Islamic Insurance - Appendix B (The Shariah Basis for the Standard)

Transcription

1. Shari ’ah Standard No. (26): Islamic Insurance Appendix (B) The Shari’ah Basis for the Standard ■ Commercial Insurance is prohibited because it involves Gharar (uncertainty). In this regard Muslim, Ashab Al-Sunan (compilers of the books of Sunan) and others quoted Abu Hurayrah as having said: “The Prophet peace be upon him prohibited sales which involve Gharar”. Gharar” (2) ■ The Fuqaha define Gharar in several ways, which -in brief- indicate that it is a process that has unknown/unrevealed consequences and outcomes.(3) ■ Some contemporary scholars believe that Gharar is similar to betting and gambling.(4) ■ Resolutions of Fiqh forums on insurance include the resolution of the Islamic Fiqh Academy in its first session held in 1398 A.H., which endorsed a preceding resolution on the subject issued by the Council of Eminent Shari’ah Scholars of the Kingdom of Saudi Arabia in its session No. (10) held in Riyadh on 4 April 1397 A.H. A third resolution on the subject was issued by the International Islamic Fiqh Academy Resolution No. 9 (9/2). ■ Permissibility of cooperative/mutual/social insurance stems from the fact that it is based on cooperation and donation, rather than on Mu’awadah (exchange contract). It is well known among the Fuqaha (Maliki School) (2) “Sahih Muslim”, Muslim”, Kitab: Al-Buyu’ [3: 1153]; “Sunan Abu Dawud” [2: 228] (H: 3367); “Sunan Al Nasa`i’” [2: 217]; “Sunan Ibn Majah” [2: 739]; “Sunan Al-Tirmidhi” [3: 532]; “Sunan Al-Darimi” [2: 167]; “Al-Muwatta`” [2: 664]; “Musnad Al-Imam Ahmad” [1: 203] and [2: 367 and 439]; “Sunan Al-Bayhaqi” [5: 226]; and “Musannaf Ibn Abu Shaybah” [8: 194], Section (2). (3) See: “Sharh Al-’Inayah Ma’a Fath Al-Qadir” [5: 192]; “Tabyin Al-Haqa`iq” [4: 46]; “Al-Taj Wa Al-Iklil” [4: 362]; “Fath Al-’Aziz Bi-Hamish Al-Majmu’” [8: 127]; “Matalib Uli AlNuha” [3: 25]; “Al-Qawa’id Al-Nuraniyyah” (P. 116); “Nazariyyat Al-’Aqd” (P. 224). See: “Al-Gharar Wa Atharahu Fi Al-’Uqud” by Al-Siddiq Al-Amin Al-Darir (published by Saleh Kamil Center for University Thesis), (P. 54). (4) See: Husayn Hamid, “Al-Gharar” (P. 72). 690
2. Shari ’ah Standard No. (26): Islamic Insurance that Gharar has no impact on donation contracts. This viewpoint is well supported by a number of Quranic verses and sayings of the Prophet (peace be upon him) which instruct Muslims to promote cooperation. ■ Consequently, several resolutions were issued by Fiqh forums regarding permissibility of cooperative insurance. Such resolutions include, the resolution of the Islamic Research Academy of Al-Azhar Al-Sharif, the resolution of the Islamic Fiqh Academy of the World Muslim League referred to earlier, and the resolution of the International Islamic Fiqh Academy, which states that: “The The contract that respects the origins of Islamic dealings is the cooperative insurance Contract which is based on donation and cooperation… cooperation…”. The fact that cooperative insurance is permissible, also does not seem to have encountered any dispute among contemporary Muslim Fuqaha.(5) ■ Permissibility of cooperative insurance and non-permissibility of commercial insurance is in fact due to the following differences: a) The conventional insurance contract is a financial Mu’awadah (exchange contract) that aims at making profit out of the insurance operations. Therefore, its permissibility should be judged in the light of the Shari’ah rulings on financial transactions. Consequently, such rulings prohibit the conventional insurance contract, which involves Gharar. b) In the Islamic insurance contract, the company assumes the role of the agent of the insurance account, whereas in the commercial insurance contract the company is an original party that signs the contract in its own name. c) The company in commercial insurance owns the premiums against its commitment to pay the insurance amount; whereas in Islamic insurance, it is the insurance account rather than the company that owns the contributions. d) In Islamic insurance the residual premiums and the returns on them, that remain after deduction of expenses and indemnity amounts, (5) Fatawa of the Shari’ah Advisory Board of Al Rajhi Banking & Investment Company, Fatwa No. (40). 691
3. Shari ’ah Standard No. (26): Islamic Insurance become the property of the policyholders account, and constitute a surplus, which can be distributed among the policyholders. This cannot be imagined in commercial insurance where the company owns and receives the premiums as soon as it signs the contract. In commercial insurance, the premiums constitute part of the revenue and profits of the company. e) In Islamic insurance, the returns on investment of the premium assets belong to the policyholders account, after deduction of the Mudarib share for the company, whereas such returns belong to the company in commercial insurance. f) Islamic insurance aims at achieving cooperation among the members of the society, rather than generating profits from the insurance operations, whereas commercial insurance is profit-oriented. g) The company in Islamic insurance earns profits through investment of its own funds and its share in Mudarabah, as it assumes the role of the Mudarib and the insurance account assumes the role of the Rab al-Mal (owner of the capital). h) In Islamic insurance, the insurer and the participant are in fact the same person although they differ in recognition, whereas the insurer and the participant are totally different in commercial insurance. i) The company in Islamic insurance adheres to the rules of Islamic Shari’ah and the Fatawa of its Shari’ah Supervisory Board, while in commercial insurance there are no such commitments. j) In Islamic insurance, the allocations from the insurance account, which remain there until the time of liquidation of the company, are spent on charity purposes, and do not go to shareholders, whereas in commercial insurance such amounts go to shareholders. ■ The Shari’ah ruling that the Islamic insurance contract is an act of donation that both parties are bound to honor, is measured by analogy to what is known in Fiqh as Nihd Nihd,(6) or donation pledge. It has been narrated that (6) Al-Bukhari in his “Sahih” [15: 128] commented on Nihd or Nahd where he said (….since Muslims did not see any harm in Nihd Nihd,, in which the members of = 692
4. Shari ’ah Standard No. (26): Islamic Insurance Ali and Ibn Mas’ud said: “A gift, if specifically defined, is binding, whether received or not.” It has also been narrated that Abu Bakr and Umar indicated that a gift does not become binding before receipt.(7) Malik however reconciled the two viewpoints by indicating that Ali, Ibn Mas’ud and the others seem to have focused on the fact that the contract as such is binding, while Abu Bakr and Umar seem to have focused on the fact that the receipt of the gift is a prerequisite of finalizing the contract. The latter viewpoint was justified by the desire to leave no room for an excuse that Umar explicitly mentioned.(8) The obligatory nature of the donation contract can also be derived from the saying of the Prophet (peace be upon him) that: “A person who withdraws his gift is like a dog that withholds its vomit”.(9) ■ The basis of the Shari’ah ruling that the company should not guarantee the insurance assets is that the company is an agent, and the Fuqaha unanimously agree that an agent should not guarantee the property except against misconduct, negligence or breach of the contract. ■ The justification for stating the nine principles of Islamic insurance in the articles of association of the company is the need to preserve the element of donation in the contract and emphasize it as a basic aspect of the company, and hence preserve the cooperative nature and permissibility of the insurance operation. Otherwise, the insurance operation becomes a Mu’awadah transaction, and therefore subject to impact of Gharar as mentioned earlier. In other words, emphasis on the nine principles is because they constitute the fundamental differences between Islamic insurance and commercial insurance. Several Fatawa were issued to = of the group consume different amounts of the food to which they have equally contributed) and he narrated some sayings of the Prophet (peace be upon him) that support this practice. In “Fath Al-Bari” [5: 129], Ibn Hajar indicated that Nihd was an ancient practice of Muslim travelers who used to contribute equally to the stock of food they need during their journey, and leave each of them free to consume the portion of the food he needs. At the end of the journey, they distribute the food leftover among themselves, unless they decide to keep it for another journey. This is quite similar to the treatment of the surplus in Islamic Insurance. (7) See: “Al-Muwatta`” [2: 468]; and “Nasb Al-Rayah” [4: 122]. (8) “Bidayat Al-Mujtahid” [2: 534]. (9) “Sahih Al-Bukhari” [5: 190]; and “Sahih Muslim” (H: 1622]. 693
5. Shari ’ah Standard No. (26): Islamic Insurance ■ ■ ■ ■ demonstrate these differences including, Fatwa No. (12/11) issued by the 12th Seminar on Islamic Economics of the Al Baraka Group, Fatwa No. (42/3) issued by the Shari’ah Supervisory Board of the Al Rajhi Company, Fatwa of the Shari’ah Board of Faisal Islamic Bank and Fatwa of the Islamic insurance Company of Jordan.(10) The general framework of the contract and the nature of its conditions have been set up along the lines of binding contracts in Islamic jurisprudence, and the peculiar characteristics of the insurance contracts as far as the insured is concerned. The ruling that the insurer and the insured must fulfill their commitments is based on the Shari’ah prerequisite of honoring contracts. Since the insurance contract is a binding contract, all its conditions should be honored unless they violate the rules of Islamic Shari’ah. Such reasoning is well supported by various Quranic Verses and sayings of the Prophet (peace be upon him) that explicitly instruct Muslims to honor their contracts and conditions. In this regard, Allah, the Almighty, says: {“O You who believe! Fulfill (all) obligations...”}.(11) The Prophet (peace be upon him) also says “Muslims are at their conditions”.(12) The company could manage the insurance account against fee or free of charge because the relationship here is viewed as agency, which the Fuqaha unanimously approve, with or without remuneration. The Fatawa in this regard comprise those of the 12th Seminar on Islamic Economics of the Al Baraka Group (Fatwa No. (12/11), the resolution of the Islamic Fiqh Academy of the Muslim World League – Makkah Al-Mukarramah (Fatwa No. 961), and Fatwa No. (51) of the Council of Eminent Scholars of Saudi Arabia. The basis of assigning the investment of the assets of the insurance fund to the company is the Mudarabah contract, which the Fuqaha unanimously declare as permissible. Arrangement of investment in this manner entails (10) See: “Fatawa Al-Ta`min”, Al-Ta`min”, Dallah Al Baraka Group, Dr. Abdul-Sattar Abu Ghuddah and Dr. Izzul-Din Khoja (eds.), (pp. 99-108). (11) [Al-Ma`idah (The Table): 1]. (12) Related by Al-Bukhari in his “Sahih” [4: 451]; and Al-Tirmidhi with “Tuhfat Al-Ahwazi” [4: 584]. Al-Tirmidhi deemed it a good, authentic Hadith. 694
6. Shari ’ah Standard No. (26): Islamic Insurance specification of a profit share for each party, and entitlement of the insurance fund to its respective share. The relevant Fatawa in this regard include the Fatwa of the Shari’ah Supervisory Board of Faisal Islamic Bank,(13) Fatwa No. (12/11) of the 12th Seminar on Islamic Economics of the Al Baraka Group and the Shari’ah Standard No. (13): Mudarabah. ■ The emphasis on honoring commitments in general – including commitment of the company to furnish Qard Hasan to the insurance account – is based on the Shari’ah requirement of honoring pledges that are binding to either of the two parties. This viewpoint to which some leading Fuqaha subscribe is well supported by Qur`an, Sunnah and reported Muslim practice, such as the divine Quranic instruction: {“...Fulfill (all) obligations...”} has been taken by the Fuqaha to comprise any Shari’ah-accepted commitment of the Muslim. There are also several sayings of the Prophet (peace be upon him) which indicate that Muslims are bound to honor their contracts, covenants and pledges.(14) Several resolutions of Shari’ah forums and Shari’ah Boards were also issued in this connection including, resolution No. 40 – 41 (2–5/3) of the International Islamic Fiqh Academy(15) and the Fatwa of the Shari’ah Supervisory Board of the Islamic Insurance Company of Jordan.(16) ■ The ruling that responsibility of providing the evidence lies with the participant depends on the general rules in the Qur`an, the Sunnah and the opinion of the Ulema that evidence should be established by the claimant. This has been indicated in several Fatawa including Fatwa No. (14/6) of the United Shari’ah Board of Al Baraka Group. ■ Permissibility of the two types of Islamic insurance (mentioned in this Standard) rests on the various evidences of permissibility of Islamic insurance in general, as discussed earlier, and are supported by various Fatawa of Shari’ah Boards. Such Fatawa include Fatwa No. 2/9 of the 2nd Al Baraka Seminar on Islamic Economics, Fatwa No. 10/3/5 of the 10th Al Baraka seminar on Islamic Economics, and other Fatwa issued by the Shari’ah (13) See: Chapters on Mudarabah in books of various schools of Fiqh, and the term “Mudarabah” in the Kuwaiti Encyclopedia. (14) See: “Mabda` Al-Rida Fi Al-’Uqud: Dirasah Muqaranh” (Principle of Consent in Contracts: A Comparative Study) and its references. (15) See: Magazine of the International Islamic Fiqh Academy, Issue No. (5), (2/754– 965). (16) “Fatawa Al-Ta`min” Al-Ta`min”,, (P. 106). 695
7. Shari ’ah Standard No. (26): Islamic Insurance ■ ■ ■ ■ Supervisory Boards of Dubai Islamic Bank, Kuwait Finance House, Qatar Islamic Bank and the Islamic Insurance Company – Jordan.(17) The rulings relating to the contract as such are based on the general principles of contracts in Islamic Shari’ah, which emphasize avoidance of fraud and deceit and the need to observe the time limits indicated in the contracts. Shari’ah rulings on compensation have also been resorted to in this connection, in addition to the Fatawa and resolutions issued by various forums such as the Islamic Fiqh Academy of the Muslim World League, the Supreme Council of Ulema of Saudi Arabia and the Shari’ah boards of Islamic banks and Islamic insurance companies.(18) The jurisdictions of the company are determined on the basis of its articles of association, the various documents that govern the contractual relationship, the general principles of contracts and conditions, insurance conventions, and some Fatawa of Shari’ah boards. The rules that regulate the relationship between the company and the policyholders are based on the articles of association, which consider this relationship as an agency contract (remunerated or free of charge) for the management of the insurance operations, and Mudarabah for the investment of the insurance assets. Indemnity is based on the general Shari’ah directives emphasizing the principle that “one should neither tolerate harm nor cause it to others”(19) as well as the general principles and rules of Fiqh that advocate fair, and at the same time, non-obsessive indemnification for injury. Furthermore, inferences on indemnity could also be drawn from the cooperative nature of this donation-oriented contract, in addition to some Fatawa such as Fatwa No. (3) of the 10th Al Baraka Seminar on Islamic Economics, and the various Fatawa of the Shari’ah boards of Islamic banks and Islamic insurance companies.(20) (17) “Fatawa Al-Ta`min” (pp. 193–206). (18) ibid. (19) This Hadith has been related by Malik in “Al-Muwatta`” “Al-Muwatta`”,, “Kitab Al-Aqdiyah”; Al-Aqdiyah”; Ahmad in “Musnad Al-Imam Ahmad” [1: 313] and [5: 527]; and Ibn Majah in his “Al-Hashiyah” [2: 782]. (20) “Fatawa Al-Ta`min” Al-Ta`min”,, (P. 153). 696
8. Shari ’ah Standard No. (26): Islamic Insurance ■ Treatment of the insurance surplus is based on the cooperative nature of the contract and the practice of the Sahabah [companions of the Prophet (peace be upon him)] with regard to Nihd Nihd,, as reported by Bukhari.(21) ■ Possibility of contract termination stems from the fact that the insurance contract is a time-specific contract, and therefore it expires at the end of its stipulated period just like Ijarah (hiring). The insurance contract also expires on the damage of the insured property (or death of the insured), as there will be no object of commitment. (21) Al-Bukhari in his “Sahih” [15: 128] commented on Nihd or Nahd where he said (….since Muslims did not see any harm in Nihd Nihd,, in which the members of the group consume different amounts of the food to which they have equally contributed) and he narrated some sayings of the Prophet (peace be upon him) that support this practice. In “Fath Al-Bari” [5: 129], Ibn Hajar indicated that Nihd was an ancient practice of Muslim travelers who used to contribute equally to the stock of food they need during their journey, and leave each of them free to consume the portion of the food he needs. At the end of the journey, they distribute the food leftover among themselves, unless they decide to keep it for another journey. This is quite similar to the treatment of the surplus in Islamic Insurance. 697