Takaful Companies and Products In Malaysia (General)

Overview Insurance

Takaful

History and Background

Characteristics of Takaful

Need of Takaful

Difference between Takaful and Conventional Insurance

Products of Takaful

Models of Takaful

Role of Takaful in Islamic Economic System

Issues & Challenges

Suggested Measures

Conclusion

Islamic Insurance Conventional

INSURANCE

INSURANCE

A contract in which an individual receives financial protection against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.

What is Takaful?

Takaful (Islamic insurance) is a financial

transaction of a mutual co-operation between two

parties towards providing a financial security for

one of them against an unexpected material risk.

Takaful

The Global Takaful Industry

• Fragmented landscape• Undercapitalised• Limited reTakaful capacity• Problematic asset management• Local solution offerings • Local distribution channels

Supply

• Compulsory protection • Licensing and increased competition• Better regulation• Greater role for private sector participation• Increased market-led initiatives

Facilitation

• Economic growth• Increase in GDP per capita• Youthful demography • Increasing awareness of Takaful• Greater desire for Shari’a compliant

offerings• Increase in asset based, Shari’a

compliant financing

Demand

• The Takaful industry is poised for significant growth as demand increases and industry enablers are further aligned ...

Takaful is Social scheme Arabic word Legally binding agreement

Common good

Contributions

Losses & liabilities

Uncertainty removes

Fair distribution of surplus

The Quran says “Help ye one another in righteousness and piety, but help ye not one another in sin and rancour”. (Surah Al-Maidah verse:2)

تعالى قال

ع#ل#ى ) ن)وا ت#ع#او# و#

و#ال و#ى الت/ق- و# -ب3ر1 ال

اإل3ث-م3 ع#ل#ى ن)وا او# ت#ع#

وا ات/ق) و# ان3 -ع)د-و# ال و#

د3يد) ش# الل/ه# إ3ن/ الل/ه#

اب3 -ع3ق# ( ال

The Prophet Muhammad (P.B.U.H) said:“The believers, in their affection, mercy and sympathy to each other, are like the body, if one of its organs suffer and complains, the entire body responds with insomnia and fever” (Muslim)

إذا )** الواحد الجسد كمثل وتراحمهم وتعاطفهم توادهم في المؤمنين مثلوالحمى بالسهر الجسد سائر له تداعى عضو منه الإمام )( اشتكى رواه

]] مسلم] والإمام البخاري )

“God help the slave as long as the slave helps his brother”**( أخيه عون في العبد مادام العبد عون في حنبل ) (الله بن أحمد الإمام رواه

داود أبو (والإمام

Reference — Al Quran & Alsunnah: “Help (ta’awan) one another in

furthering virtue (birr) and Allah consciousness (taqwa) and do not help one another in furthering evil and enmity”. Al Maidah: verse 2 (5:2).

Takaful is a form of mutual help (ta’awun) in furthering good/virtue by helping others who are in need / in hardship .

Background

&

Historical Examples of “Takaful”

Takaful has been practiced in various forms for over 1400 years.

Takaful originated within the ancient Arab tribes as a pooled liability that obliged those who committed offences against members of a different tribe to pay compensation to the victims or their heirs which is called Diyyah .

This principle later extended to many walks of life, including sea trade, in

which participants contributed to a fund to cover anyone in a group who suffered mishaps on sea voyages.

Dawania-Mutual indemnification amongst officers working in the same department during the rule of Umar Ibn Al Khattab (the 2nd Caliph)

Takaful Pioneers Takaful started some 30 years ago in the Middle East with the launching

of two companies in 1979:– The Islamic Arab Insurance Co. (IAIC) in the UAE.– The Islamic Insurance Co. of Sudan

But it took some time for the movement to take shape. Later in 1984, Malaysia played a pioneering role in setting the first Legal

framework specific to Takaful (Takaful Act Malaysia). This was instrumental in the successful launching of the Takaful

movement in Malaysia and in other countries of South East Asia.

Other Islamic/ Takaful Legislations

Other markets such as the Sudan and Iran have Islamic regulatory environments and became naturally Takaful markets.

In Pakistan Takaful Act is enacted in 2005. In the Gulf countries specific Takaful legislations are coming

through in Bahrain and in Saudi Arabia

Takaful Today

From a handful of operators two decades ago the Takaful

movement has blossomed into a fast growing phenomenon in

many Muslim countries with very promising prospects in other

countries with a large Muslim community.

Characteristics of Takaful

Establishment of two separate funds

Solidarity principle and equal surplus distribution

Restricted investments

Establishment of Shariha board

Need of Takaful.Why Conventional Insurance is unacceptable in Islam???

Scholars view the insurance contract as an exchange contract – money is being exchanged for money over time.Insurance is a buy and sell agreement.Elements of:• Uncertainty – Gharrar • Gambling – Maisir• Interest – Riba• Profit distribution• Investment of funds• Nature of capital

GHARAR-UncertanityGharar is forbidden in Islam because it is not showing the full knowledge , disclosure and transparency.Gharar describe ‘RISK’..

In insurance Gharar exist in three forms:Gharar in the outcomesGharar in the results of exchangeGharar in contract period

Maiser-Gambling Maisir resembled with ‘Risk taking‘ whereby insured get a huge amount without any equivalent input.

Insurance include Maisir where insured makes a bet on the happening of loss and insurer also do it.

Riba-Interest:

“Allah has permitted trading and forbidden riba” (Al Baqarah 2 : 275).Every profit must be based on liability and risk otherwise it is Riba according to Islam.Conventional insurance companies normally place the insurer fund in interest bearing instruments like loans and bonds.

Investment Of FundsInsurance companies invest in such type of assets that are totally prohibited in Islam such as alcohol, gambeling, bonds etc. while the Takaful companies invest in interest free funds that are halal-o-haram.

Nature of Contract:In Takaful every policyholder has the right to know ….???How their money is used? How the surrender value is calculated?& the Takaful policyholders must be careful that the funds are used for halal purposes.Insurance contract based on interest.

Profit DistributionIn Takaful every policy holder has the right to know about the distribution of profit among partners but in conventional insurance there is no hard and fast rule about that, it’s totally depend upon management of company

DIFRENCE BETWEEN TAKAFUL AND CONVENTIONAL INSURANCEIssue insurance Takaful

Risk Risk transfer Risk sharing

Gharar Gharar exist Gharar brought down by making conditional donations

Maisir Payment depends upon chance

Obviates the element of maisir

Investment Interest based Interest free

Surplus Surplus in hands of shareholders

Distribution according to proportions

Type of personal Takaful Malaysia

TAKAFUL myPA CARE.

FIRE TAKAFUL.

HOUSEOWNER'S & HOUSEHOLDER'S TAKAFUL.

MOTOR TAKAFUL.

PERSONAL ACCIDENT TAKAFUL.

 Introducing the comprehensive Personal Accident Takaful plan that allows you to enjoy the magnificent feature of an additional 15% No Claim Rebate* from as low as RM0.16 per day.1. Enjoy Protection + 15% No Claim Rebate* or cash back.2. Comprehensive protection at an affordable contribution rate, with 24 hours worldwide

coverage.3. New coverage benefits, e.g. Snatch Injury, Ambulance Fees, Repatriation Expenses &

Purchase of Orthopaedic Equipment.4. Simple application process with no medical examination required.5. Wide Personal Accident coverage including Riot, Strike, Civil Commotion and

Hijacking.  Rebate is payable if no claim during the period of coverage and is dependent on the

Company’s performance.

TAKAFUL myPA CARE

FIRE TAKAFUL

Covering the lost and damage due to fire, lightning or domestic gas explosion, one will never have to worry should the worst is to happen. Our Fire Takaful Plan will compensate your building, and household content to ensure a complete coverage for your assets.

If that is not good enough for you, under this plan, we also offer additional coverage for losses caused by :

1. riot, strike or malicious damage.

2. explosion.

3. impact damage.

4. bursting or overflowing of water tanks or pipes.

5. earthquake or volcanic eruption.

6. flood.

7. aircraft damage.

8. windstorm.

Special plan to protect your home, belongings and assets from loss or damage. Scope of cover of this plan are :1. Fire, Lightning, Thunderbolt, Subterranean Fire2. Explosion3. Aircraft and other aerial device and/or articles dropped wherefrom4. Impact with any of the buildings by any road vehicles, animals not belonging to or under the control of the participant

or his family.5. Bursting or Overflowing of Domestic Water Tanks, Apparatus or Pipes6. Theft by violent and forcible entry into building.7. Hurricane, cyclone, typhoon, windstorm8. Earthquake, Volcanic Eruption 9. Flood10. Third party liability11. Loss of rentalThis plan is eligible to all houseowners.

HOUSEOWNER'S & HOUSEHOLDER'S TAKAFUL

MOTOR TAKAFUL

For more extensive coverage, you might want to consider our COMPREHENSIVE type of cover. Not only you will get everything that we offer in the THIRD PARTY type of cover, you will also get indemnity for the loss or damage to your vehicle or its spare parts arising out of the following events:

1. accidental collision or overturning.

2. collision or overturning caused by mechanical breakdown.

3. collision or overturning caused by wear and tear.

4. impact damage caused by falling objects provided not resulted from convulsion of nature.

5. fire explosion or lightning.

6. burglary, housebreaking or theft.

7. malicious act.

8. while in transit.

Cont..

You can also apply for additional coverage which include :1. windscreen2. accessories3. additional authorized driver4. MPA (Motorist Personal Accident)A step to heighten the efficiency of service to our participants, the Tele Bantuan programed provides FREE TOWING SERVICE from the point of accident to the nearest Takaful Malaysia panel workshop, 24 hours daily, anywhere in Malaysia

PERSONAL ACCIDENT TAKAFUL

Accident is the worst nightmare for everyone. This plan may help you to prepare anything worst that could have happened in your life. This comprehensive personal accident plan :

1. Covers individual for any incident happened upon death or permanent disability.

2. Protect yourself from any tragedy 24 hours a day, domestically or internationally.

3. Based on the Islamic profit sharing, Al-Mudharabah which is can be HALAL.

4. Eligible for participants from age 18 to 60 years old. 

TAKAFUL mySMEThe Takaful mySME plan offers your organization more than just comprehensive protection but peace of mind – whilst you focus to grow your business. With Takaful mySME, you can now enjoy the best of savings while simultaneously, increase business productivity and gain better cash flow management.Protection + 15% No Claim Rebate1. Enjoy Protection + 15% No Claim Rebate or cash back (i.e. if no claims incurred during the

coverage period and is dependent on the company’s performance).2. Safeguard your business with the protection coverage that you truly need with the best rates

in town.3. Experience a tailor made plan that addresses your business needs or sector and enjoy great

savings to elevate your business to the next level, i.e. heightened productivity and improved cash flow.

4. Main Sectors*Light Manufacturing*Retail*Food & Beverages*Office & Services

CORPORATE/ORGANIZATION

Hence the need to specifically define the items to be covered.

BURGLARY TAKAFUL

A plan that provides cover against loss of or damage to the subject matter due to theft whilst contained in the business or trade premises. This plan will also cover the damage to your premises due to forcible entry or exit accompanied the event of theft.

However, you as the business owner should already have participated in our Fire Takaful Plan before applying for this plan.

BUSINESS INTERRUPTION (LOSS OF PROFIT)TAKAFUL

This plan is designed to complement our Fire Takaful's limitation. The plan provides indemnity in the event of loss of the following :

Net profit.

Standing charges i.e. expenses which continue to exist as usual level even though business had been interrupted due to the destruction or damage of premise, machinery or plant by fire e.g. Motor Vehicle expense, Depreciation etc.

Increased cost of working e.g. overtime, rental of alternative premises or machinery etc.

EMPLOYER'S LIABILITY TAKAFUL

Similar to the WORKMEN'S COMPENSATION TAKAFUL , liability may be attached to you as an employer should injury or disease caused by accident to your employee occurred during the course of employment.

FIDELITY GUARANTEE TAKAFUL

In the normal course of business transaction, you as an employer invariably has to entrust money, securities, goods etc. to your employee or delegate monetary responsibility to the employee. In the event that employee is dishonest, you would most certainly suffer financial loss. To protect this from happening, this is the plan for you. Minimum takaful contribution is RM100.

FOREIGN WORKER COMPENSATION TAKAFUL

This plan is definitely for you if you are an employer with foreign workers working under your administration. Under the plan, foreign workers will be financially compensated in the events of accident resulting in death or bodily injury.

In addition, the plan also provides coverage for Repatriation Expenses and Personal Accidents outside working hours.

GROUP PERSONAL ACCIDENT TAKAFUL

Derived from our PERSONAL ACCIDENT , we have come out with a product, GROUP

PERSONAL ACCIDENT TAKAFUL , to cater for the different needs and demands of the market.

This plan compensates a group of individuals including yourself should you suffer bodily injury

caused by violent, accidental, external and visible means. If the injury results in death or disablement

then we will compensate according to the Table of Benefits as outlined in the certificate, This plan is

suitable for business or social organization and even for college students.

MONEY TAKAFUL

Suitable for business owner running high cash transaction, this plan covers against loss of money

whilst in transit and also money kept in premises. In the event of the money is lost, destroyed or

damaged as a result of theft, Takaful Malaysia will indemnify you in respect of such loss, destruction

or damage.

PROFFESSIONAL INDEMNITY TAKAFUL

A plan designed to suit lawyers, architects, engineers, surveyors in accountants etc. for coverage against liability caused by professional malpractice.

PUBLIC LIABILITY TAKAFUL

This plan is designed to protect you as the owner of your business against your legal liability to pay compensation for accidental bodily injury to or accidental damage to the property of the public caused by or through your negligence or the negligence of your employees. The liability mentioned also includes legal charges and expenses.

 OTHER TYPES OF TAKAFUL SCHOOL CHILDREN PERSONAL ACCIDENT

TAKAFUL WORKMEN'S COMPENSATION TAKAFUL BOILERS & PRESSURE VESSEL TAKAFUL CONTRACTOR'S ALL RISKS TAKAFUL ELECTRONIC EQUIPMENT TAKAFUL ERECTION ALL RISKS TAKAFUL LOSS OF PROFITS (MACHINERY) TAKAFUL MACHINERY BREAKDOWN TAKAFUL MARINE CARGO TAKAFUL PLATE GLASS TAKAFUL STORAGE TANKS TAKAFUL FIRE AND ALLIED PERILS TAKAFUL

MEDICAL MALPRACTICE TAKAFUL MARINE HULL TAKAFUL ENERGY TAKAFUL MOTOR TAKAFUL DETERIORATION OF STOCK TAKAFUL CIVIL ENGINEERING COMPLETED RISK

TAKAFUL DIRECTORS AND OFFICERS LIABILITY

TAKAFUL FOREIGN WORKERS TAKAFUL GUARANTEE

MAA Takaful MAA Takaful is a result of a strategic joint venture between MAA Group Berhad (“MAAG”) – [Formerly

known as MAA Holdings Berhad] and Solidarity Company BSC (C) of Bahrain, one of the leading companies in the Arab world.

On 21 February 2006, a Joint Venture (JV) Agreement was signed with Solidarity, to form a JV company called MAA Takaful to carry on the Takaful business.

On 3 March 2006, Bank Negara Malaysia granted approval for a new Takaful license for the joint venture of MAAG and Solidarity. On 2 May 2006, MAA Takaful was incorporated with a paid up capital of RM100 million and licensed on 1 July 2007 as a composite Takaful Operator. Today, MAA Takaful has an agency force of over 10,000.

PRODUCTS FAMILY Takafulink

Takafulink Education

Takafulink Hajj

Takafulink Wanita

Takafulife Series

Takaful Term 80

SmartMedic 200

CancerCare

Takafulink Single Invest

Group Term Takaful

Mortgage Protection Plan

Group Decreasing Term Takaful

GENERAL

PropertyHouseowner & HouseholderPersonal AccidentMotorBurglaryPersonal All RisksPublic LiabilityMoneyMarine CargoPlate GlassFidelity GuaranteeEquipment All RiskEngineering

similarity Both takaful are broadly use general and family

products.

Both takaful are using modified wakalah model for family product for example My Medicare offered by TM while Takaful medirider from TE.

DIFFRENTATION MAA Takaful Term Takaful, member can opt to cancel their certificate.

Members have to inform the Company of the intention to cancel the certificate.

Company need to send Memo to Takaful Operator to inform the intention of member to cancel the

certificate

Takaful Operator will refund member’s unearned portion of the member’s contribution

IKHLAS Group Term Takaful cover

Death Benefit – in the event of death of the participant within the term of the certificate, the Sum Covered

(SC) plus the balance in the participant’s Personal Risk Investment Account (PRIA) will be payable, in one

lump sum, to the Grantee.

TPD Benefit – in the event of TPD of the participant within the term of the certificate, the SC plus the

balance in the PRIA will be payable in 1 lump sum, to the Grantee.

TAKAFUL MODELSThere are three main different Takaful Models use today.

Takaful Models

Mudharabah Wakalah Wakala -waqf model

Mudaraba Model THE SURPLUS IS SHARED BETWEEN THE PARTICIPANTS WITH A TAKAFUL OPERATOR. THE SHARING OF SUCH PROFIT (SURPLUS) MAY BE IN A RATIO 5:5 , 6:4 ETC. AS MUTUALLY AGREED BETWEEN THE CONTRACTING PARTIES. GENERALLY, THESE RISK SHARING ARRANGEMENTS ALLOW THE TAKAFUL OPERATOR TO SHARE IN THE UNDERWRITING RESULTS FROM OPERATIONS AS WELL AS THE FAVORABLE PERFORMANCE RETURNS ON INVESTED PREMIUMS.

Wakala Model

COOPERATIVE RISK SHARING OCCURS AMONG PARTICIPANTS WHERE A TAKAFUL OPERATOR EARNS A FEE FOR SERVICES (AS A WAKEEL OR AGENT) AND DOES NOT PARTICIPATE OR SHARE IN ANY UNDERWRITING RESULTS AS THESE BELONG TO PARTICIPANTS AS SURPLUS OR DEFICIT. UNDER THE AL- WAKALA MODEL, THE OPERATOR MAY ALSO CHARGE A FUND MANAGEMENT FEE AND PERFORMANCE INCENTIVE FEE.

Wakala -Waqf Model

It is a WAKALAH model with a separate legal entity of WAQF in-between.

The relationship of the participants and the operator is directly with the WAQF fund. The operator is the ‘Wakeel’ of the fund and the participants pay contribution to the WAQF fund by way of Tabarru

The contributions received would also be a part of this fund and the combined amount will be used for investment and the profits earned would again be deposited into the same fund which also eliminates the issue of Gharar.

Losses to the participant are paid by the company from the same fund.

Operational expenses that are incurred for providing Takaful services are also met from the same fund.

Role of takaful in Islamic economic system.

Takafu

l serv

ice

welfare scheme For M

uslim

ummah

1.Create exploitation free society.2.It is a safeguard against people faith, life, prosperity and property.3.Facilitate capital formation.4.Motivate individual for saving.5.Utilization or resources.6. Greater employment.

Issues & challenges faced by Takaful

1. Development Of Human Resource

TAKAFUL IS OBSTACLE BY LESS HUMAN RESOURCES.

LACK OF TALENTED, SKILLED AND EXPERIENCED PEOPLE.

IT IS GOOD TO TEACH PEOPLE TAKAFUL CONCEPT.

2. Lack of AwarenessISLAMIC FINANCIAL INSTITUTIONS ARE NOT PUTTING TOO MUCH EFFORT

IN DEVELOPING TAKAFUL.

IT IS CRUCIAL FOR MARKETERS TO ENHANCE THE INDUSTRY AND THE

INNOVATION OF NEW PRODUCTS.

FINANCIAL MARKETS MUST UNDERSTAND THE NEEDS AND WANTS OF

CUSTOMER .

MANY CONSUMERS ARE STILL STICK TO CONVENTIONAL INSURANCE.

IT IS IMPORTANT TO ADDRESS EDUCATIONAL ISSUES AND TO DEVELOP

CONSUMER AWARENESS.

3. Regulatory Framework

OFTEN, SCHOLARS ARE NOT AGREE EACH OTHER TO

ESTABLISH A FRAMEWORK FOR TAKAFUL.

THE ISSUE OF DIFFERENT REGIONS I.E MALAYSIA AND

MIDDLE EAST COUNTRIES.

MODEL OF TAKAFUL IS BEING PRACTICED BY SPECIFIC

REGION.

4. Cooperate Governance

QUITE SELF INTEREST BETWEEN SHARIAH SUPERVISORY

BOARD AND THE BOARD OF DIRECTORS OF THE TAKAFUL.

THERE IS NO CLEAR MISSION AND RESPONSIBILITY OF

SHARIAH BOARD.

AT PRESENT, THERE ARE NO MANUAL AND STANDARD TERMS

OF REFERENCE.

5. Shortage of Shariah-compliant assets

THE LACK OF APPROPRIATE INVESTMENT VEHICLES,

ESPECIALLY WITH THE LONG TERM DURATION.

THE LIMITED RANGE OF SHARIAH COMPLIANT ASSET

COULD BE THE RESULT OF ASSET RISK.

6. Distribution channel MICRO INSURANCE

LIFE

7. Lack of standardization

KIND OF MODEL OF TAKAFUL

EVERY NATION HAS ITS OWN MODEL OF TAKAFUL.

TERMS OF STANDARDIZATION IS MAINLY BASED ON DIFFERENT REGIONS.

THE LACK OF STANDARDIZATION WILL HARM THE DEVELOPMENT OF

TAKAFUL.

Suggested measures IN VIEW OF THE IMPORTANT OF CUSTOMER AWARENESS

TOWARDS PROMOTING THE SOUND TAKAFUL INDUSTRY, INFORMATION OF

NATIONAL AND INTERNATIONAL TAKAFUL ASSOCIATION.

MARKET PENETRATION TO FURTHER ENTRENCH ITS DEVELOPMENT

UNDERSCORE THE IMPORTANT OF ENHANCING THE PRODUCTIVITY AND

EFFICIENCY OF DISTRUBUTION CAPABILITIES.

EMBRANCING SMART COLLABORATION OR STRATEGIC ALLIANCE WITH

ISLAMIC BANK AND FINANCIAL INSTITUTIONS AND BUILDING

STRONGER CUSTOMER ALLEGINCE AND RETENTION WOULD REINFORCE

THE EFFORT TO ACHIEVE THE OBJECTIVE.

POLICY INITIATIVE OF THE REGULATORY AUTHORITY OUGHT TO BE

ESSENTIALLY DEVELOP TOWARDS ENHANCING THE EFFECTIVENESS OF

THE INTERNAL CONTROL STRUCTURE WITHIN THE TAKAFUL

OPERATIONS.

Cont. suggested measures

Conclusion• DESPITE THE CHALLENGES FACING THIS

“NEW” INDUSTRY, EXCITING TIMES ARE AHEAD ONCE THE LATENT POTENTIAL IS UNLEASHED.

• THE SUCCESS OF TAKAFUL LARGELY DEPENDS ON THAT OF ISLAMIC FINANCIAL INSTITUTIONS ON A GLOBAL BASIS.

• INSTEAD OF BEING TAKAFOOL, WE NEED TO PUT OUR EFFORTS TO MAKE IT TAKAFULL, IN WHICH IS FULL OF ATTRACTIONS AND JUSTICE TO PEOPLE.