By Delia Zamir | Apr 12, 2010
The honest insurer: Takaful Ikhlas
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| Datuk Haji Syed Moheeb bin Syed Kamarulzaman |
The difference between between Takaful cover and conventional insurance is numerous and fundamentally enters into deep philosophical and technical territory. But, the core benefit of Takaful is the understanding of the business as a form of insurance sought via mutual cooperation and joint-responsibility among the participants. It becomes an act of charity – of ‘helping one another’.
This benevolent slant allows the insured involved a unique opportunity to reap two kinds of benefits, and not just one: via Takaful, there is a main “benefit” in a spiritual sense meaning that the insurer receives the grace of God’s and His blessings in life Hereafter for his or her participation in “Tabarru”, or donation.
Incidentally, the Takaful system does not have a preference based on creed at all. It is meant to benefit all the insured regardless of their religious beliefs.
The second benefit would be, of course, of monetary gains through the Takaful cover and the “Mudharabah”, or profit sharing arrangement.
The Takaful operator is seen as a manager to administer the pool fund in a good and profitable manner. Therefore, the legal relationship between the policyholders and the company is one of partnership. This Islamic contract is “Mudharabah”.
But what is the monetary difference between Takaful and conventional insurance, and how is it deemed Syariah compliant? Most importantly to the insured, does its policy offer the same monetary cover of conventional insurance, or is it more beneficial?
President and CEO of Takaful Ikhlas Datuk Haji Syed Moheeb bin Syed Kamarulzaman talks to StarProperty.my about the Takaful Ikhlas concept, and how it differentiates from conventional insurance as well as the value proposition of the company and its services for homebuyers or homeowners.
What are the benefits or differences of Takaful Ikhlas compared to conventional insurance?
Datuk Hj Syed Moheeb: The Takaful industry follows what the conventional industry does. By agreement, we have agreed not to innovate outside the tariff. We agreed to follow exactly what is in the tariff, we have agreed to play along the same rules, level playing fields.
To ensure consistency of practice and to facilitate proper growth of the industry, Bank Negara required all tariffs. So there is really no difference between conventional House Holders and a conventional House Owners, compared to what is being offered by the Takaful industry. No difference at all in the cover.
There are other types of differences in between conventional and Takaful. Conventional insurance is a contract of exchange. In Takaful, it is not a contract of exchange. You are actually putting the money into the pool with a “niat" (benevolent wish).
If anything unfortunate befalls any one of the participants, the Takaful operator use this money to assist them. So, you have the charitable, benevolent intention in that particular act. And you know that any charitable or any benevolent act will receive rewards in life hereafter.
Therefore even if there is a cross-subsidy, we still take up that risk. At the very least, the intention here is that one is donating to the pool.
What is the value proposition of Takaful Ikhlas for the public?
Datuk Hj Syed Moheeb: What makes us unique is our use of technology. Our distribution finds it very convenient working with us. To the buying public, we have a reputation of being prompt and fair in claims handling.
Takaful insurance is free from “riba”, “gharar” and “maisir”. Please explain these terms.
Datuk Hj Syed Moheeb: Conventional insurance is a contract of exchange of goods or service. In Takaful, in Syariah, when you want to exchange something, there must be a definite amount as well as a definite time for the exchange.
When you put your money into an insurance company, you don’t know when you’re going to get back something as an exchange. You don’t know whether you are going to get anything back, when you may get it back, and how much. There is a lot of uncertainty. And, as such, that uncertainty is what we call ‘gharar’: this leads to wagering. You don’t know whether you’re going to get your money or not.
It’s wagering where you are going to lose. So that contract is unfair and has the element of uncertainty. Wagering, and whichever kind of contract that is unfair, is prohibited in Islam.
Under Islamic contract law, you cannot and should not enter into a contract which is weak. So this contract is called “fasir”’. If you enter into a contract which is weak, you are entering into a contract whereby one party is going to be oppressed, and that is “Haram” (forbidden).
Therefore, entering into an insurance contract is “Haram”.
"Riba" is of course when you pay a premium to an insurance company, they will invest it in interest bearing instruments. Takaful companies are not invested nor are they kept in any "riba" arrangement.
Please explain the SAC (Surplus Administration Charges) application in Takaful Ikhlas.
Datuk Hj Syed Moheeb: When you pay a premium to a conventional insurance company, you are actually transferring your risk. You are actually paying the other person to bear your risk. You have already transferred your risk to them.
In Takaful, it is a little different. You are not transferring your risk, you are sharing your risk. When you come to me, Takaful Ikhlas, you are putting your money into a pool. When somebody has to claim, the operator will take out some money and pay. Therefore the many people contributing into the pool creates a risk fund.
The Takaful operator is just an operator managing the fund.
At the end of the period, if there is still money left, then the proceeds, or the surplus, would be returned to the participants because this still belongs to you.
The SAC is a small amount (from the pool) as an agency fee. But if there is surplus which means that I have invested this properly, I have managed to control the claims properly, I also get a reward for managing the surplus fund.
The difference here is that when you pay your premium to the conventional, it’s their money. Whether there’s surplus or not, its their money. So you don’t get anything back. In Takaful, the surplus is yours, but because we are managing it we can take a fee from there.
You cover acts of God (natural disasters) such as earthquakes. Does Takaful Ikhlas cover landslides?
Datuk Hj Syed Moheeb: Landslides are exclusion under the policy. There are some excluded perils that can be included by paying an additional premium but normally, insurers would be very suspicious if a client walks in and says “I want landslide cover.” When that happens, either there are already traces of weakening or removal of support, or the risk is already quite real.
So what I would advise is that all financial institutions insist on a standard cover when when they take up a loan or when they give up a loan, instead of letting individuals select what cover they want, or if the bank only arranges for fire and flood. What this means is that whilst that may be suitable for 95% of the borrowers, but it is 5% of the borrowers who need this, who would have problems later on when they want such a cover.
If the bank arranges landslide cover for all their borrowers, then insurance companies may consider because then at least it is spread. Insurance is about spread of risk. That way everyone, every bank, every financier, insists that people take the full cover.
You have to pay more, yes, but at least you are secured. So what this means is that there will be cross-subsidy.
I am a first-time housebuyer. What Takaful insurance would you recommend?
Datuk Hj Syed Moheeb: So you’re a first time house buyer. First of all, make sure that you cover the building on a comprehensive basis. So that means the House Owners. The House Owners is a multi-peril cover for your house. Extend it to include whatever extensions are available.
Then you need House Holders, which is a multi-peril cover for your contents. Extend it to include anything that is available, especially what is called a Full Theft cover.
Your House Holders or the insurances on the content, the standard House Holders cover requires evidence of forcible entry being used at points of entry or exit. Robbers may just crawl through your grill if your grill is big enough, or your gate could be ajar and your door unlocked, therefore someone comes in to take your briefcase.
So, for whatever reason items are stolen and there is no evidence of break-in, the Full Theft actually provides exactly what it implies - full theft.
Next you may require protection. Whilst the Houseowners and the Householders has a small PA element there, that is not enough. You are young, you got lots to live for, but just imagine if something untoward should happen to you when the burglar comes in, or when the Bandaraya forgets to cut the tree in front and a branch falls on you, or if you were to slip and injure yourself to the point of paralysis. So, make sure you have Personal Accident, if not a Life cover.
I want to buy a condominium unit, or an apartment. Such properties are upcoming trends. What if the the management have insured the entire building. Should I still apply for Takaful?
Datuk Hj Syed Moheeb: For a condominium or apartment unit, the management would only cover the common areas. You would still need to cover your unit. They will only cover the building, but they won’t cover the contents.
And, in a condominium or apartment setting, you’re very proximate to third parties and you might do certain things that might put your neighbours in danger. This is much more than if you were to stay in a landed property. Therefore it’s always good to also have Personal Liability cover whilst your House Owners provides an indemnity to third parties, but the limit there is quite low; only RM100,000.
Therefore it is advisable to take up Personal Liability cover. So to your question, do you need additional cover? The answer is yes because the cover taken up by the management is only for the common areas.
Datuk Haji Syed Moheeb bin Syed Kamarulzaman is a chartered insurance practitioner, an associate of the Malaysian Insurance Institute. His career in the conventional insurance, reinsurance and takaful industry spans 34 years where he has helmed several local and multi-national direct insurance and reinsurance companies.
A familiar face in the lecture circuit, Datuk Hj Syed Moheeb bin Syed Kamarulzaman has spoken at many insurance and takaful forums in the Europe, Middle East, North Africa and Asia. He is recognised and sought-after speaker at international conferences on Islamic Finance.
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