PA 191/09 A University of Nottingham student has won a major international award for a pioneering investigation into the Islamic business world. While insurance giants battle for survival in the West, the Takaful insurance model is poised to become one of the major emerging forces in the markets. Nottingham University Business School PhD student, Hale Abdul Kader and co-authors from Swansea and Bournemouth universities, were among several distinguished entries honoured in a collaborative insurance research programme, by The Geneva Association and the International Insurance Society, Inc.
The Cost Efficiency of Takaful Insurance Companies — believed to be the first work of its kind in the world — examines (non-life) Takaful insurance firms operating in ten Islamic countries: Bahrain, Egypt, Kuwait, Malaysia, Qatar, Saudi Arabia, Sri Lanka, Sudan, Tunisia and the United Arab Emirates. Hale and her colleagues collected a $10,000 award at the International Insurance Society’s 45th Annual Seminar at the Grand Hyatt Amman, Jordan. Hale said; “In this rapidly changing economic climate, I think it’s crucial we understand this market and recognise its unique approach. It’s fantastic to have our work recognised in this way.” The Takaful insurance model is based on Islamic banking transactions which are faithful to Islamic law. Some experts have even credited it for the rise of the modern concept of mutual insurance. Hale said; “The technical aspects of underwriting Takaful insurance are similar to conventional insurance. But the Takaful system has to conform to Islamic law. Basically, Takaful insurance involves pooling individual risk on an indemnity basis, but without concepts like rates of interest or profit margins, which are both forbidden.” Some of the cornerstones of Takaful insurance are: 1. Ne’aa, or utmost sincerity of intention for knowingly following the guidance and adhering to the rule and purposes of Takaful — cooperative risk sharing and mutual assistance.
2. Integration of Sharia conditions, namely risk sharing, participation in management by policyholders, avoidance of prohibited investments.
3. Presence of moral values and ethics whereby business is conducted openly in accordance with utmost good faith, full disclosure, truthfulness and fairness in all dealings.
4. No unlawful element that contravenes Sharia and strict adherence to Islamic rules for commercial contract, namely: • Parties have legal capacity and are mentally fit
• Insurable interest
• Principle of indemnity prevails
5. Appointment of Sharia advisory committee or council to oversee the development and Islamic auditing of the Takaful operation. Takaful is seen as cooperative insurance with members adding an amount of money into a pool. Profit is not the objective, rather the idea of sharing responsibility (Fisher & Taylor, 2000). It is believed there are between 100 and 150 Takaful insurance carriers in nearly 30 countries, including a number of licensed operations in Europe. The study scrutinised the Western trend of having a CEO and a chairman in terms of how cost effective a company can be. It concludes that given the unique nature of Takaful, this separation of the two roles is neither effective nor cost efficient. “Our results, we believe will have important implications for the sector,” Hale said. “For instance improving the appointment of skilled and experienced non-executive directors to the board and making clear their roles will improve the performance of the system.” It is hoped this groundbreaking research will lead to further work in the area. The paper will be published in the January 2010 issue of The Geneva Papers on Risk and Insurance — Issues and Practices. References: Fisher, O amd Taylor, DT, Prospects for evolution of Takaful in the 21st Centrury April 2000,http://www.takaful.com.sa/m4sub3.asp#ans2