Introduction To Takaful Insurance: Opportunities And .

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Introduction to Takaful Insurance:Opportunities and ChallengesDr. Khalid Al-AmriNovember 23th 2015, Gulf Actuarial SocietySultan Qaboos Universitywww.company.com

1What is Takaful Insurance? Definition: Takaful (Arabic: )التكافل is an Arabic word which means solidarity. Takaful is a cooperative insurance mechanism based on the principles of solidarity andreciprocity (Billah, 2007). Islamic insurance, where members contribute money into a pooling system in order toguarantee each other against losses or damages. The birth of Takaful was due to the prevailing need of the Muslim population for an Islamicalternative to conventional insurance based on Sharia principal (Islamic Law). Aimed to complement the operation of the Islamic banking system (Saad, 2012). The first Takafulinsurance company was set up in Sudan in 1979. Religious inclinations, inadequate insurance distribution and lack of education about insuranceproducts are reasons for limited insurance products in emerging markets. (The World TakafulReport, 2012).Prepared by: Dr. Khalid Al Amriwww.company.com

2Introduction to TakafulSpeculationConventional Insurance(non-mutual)UncertaintyProhibited activitiesMutual GuaranteeTakaful InsuranceOwnership of the FundElimination of UncertaintyFive KeyElementsManagement of the Takaful FundInvestment ConditionsPrepared by: Dr. Khalid Al Amriwww.company.com

3Introduction to TakafulSpeculation: The company accepts premiums from the insured atlevel which it anticipates will cover claims and result in a profitConventional Insurance(non-mutual)UncertaintyProhibited activitiesMutual GuaranteeTakaful InsuranceOwnership of the FundElimination of UncertaintyFive KeyElementsManagement of the Takaful FundInvestment ConditionsPrepared by: Dr. Khalid Al Amriwww.company.com

4Introduction to TakafulSpeculationConventional Insurance(non-mutual)Uncertainty: The insured pays premiums to the company in exchange forindemnity against risk that may not occurProhibited activitiesMutual GuaranteeTakaful InsuranceOwnership of the FundElimination of UncertaintyFive KeyElementsManagement of the Takaful FundInvestment ConditionsPrepared by: Dr. Khalid Al Amriwww.company.com

5Introduction to TakafulSpeculationUncertaintyConventional Insurance(non-mutual)Prohibited activities: The company engages in investments that derivetheir income from interest (usury) and/or prohibited industriesMutual GuaranteeTakaful InsuranceOwnership of the FundElimination of UncertaintyFive KeyElementsManagement of the Takaful FundInvestment ConditionsPrepared by: Dr. Khalid Al Amriwww.company.com

6Introduction to TakafulSpeculationConventional Insurance(non-mutual)UncertaintyProhibited activitiesMutual Guarantee: The basic objective of Takaful is to pay a defined lossfrom a defined fund.Liability and all losses are divided between policyholders. Thepolicyholders are both the insurer and the insuredTakaful InsuranceOwnership of the FundFive KeyElementsElimination of UncertaintyManagement of the Takaful FundInvestment ConditionsPrepared by: Dr. Khalid Al Amriwww.company.com

7Introduction to TakafulSpeculationConventional Insurance(non-mutual)UncertaintyProhibited activitiesMutual GuaranteeTakaful InsuranceOwnership of the Fund: Policyholders are the owners of the fund andthey are entitled to its profitsFive KeyElementsElimination of UncertaintyManagement of the Takaful FundInvestment ConditionsPrepared by: Dr. Khalid Al Amriwww.company.com

8Introduction to TakafulSpeculationConventional Insurance(non-mutual)UncertaintyProhibited activitiesMutual GuaranteeOwnership of the FundTakaful InsuranceFive KeyElementsElimination of Uncertainty: This is the consequences of owning the fund.Policyholders share the profit and share the losses. There is noinvolvement of a second party (insurer).Management of the Takaful FundInvestment ConditionsPrepared by: Dr. Khalid Al Amriwww.company.com

9Introduction to TakafulSpeculationConventional Insurance(non-mutual)UncertaintyProhibited activitiesMutual GuaranteeOwnership of the FundTakaful InsuranceFive KeyElementsElimination of UncertaintyManagement of the Takaful Fund: depending on the adopted model:Mudharaba or Wakala.Investment ConditionsPrepared by: Dr. Khalid Al Amriwww.company.com

10Introduction to TakafulSpeculationConventional Insurance(non-mutual)UncertaintyProhibited activitiesMutual GuaranteeOwnership of the FundTakaful InsuranceFive KeyElementsElimination of UncertaintyManagement of the Takaful FundInvestment Conditions: Takaful avoids engaging in prohibited activities.Instead they invent their own investment tools such as Sukkuk, which areIslamic bonds.Prepared by: Dr. Khalid Al Amriwww.company.com

11SukkukPrepared by: Dr. Khalid Al Amri Sukkuk refers to the Islamic equivalent of bonds. Sukkuk structures replicate the cashflows of conventional bonds. Sukkuk constitute partial ownership in a debt, asset, project, business, or investment. A key technique to achieve capital protection without amounting to a loan is a bindingpromise to repurchase certain assets, by the issuer. In the meantime a rent is being paid, which is often benchmarked to an interest ratelike LIBOR (which is disliked by Sharia Scholars). 1.34 trillion of assets are being managed according to Islamic investment principles(Global Islamic Finance Report 2012 Global Islamic Finance Report). listed on exchanges, such as Luxembourg Stock Exchange and London Stock Exchange.www.company.com

12Conventional Insurance vs. TakafulConventional InsuranceTakaful omeInvestmentIncomeInvestmentIncomeS/H Fund&CapitalReservesExpensesClaimsPrepared by: Dr. Khalid Al AmriReinsuranceExpensesFees & LoanP/H Fund( Takaful)ReservesClaimsRe-Takafulwww.company.com

13Mudharaba Model (Profit Sharing)Interest-free loan is referred to as Qard Al-HasanPrepared by: Dr. Khalid Al Amriwww.company.com

14Wakala Model (Fee Base)Interest-free loan is referred to as Qard Al-HasanPrepared by: Dr. Khalid Al Amriwww.company.com

15Differences between Mudharaba and Wakala ModelsInterest-free loan is referred to as Qard Al-HasanPrepared by: Dr. Khalid Al Amriwww.company.com

16Hybrid ModelPrepared by: Dr. Khalid Al Amriwww.company.com

17Source: World Islamic Insurance Directory 20114, Ernst & Young analysisPrepared by: Dr. Khalid Al Amriwww.company.com

18Source: World Islamic Insurance Directory 20114, Ernst & Young analysisPrepared by: Dr. Khalid Al Amriwww.company.com

19Source: World Islamic Insurance Directory 20114, Ernst & Young analysisPrepared by: Dr. Khalid Al Amriwww.company.com

20Source: World Islamic Insurance Directory 20114, Ernst & Young analysisPrepared by: Dr. Khalid Al Amriwww.company.com

21Source: World Islamic Insurance Directory 20114, Ernst & Young analysisPrepared by: Dr. Khalid Al Amriwww.company.com

22Challenges in Takaful IndustryRaising customerawareness and educationExpanding productinnovationFinding a ‘AAA rated’internationalreinsurance companywilling to accept aRetakafulCreative product designand marketingPrepared by: Dr. Khalid Al AmriOffering attractiveinvestment choiceswww.company.com

23Global Opportunities1Untapped expansion potential for Islamic banking,investment and insurance products into the US, Europe andAsia. Primary markets within Europe that have a sizeable Muslim population include France and Germany. In Asia, China, India and Indonesia also offer opportunities.2Creative product design, customer convenience and attractivepackaging are the key to gaining a competitive advantageacross General, Life, Health and Pensions businesses. Islamic centers of product excellence include Malaysia, Bahrain and the UAE, but Indonesia, SaudiArabia and Pakistan are fast evolving and building their product expertise in this important businesssegment.3Prepared by: Dr. Khalid Al AmriThe Takaful industry need to cater to the growing needs ofboth Muslim and non-Muslim customers around the world.www.company.com

Thank Youwww.company.com

Introduction to Takaful Prepared by: Dr. Khalid Al Amri 6 Conventional Insurance (non-mutual) Takaful Insurance Five Key Elements Speculation Uncertainty Prohibited activities Mutual Guarantee: The basic objective of Takaful is to pay a defined loss from a defined fund. Liability and all losses are divided between policyholders. The policyholders are both the insurer and the insured Ownership .

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