A Study on the Growth of the Takaful Insurance System (Islamic Insurance) in Select Countries

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1. A STUDY ON THE GROWTH OF THE TAKAFUL INSURANCE SYSTEM (ISLAMIC INSURANCE) IN SELECT COUNTRIES Ashish C Pius Ph.D. Research Scholar, Karpagam Academy of Higher Education, Coimabatore Dr.R.Velmurugan Associate Professor in Commerce, Karpagam Academy of Higher Education, Coimbatore ABSTRACT Islamic Insurance (Takaful) is a type of Insurance that follows Islamic Shariah. Mutual cooperation, uniform interest, and shared responsibility are the major features of the Takaful Model. This present study has been carried to analyze the performances of the Takaful insurance business in select countries like Saudi Arabia, Iran, Indonesia, Malaysia, and Iran. In 2019, Gulf countries are the major contributors (74%) of the Takaful insurance. Takaful insurance having a huge opportunity in Indian Insurance System, as India is the second-largest country in the world regarding Muslim population. Keywords: Insurance, Takaful, Islamic Insurance, INTRODUCTION Takaful insurance business model first introduced in Sudan (1979), soon Gulf counties have followed this model. More than 260 companies are selling Takaful products in 32 countries. Takaful follows cooperative principles, sharing the risk by its customers through mutual cooperation. As this business follows Islamic Shariah, it uses some Arabic terms in its operations. The Arabic term Takaful means commonness and sharing among a group of people. Sharing business profit and loss is the unique feature of Takaful insurance model from conventional insurance model. In Takaful business Insured is called participant and Insurance Company is called Takaful fund operators. SIGNIFICANCE OF TAKAFUL Investment avenues and financial services which follow Shariah are rapidly gaining popularity among Muslims. A major chunk of Muslims averted from conventional Insurance, as conventional insurance is not following Shariah Principles. Takaful insurance offers numerous benefits and services like conventional Insurance. The faith-based consumers who have the surplus fund for investment and risk coverage can choose Takaful business. Takaful businesses growing rapidly in not only in Muslim countries but also in non Muslim countries like Australia, UK, and USA. TAKAFUL MECHANISM In Takaful insurance customers (policyholders) are contributing voluntarily, their contributions are treated as donations. The Takaful insurance company is pooling this donation into a common fund called Takaful Fund. Members are sharing losses and surplus equally. These companies operate and manage funds on behalf of its members. The company is operating without prior expectations of stable returns. Profit-making is not a primary objective of Takaful Company. TAKAFUL V\S CONVENTIONAL INSURANCE Takaful and conventional insurance are differentiated in their operations and management. Shariah Principles are strictly managed in Takaful Insurance. The concept and Principles of Utkal Historical Research Journal, ISSN : 0976-2132 Vol.-34, 2021  190
2. Conventional Insurance are based on the Contract of Bottomry but Takaful follows Aqiah (it means cooperation among the members). Conventional Insurance follows a Bilateral contract, which means the contract between Insured and Insurer only. But Takaful means the contract between all the members among the group, its Multilateral contract. The motive of Takaful is mutual help among the members (i.e.) loss sharing among the members equally. The premium in conventional insurance belongs to the company, but the premium of Takaful insurance belongs to its members. In conventional Insurance the customers are transferring their risk to the Insurance company, whereas in Takaful system members are sharing their risk among the group. Profit from the operations of Conventional Insurance belongs to the company, but surplus in Takaful is shared among its members group. Profit from the Investments of Takaful is the income of members, but in conventional insurance the investment return belongs to the Insurance company. MODELS OF TAKAFUL INSURANCE Takaful Insurance works in four different models: 1.Mudharabah model: In this model profits and losses of the Takaful fund are sharing between customers (policyholder) and shareholders. 2.Wakala model: In this model Commission and fees from the agency are collected for Takaful contributions are invested in owners capital. 3.Hybrid model: A mix of Mudharabah and Wakala model is called the Hybrid model of Takaful Insurance. Some companies in Bahrain and UAE are following this model in their business operations. 4.Waqf model: A part of the member's contribution is irredeemable in this model. Companies in Pakistan and South Africa are following this system. LITERATURE REVIEW From 1970 onward Islamic countries have promoted Shariah Principles followed by financial services, like Islamic Banking and Takaful Insurance in their financial sector. From 1990 onward the Islamic financial services are growing in an accelerated phase in Islamic countries as well as countries having significant Muslim populations like America, Australia, and some European countries. Takaful Mechanism is still in inception stage in many countries. Mutual cooperation and Islamic principles followed operations of Takaful Insurance are giving more popularity among the Muslim community. Maysami and Kwon (1999) in their study observed that ambiguity regarding Investment options and concepts about the interest are the problems in Takaful insurance. Saad et al. (2006) studied thoroughly the operations of conventional and takaful Insurance in Malaysia for a period 2002-2005. Technical and operational efficiency was analyzed using various Non-parametric tests. Wahab et al. (2007) studied the principles of Takaful Insurance and examined models of Takaful Insurance. In Malaysia, the agency system model was commonly used by insurance companies in their operation. Detailed analysis and comparison of this model with other models were in the study. Muslim scholars are not satisfied with this model, they are satisfied with Wakala Model, as it follows Shariah Principles without compromise. The scholars pointed in other models presence of inappropriate element insurance contract. The study deeply examined discrepancies in other models while following Shariah Principles. Utkal Historical Research Journal, ISSN : 0976-2132 Vol.-34, 2021  191
3. OBJECTIVE OF THE STUDY  To study the growth of the Takaful Insurance system in select countries. RESEARCH METHODOLOGY Data Secondary data required for the study collected from Websites. Sampling Technique By adopting convenience sampling technique, five countries have been selected, where takaful insurance concept has been implemented. Tools Used The collected data have been analyzed employing Arithmetic Mean, Standard Deviation, Coefficient of Variation and Analysis of Variance. FINDINGS The following paragraph portrays the contribution (i.e.) share premium received through Takaful insurance in select countries. Table 1 Contribution in Takaful Insurance (US Billion) Year Saudi Iran Malaysia Indonesia UAE 2015 17.01 13.70 11.80 3.30 3.04 2016 15.20 13.10 9.60 3.18 3.50 2017 15.01 12.10 9.12 3.23 3.70 2018 14.60 11.80 8.60 1.80 1.90 2019 12.38 8.18 8.20 0.90 1.70 Average 14.84 11.78 9.46 2.48 2.77 SD 1.66 2.15 1.41 1.08 0.92 CV 11.16 18.26 14.88 43.60 33.17 ANOVA Between Groups Within Groups Total Sum of Squares 603.277 45.462 648.739 df 4 20 24 Mean Square 150.819 2.273 F 66.349 Sig. .000 Mean contribution from takful insurance is found high among Saudi Arabi followed by Iran, Malaysia, etc. To find consistency in growth of contribution of Takaful insurance coefficient of variation is employed. High level of consistency is noticed at Saudi Arabia and low level of consistency is noticed at Indonesia. Further, to measure growth of contribution from Takaful insurance differs among select countries, Analysis of Variance (ANOVA) test is employed. As the calculated P value is less than 0.01, there exists significant difference in mean growth of Takaful insurance in select countries. Utkal Historical Research Journal, ISSN : 0976-2132 Vol.-34, 2021  192
4. SUGGESTIONS  Takaful insurance is less popular in Indonesia and United Arab Emirates. In order to spread takaful insurance, insurance providers may popularize the insurance by making use of social networking.  Further, insurance company officials have to create awareness in the midst of general public the need and importance of availing takaful insurance and inform the customers the benefits that they may reap on availing the takaful insurance.  Insurance company officials and agents, if any, may inform the customers the unique feature of takaful insurance than conventional insurance and motivate them to avail insurance at the earliest CONCLUSION Takaful insurance is gaining momentum due to unique feature of distributing its earnings to its customers more over than protecting their life’s. Moreover, it is noticed from the analysis that takaful insurance is more popular in Saudi Arabia, Iran and it is less developed in Indonesia. Hence, takaful insurance companies have to took necessary initiatives in creating awareness in the midst of customers about the unique and significance of takaful insurance thereby not only takaful insurance companies be benefited but customers too. REFERENCES 1 Ramin Cooper Maysami and John Joseph Williams ,Evidence on the Relationship between Takaful Insurance and Fundamental Perception of Islamic Principles,8-2006. 2 Norma Md. Saad,Measuring Efficiency of Insurance and Takaful Companies in Malaysia Using Data Envelopment Analysis (DEA),January 2006 3 Abdul Rahim Abdul Wahab,Islamic takaful: Business models, Shariah concerns, and proposed solutions,2007 4 https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financialadvisory/1947_global-takaful-insurance-market_AAM.pdf,retrived on Macrch 2021 5 https://www.takafulmalaysia.com.my/corporate/aboutus/Pages/businessmodel.aspx,retrived on Macrch 2021. 6 https://www.irmi.com/term/insurance-definitions/takaful, retrived on march 2021 Utkal Historical Research Journal, ISSN : 0976-2132 Vol.-34, 2021  193