Takaful – Hybrid Model
Takaful hybrid model is a combination of Mudarabah and Wakalah models. Under the model, a relationship between the operator which combines the role of entrepreneur or Mudarib as well as the agent or wakil of the participant, whilst the latter in the capacity as both provider of capital or sahibul-mal and principal to the agent. By this arrangement on the part of the operator, an agency fee can be remunerated as upfront charges from the takaful fund whilst at the same time will have the right to profit-sharing on returns on the investment of the takaful fund in accordance with the Mudarabah contract.
In this regard, the Mudarabah contract is applied on the investment activity only. Profit to the fund in this instance comprises surplus from underwriting as well as returns on the investment as a whole. In addition to the wakalah fee the model provides discretion to the operator to charge on surplus of the takaful fund a performance fee in consideration for managing the takaful business as a whole.
Therefore to the operator it has three sources of income: wakalah fee and profit sharing from the investment return of the takaful fund; and returns on the investment of its shareholders fund. As for participants, they will have the right to share the net underwriting surplus as well as profit sharing of the investment of the takaful fund.
General Takaful Hybrid Model Chart
Family Takaful Hybrid Model Chart
The above model underpins the cooperative risk sharing taking place among participants whilst the operator earns a fee for the services provided as agent or “wakil” of participant. In other words the operator derives part of its revenue from upfront deductible fee on the contributions. Thus, unlike the al-Mudarabah model, this model enables the operator based on the agency arrangement to charge the takaful fund to cover both the management expenses as well as the agency cost. In addition, there is profit sharing on al-Mudarabah on the investment of the takaful fund. On the other hand, any underwriting surplus of the takaful fund will be shared among participants only.
Nevertheless, the main concern of the wakalah hybrid model is the unfulfilled undertaking by the operator to distribute and pay out the surplus to participants despite the provision to such sharing in the contract. From the operational point of view, the reason given by most operators is that, the takaful fund is in deficit after taking into account provisions for certain types of reserve. To the public the operational flow of this model is similar to the conventional insurance. In this respect, it is important to safeguard the credibility of takaful.
EXCERPTS FROM: Mohd Fadzli Yusof, Fundamentals of Takaful (Kuala Lumpur: IBFIM, 2011), pp 29 to 44
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