Islamic Insurance - Scope of Standard

Transcription

1. Shari ’ah Standard No. (26): Islamic Insurance Statement of the Standard 1. Scope of the Standard This Standard covers Islamic Insurance in terms of its definition, Shari’ah status, characteristics, principles, basic elements, types, and how it differs from Conventional Insurance. The Standard also sets out the controls to be observed by the Islamic financial Institutions offering products based on Islamic insurance. However, it does not cover social insurance schemes arranged by the state. 2. Definition of Islamic Insurance in Contrast with Conventional Insurance Islamic Insurance is a process of agreement among a group of persons to handle the injuries resulting from specific risks to which all of them are vulnerable. A process, thus initiated, involves payment of contributions as donations, and leads to the establishment of an insurance fund that enjoys the status of a legal entity and has independent financial liability. The resources of this fund are used to indemnify any participant who encounters injury, subject to a specific set of rules and a given process of documentation. The fund is managed by either a selected group of policyholders, or a joint stock company that manages the insurance operations and invests the assets of the fund, against a specific fee. As for Conventional Insurance, it is a Mu’awadah (mutual compensation) contract that seeks to make profit out of the insurance operation itself, and, hence, is subject to Shari’ah rulings on financial dealings that involve Gharar (uncertainty). Consequently, conventional insurance is banned by Shari’ah. 3. Status of Islamic Insurance According to Fiqh (Islamic Jurisprudence) Islamic insurance is based on the commitment of the participants to make donations for the sake of their own interest. The participants, 678
2. Shari ’ah Standard No. (26): Islamic Insurance therefore, protect their group by payment of contributions that constitute the resources of the insurance fund, and assign the management of that fund to a committee of policyholders, or to a joint stock company that possesses the license of practicing insurance business. In the latter case, the company assumes this job on the basis of a remunerated Wakalah (Agency) contract. In addition to managing the insurance operations, the committee of policyholders or the company also assumes the responsibility of investing the assets of the fund through Mudarabah or investment agency. 3/1 The managing company is entitled to its own capital and returns on capital, the agency fee, and its specific share of the profits earned by investing the insurance assets through Mudarabah or investment agency. The company also bears all the expenses of its operations including those relating to its tasks for investing the insurance assets. 3/2 The policyholders fund is entitled to the contributions and the returns thereon, the provisions and reserves relating to insurance business, and the insurance surplus. The fund bears all direct expenses pertaining to management of insurance operations. 4. Contractual Relationships in Islamic Insurance There are three contractual relationships in Islamic insurance, including: 4/1 The Musharakah (partnership) among the participants, which leads to the establishment of a company that has articles of association and all other documents. The relationship between the participants may be confined to a Musharakah contract if a company manages the fund. [see Shari’ah Standard No. (12), on Sharikah (Musharakah) and Modern Corporations] 4/2 The relationship between the company and the policyholders’ fund which is a Wakalah relationship in regard to management, and a Mudarabah or investment agency relationship in regard to the investment of the fund’s assets. 4/3 The relationship between the policy holders and the fund which takes the form of donation commitment at the stage of making 679
3. Shari ’ah Standard No. (26): Islamic Insurance contributions, and indemnification commitment at the stage of procontributions, viding compensation for injury as per regulations and underlying constituent documents. 5. Principles and Shari’ah Bases of Islamic Insurance Islamic insurance is based on the following principles and rules of Shari’ah, which shall be explicitly mentioned in the articles of association or the rules or the documents of the corporation: 5/1 Donation commitment, as it should be stipulated that the participant donates his contribution and the returns thereon to the insurance account for payment of indemnity, and may undertake to bear any deficit that may occur, as per regulations. 5/2 The company that arranges the insurance deal should maintain two separate accounts: one for its own rights and liabilities, and the other for the rights and liabilities of the policyholders. 5/3 The company should assume the role of the agent in managing the insurance account, and the role of the Mudarib or agent in investing the insurance assets. 5/4 The insurance account is entitled to the insurance assets and their returns on investment, and should bear the liabilities relating to these assets. 5/5 The adopted rules may comprise disposal of the surplus in a way that serves the cause of common interest of the participants, such as accumulation of reserves, reduction of the contribution, charitable donations and partial/full distribution of the surplus among the participants. The managing company is not entitled to any share of the surplus. 5/6 When the company is liquidated, all provisions and accumulated reserves pertaining to insurance should be spent on charitable purposes. 5/7 Preference should be given to policyholders to participate in management of the insurance operations through appropriate legal arrangements that enable them to exercise their control rights and protect 680
4. Shari ’ah Standard No. (26): Islamic Insurance their interest. Such arrangements could include, among others, representation of policyholders in the Board of Directors. 5/8 Company shall adhere to the rules and principles of Islamic Shari’ah in all its activities and investments, especially in refraining from provision of insurance coverage for Shari’ah-banned items, activities or purposes. 5/9 A Shari’ah Supervisory Board shall be formulated for issuance of Fatawa (plural: Fatwa, i. e. juristic opinion) that are binding to the company, and establishment of an internal unit for Shari’ah monitoring and auditing. 6. Types of Islamic Insurance 6/1 Property Insurance: which entails indemnification for actual injury, and comprises insurance against fire, car accidents, airplane accidents, liability, breach of trust, etc. [See Shari’ah Standard No. (5) on Guarantees – item 6/4] 6/2 Person Insurance: which includes insurance against the risk of disability and death, and is sometimes known as Takaful (mutual support). It corresponds to conventional life insurance. 6/2/1 Insurance against the risk of disability or death takes place as follows: 6/2/1/1 Submission of a request for participation indicating all personal affairs and characteristics, that need to be known for offering the insurance coverage to the insured, along with the particulars of the entitlements and obligations of the insured. 6/2/1/2 Specification of the contribution amount. 6/2/1/3 Specification of the benefits payable to the beneficiary as per agreement. 6/2/1/4 In case of death, the Takaful entitlements should be distributed among the deserving persons, parties or purposes as indicated in the documents, and accord- 681
5. Shari ’ah Standard No. (26): Islamic Insurance ing to the regulatory rules issued by the Shari’ah Supervisory Board. In case the deceased was entitled to some investment balances, then the same should be distributed among the inheritors according to the Islamic rules of inheritance. 6/2/1/5 In case of insurance against death, it should be stipulated in the insurance policy that the insured (the beneficiary) or his inheritor should not be entitled to any compensation when the death is caused by a murder wherein the said beneficiary or inheritor is involved. 7. Participation in Islamic Insurance 7/1 Non-Muslims may participate with Muslims in the various types of Islamic insurance. 7/2 The contribution may be determined according to the actuarial principles based on statistical techniques. In this regard, due consideration should be given to whether the risk involved is fixed or variable, and to the contribution/risk tradeoff besides determination of the type and period of the risk coverage, and specification of the insurance amount. 7/3 The risk that constitutes the subject matter of insurance should be one that could probably occur. It should not be something that relates to the absolute will of the participant, and should not encounter any Shari’ah prohibition. 8. Commitments of the Participant in Islamic Insurance The participant (insurance seeker) should observe the following commitments: 8/1 Submission of the required information about the risks to be insured against, and informing the company of any new circumstances that may increase these risks after concluding the contract. If it is proved that the participant had committed fraud or deceit, or submitted false information, he is then subject to partial or full deprivation 682
6. Shari ’ah Standard No. (26): Islamic Insurance from indemnity. In case of unintentional misrepresentation by the participant, the indemnity shall become proportionate to the accurate information he presented. 8/2 Payment of contribution on time as per agreement. If the participant refrains from or delays payment of his contribution, the company has the right to terminate the contract or pursue legal enforcement of payment. 8/3 Informing the company, in its capacity as an agent of the policyholders’ fund, of occurrence of the risk insured. Notification should be made during the period stipulated in the insurance policy, or within reasonable time if such period is not provided for in the policy. If the participant fails to make such notification, the company has the right to claim indemnity from him for the actual loss incurred by the insurance account due to such breach of commitment. 9. Conditions in Islamic Insurance Policies 9/1 There is no Shari’ah restriction on providing for special conditions in the insurance policy. Special conditions may relate to periods of insurance, denial of indemnity in specific cases as when the participant fails to notify the company about occurrence of risk on time, or charging the participant with a specific portion of the indemnity. A condition thus stipulated in the insurance policy remains binding as long as it does not contradict with the rules of Shari’ah or the prerequisites of the contract. 9/2 It is permissible to stipulate in the insurance policy special cases that lead to deprivation from indemnity provided that justice, preservation of rights, and avoidance of abusive conditions are well observed. 10. Commitments and Jurisdictions of the Joint Stock Company 10/1 The Company shall assume the various tasks of managing the insurance operations including; preparation of insurance policies, collection of contributions, payment of indemnities, and all other technical tasks. The Company performs such tasks against a specific fee, which should be stated in the agreement in order to obtain the participant’s approval thereon by signing the contract. 683
7. Shari ’ah Standard No. (26): Islamic Insurance 10/2 The Company is entrusted with the duty of achieving common interest while undertaking the management of the insurance operations. However, it should not guarantee the insurance assets except in case of misconduct, negligence or breach of contractual obligations. 10/3 The Company shall bear its pre-operating expenses as well as all other expenses that relate to conducting its own business or the investment of its own funds. 10/4 The statutory reserve of the Joint Stock Company is deducted from its share capital and becomes part of its shareholders equity, a case that also holds true for all other capital-related deductions. No deduction shall be made from the policyholders fund or profits for the benefit of the shareholders of the Joint Stock Company. 10/5 For the sake of serving the policyholders’ interest, it is permissible to deduct part of their funds or profits to be used as reserves or allocations pertaining to the insurance fund. Such deductions, however, should by no means belong to the shareholders of the Joint Stock Company. The accumulated balance of the insurance account shall be spent on charity purposes in case of liquidation. 10/6 The Company claims indemnity from the party who causes the injury, whether through breach of contractual commitment or any similar misbehavior. In this case, the Company represents the participants in disposing of all the tasks that relate to the case, such as filing of lawsuits, realization of the consequent rights, and depositing the proceeds in the insurance account. 10/7 When the Company invests the policyholders’ funds through Mudarabah, it should bear the expenses that are normally borne by the Mudarib [see Shari’ah Standard No. (13) on Mudarabah]. However, if the Company invests such funds through investment agency, the deal shall be subject to Shari’ah rulings on remunerated agency. 684
8. Shari ’ah Standard No. (26): Islamic Insurance 10/8 When the insurance assets along with indemnities received from reinsurance companies fall short of covering indemnity commitments, the Company may cover the deficit from project financing or Qard Hasan (interest-free or benevolent loan) debited to the account of the insurance fund. In this regard, the deficits resulting from commitments of the current year may be covered from the surpluses of the succeeding years. The Company may also claim settlement of the deficit from policyholders if they undertake to do so in the insurance policy. 10/9 The insurance account shall bear all the expenses and fees that relate to insurance activities. 10/10 There is no Shari’ah restriction on reconciling between the Company and the party who causes the injury, if such reconciliation is in the interest of the participants, and conforms to the relevant Shari’ah rulings. 11. Indemnity 11/1 The participant shall receive either the loss, he incurred because of the injury, or the insurance amount; whichever is less, and as per regulations. 11/2 The participant should not receive both the indemnity and the compensation from other parties for injury caused to him. 11/3 In Property Insurance, indemnity should be confined to what has been provided for in the regulations, and may comprise subsidiary losses that can be appropriately estimated according to the actual injury. 12. Insurance Surplus 12/1 The insurance surplus is part of the assets of the insurance account and should be disposed of according to what has been stated in item 5/5 of this Standard. 12/2 Distribution of the surplus or part thereof among the policyholders should be in one of the following forms, provided that the selected form is explicitly mentioned in the regulations: 685
9. Shari ’ah Standard No. (26): Islamic Insurance 12/2/1 Distribution of the surplus among the policyholders in proportion to their respective contributions, and regardless of whether the policyholder has received indemnity during the financial period or not. 12/2/2 Distribution of the surplus among the policyholders who have not received indemnity during the financial period. 12/2/3 Distribution of the surplus among policyholders after deducting the amounts of indemnity they receive during the same financial period. 12/2/4 Distribution through any other method approved by the Shari’ah Supervisory Board. 13. Expiry of Insurance Policy The insurance policy expires in any of the following cases: 13/1 At the end of the period agreed upon in the insurance policy. In case of property insurance, it is permissible to stipulate that the contract is automatically renewable unless the participant informs the company, within a specific period before expiry of the contract, of his desire to cease contract’s renewal. 13/2 Termination of the policy by the company or the participant, if the policy provides for the right of termination to each of the parties to contract. 13/3 Complete damage of the insured property (in case of property insurance), without nullifying the entitlement of the participant to the indemnity, subject to the contract’s conditions. 13/4 Death of the insured person in case of persons’ (life) insurance, without nullifying the entitlement of the beneficiary to the insurance benefits, subject to the contract’s conditions. 14. Date of Issuance of the Standard This Standard was issued on 23 Rabi’ I, 1426 A.H., corresponding to 2 May 2005 A.D. 686