Direct Expenses and investment

results

To Participant 50% profit shar

Different models treat expenses differently. Some charge the

participants funds, others charge the shareholders funds.

9/17/2016 17

Points to consider with a

Mudarabah Surplus Sharing Model

 First and foremost, this is a Sharia issue, not an issue

between operators

 Surplus is what remains of capital/contributions after

the deduction of claims and direct expenses.

 Profit is the creation of a value in excess of the capital

provided.

 As no profit (only surplus) is generated in the Takaful

underwriting operations , the application of a

Mudarabah contract is being debated by Sharia

scholars

 Applying a Mudarabah contract to the investment

profits however, is accepted

9/17/2016 18

Surplus Differs from Profit, when

applying the principles of a

Mudarabah contract

Investment Dealings

Takaful Underwriting Surplus $5 Gross $2 Mil PROFITS

Profits ? Income

$3 Mil EXPENSES

Capital-$10 Million

Tabar’ru Contributions

$2 Mil SURPLUS*

$1 Mil DIRECT

EXPENSES

$7 Mil CLAIMS

* Under Mudarabah principles, only the Sahib al Mal (Capital Provider) may share in the original capital provided

9/17/2016 19

BAJ Wakala Model

Family Takaful- Long Term Plans/Group Takaful-One Year Plans

Full Operational

Expenses

Fees Wakeel/

Operator

Fees

Contribution Risk A/C

Participant

Claims/

Risk A/C Direct Exps.

Specified Tabar’ru

Tabar’ru

As:

• Tabar’ru Individual Individual

• Savings Savings A/C Savings A/C Surplus

• Fees

IIA IRIA IIA IRIA

Jordan Islamic Insurance charges a fixed expense fee for one year contracts and

reimburses the participants if expenses amount to less than this fixed fee.

9/17/2016 20

Points to consider with the BAJ

Wakala Model

 Fees only taken if a product is sold

 No charging of expenses to the participants fund

 Operator alone totally responsible for all start up

expenses and operational costs

 No issue of agency or commission sales

 Clear separation between participant and operator

 Wakala Fee on Surplus accepted by Sharia

advisors

 Total transparency on all aspects of the operation

and fee structure.

9/17/2016 21

Sharia Approval

9/17/2016 22

Final Sharia approval

BY THE NAME OF ALLAH, MOST MERCIFUL, MOST GRACIOUS

‫بسم هللا الرحمن الرحيم‬

WITH THANKS TO ALLAH, THE UNIVERSE CREATOR AND BLESSINGS ON THE MASTER OF MESSENGERS MOHAMMED AND ALL HIS KINS

AND COMPANIONS.

.‫الحمد هلل رب العالمين والصالة والسالم على سيد المرسلين محمد وعلى آله وصحبه أجمعين‬

BANK AL-JAZIRA’S SHARIA COMMITTEE HAS SIGHTED THE FRAMEWORK OF TAKAFUL TAWWNI PROGRAM, DEVELOPED BY BANK AL-

JAZIRA, THROUGHOUT ITS PAPERS AND DOCUMENTS. AFTER THE COMMITTEE HAS COMPREHENSIVELY STUDIED, REVIEWED THE

WHOLE INHERENT DETAILS OF THE PROGRAM AND RECOMMENDED SOME CHANGES WHICH HAVE BEEN FULLY TAKEN INTO

CONSIDERATION BY THE BANK, IT HAS APPROVED THE PROGRAM.

‫ فقد اطلعت الهيئة الشرعية لبنك الجزيرة على هيكل برنامج التكافل التعاوني الذي طوره بنك الجزيرة من خالل وثائقه ومستنداته وبعد دراسته دراسة شاملة ومراجعة كافة تفصيالته تمت الموافقة عليه‬، ‫أما بعد‬

. ً‫واعتماده بعد اقتراح تعديالت أخذ البنك بها جميعا‬

ACCORDINGLY, THE SHARIA COMMITTEE DEEMS THAT THIS PROGRAM IS IN COMPLIANCE WITH THE RULES OF THE ISLAMIC SHARIA AND

IS CONSIDERED A SUITABLE SUBSTIUTE, FROM THE SHARIA PROSPECTIVE, FOR LIFE INSURANCE.

.‫وبناء عليه ترى الهيئة الشرعية أن هذا البرنامج متوافق مع أحكام الشريعة اإلسالمية ويعد بديالً شرعياً مناسباً للتأمين على الحياة‬

WE WISH BANK AL-JAZIRA ALL SUCCESS AND PROSPERITY.

.‫مع تمنياتنا لبنك الجزيرة بالتوفيق والسداد‬

SHARIA COMMITTEE MEMBERS

‫أعضاء الهيئة الشرعية‬

SHAIKH ABDULLAH IBN SULIMAN AL-MANI’ - CHAIRMAN

‫الشيخ عبد هللا بن سليمان المنيع – رئيسا‬

PROF. MOHAMMED IBN SAID AL-GHAMDI - RAPPORTEUR

‫ مقررا‬- ‫ محمد بن سعيد الغامدي‬-‫الدكتور‬

PROF. ABDULLAH IBN MOHAMMED AL-MUTLAQ - MEMBER

‫الدكتور – عبد هللا بن محمد المطلق – عضوا‬

PROF. HAMZA IBN HUSSAIN AL-FIYIR - MEMBER

‫ عضوا‬- ‫ حمزة بن حسين الفعر‬-‫الدكتور‬

PROF. MOHAMMED AL-ALI AL-QIRI - MEMBER

‫ عضوا‬- ‫الدكتور – محمد العلي القري‬

PROF. ABDILSTAR ABU-GHUDA - MEMBER

‫ عضوا‬- ‫ عبد الستار أبو غدة‬-‫الدكتور‬

9/17/2016 23

BAJ Fatwa

9/17/2016 24

Takaful, Commercial or

Mutual?

9/17/2016 25

Comparing Takaful to Insurance

Examples only-list is not comprehensive

Issue Commercial Mutual Takaful

Organization Principle Profit for shareholders/ Mutual for policy holders Mutual for participants

Risk transfer

Value Proposition Profits for Shareholders Affordability to Policyholders Affordability and spiritual

satisfaction

Laws Secular/Regulations Secular/Regulations Sharia plus regulations

Capital Shareholders Initial Premiums Operator provides set-Up capital.

No paid up capital for TT fund

Ownership Shareholders Policyholders Participants

Management Company Management Appointed Operator

Management

Contract Form Commercial Mutual risk sharing with aspects Cooperative,

Exchange/contract of of commercial contractual Islamic contracts of Wakala or

compensation-adhesion principles Mudarabah with Tabar’ru

donations

Investments Equity/debt-no Equity/debt-no restrictions Sharia compliant equities/no

restrictions interest

Surplus Shareholders account Policyholders account Participants account-

performance fee for operator

9/17/2016 26

Examples of BAJ TT

Product Offerings

9/17/2016 27

Individual Takaful Products

9/17/2016 28

Corporate and Group Plans

9/17/2016 29

9/17/2016 30
Key Features of the Bank

Al Jazira Takaful

Ta’awuni Programme

9/17/2016 31

Key Features of the BAJ

Wakala Model-1

 Same Wakala model for all plans, Group or

Individual

 A single Wakala contract throughout for both

underwriting and investment operations.

 Contribution is clearly broken down into Tabar’ru,

Fees and where applicable, individual investments.

 Tabar’ru is only applied when the cost of risk is

due.

 Total transparency and clear breakdown of costs

and Wakala fees stated in contract schedule.

 Participants therefore only pay actually costs plus

declared Wakala fees. No unknown loadings.

9/17/2016 32

Key Features of the BAJ

Wakala Model-2

 All administration, management and

selling/marketing expenses paid by operator.

 Clearly distinguishes between operator and

participant.

 Competitively priced-in many cases lower than

conventional products.

 Recent decision of Sharia Advisory board to allow a

performance fee on surplus generated. (emanating

from AAOIFI/Malaysian Mudarabah review).

Acceptable under a Wakala contract.

9/17/2016 33

Key Features of the BAJ

Wakala Model-3

 Level of surplus generated is determined as

much by the charge structure as it is by the

claims experience.

 Allows participant to donate his share of

surplus to a local Saudi charity.

 Individual investment strategies for each

client.

9/17/2016 34

Key Features of the BAJ

Wakala Model-4

 IT System is unique to the Takaful Industry

 Full features covering the spectrum of

Takaful/insurance activities

 Thresholding of salaries to sales.

 Easy development of new products through a

Plan wizard facility

 Multi-Lingual

 Multi-Currency

 Lap top illustrations

 Scanning of all documents

9/17/2016 35

Key Features of the BAJ

Wakala Model-5

 Fully Sharia compliant investment funds and strategies

with clear segregation of participant and operators

funds.

 Ability to provide participant statements at any time

 Offers bonus units for regular savers

 Sharia and Saudi Arab Monetary Agency approved

 Follows AAOIFI recommended guidelines.

9/17/2016 36

In Conclusion

• There must be Cooperative

principles in Islamic

Insurance (Takaful)………

but there need not be Islamic

principles in Cooperative

Insurance.

•

9/17/2016 37

We welcome all delegates to this

prestigious conference to meet again at

the joint

Islamic Development Bank

and Bank Al Jazira

1st International Conference on Takaful

to be held in

Jeddah , Kingdom of Saudi Arabia on the

21st and 22nd of September 2004

9/17/2016 38

International Cooperative and Mutual

Insurance Federation

Mutuality Seminar

Tunis-May 21st 2004

Thank You

Dawood Yousef Taylor-AGM.

Head of Takaful Ta’awuni.

9/17/2016 39

Copyright Dawood Taylor and Bank Aljazira

Takaful Models by Dawood Yousef - Revision history

Maintenance script: Imported from text file