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

Transcription

1. Shari ’ah Standard No. (41): Islamic Reinsurance Appendix (B) The Shari’ah Basis for the Standard ■ Impermissibility of commercial reinsurance is based on the fact that the idea of commercial reinsurance depends on the idea of commercial insurance and involves Shari’ah-prohibited Gharar. As related by Muslim, Ashab al-Sunan and others, quoting Abu Hurayrah, the Prophet (peace be upon him) prohibited Bay’ al-Gharar(2) (aleatory sale). Gharar, as defined by several Fiqh scholars, indicates uncertainty about the outcomes, or the consequences, or end result of something.(3) According to some contemporary Fiqh scholars Gharar is similar to or part of betting or gambling.(4) A number of resolutions on prohibition of Gharar have also been issued by Islamic Fiqh Academies including the Resolution of the Islamic Fiqh Academy -Makkah Al-Mukarramah in its 1398 A.H. Session, endorsing the Resolution of the Supreme Council of the Ulema of the Kingdom of Saudi Arabia in its 10th Session held in Riyadh on 4 Rabi’ II, 1397 A.H., and Resolution No. (9) 9/1 of the International Islamic Fiqh Academy. ■ Permissibility of cooperative insurance stems from the fact that cooperative insurance companies are based on cooperation and donation rather than on exchange-based dealings. It is a well-known as Fiqh axiom that Gharar does not affect donation-based contracts. Permissibility of cooperative insurance can also be derived from several Verses of the Glorious Qur`an (2) “Sahih Muslim” Muslim”,, Kitab Al-Buyu’ [3: 115]; “Sunan Abu Dawud” [2: 22]), (H: 3376); “Sunan Al-Nasa`i” [2: 21]; “Sunan Ibn Majah” [2: 73]; “Sunan Al-Tirmizi” [3: 532]; “Sunan AlDarami” [2: 16]); “Al-Muwatta`” [2: 66]); “Musnad Ahmad” [1: 201, 2: 367 and 397]; “Sunan Al-Bayhaqi” [5: 22]; and “Musnnaf Ibn Abu Shaybah” [8: 19], Part 2. (3) See: “Sharh Al-’Inayah Ma’a Fath Al-Qadir” [5: 192]; “Tabyin Al-Haqa`iq” [4: 46]; “AlTaj Wa Al-Iklil” [4: 36]; “Fath Al-’Aziz Bi Hamish Al-Majmu’” [8: 127]; “Matalib Uli Al-Nuha” [3: 25]; “Al-Qawa’id Al-Nuraniyyah”, Al-Nuraniyyah”, (P. 166); and “Nazariyyat Al-’Aqd” Al-’Aqd”,, (P. 224). See also Sheikh Siddiq Al-Darir: His valuable book on “Al-Gharar Wa Atharuhu Fi Al-Uqud”, Al-Uqud”, Salih Kamil Lil-Rasa`il Al-Jami’iyyah, (P. 54). (4) See: Dr. Hussein Hamid: “Al-Gharar” “Al-Gharar”,, (P. 72). 1026
2. Shari ’ah Standard No. (41): Islamic Reinsurance and Prophetic Hadiths which instruct people to cooperate. In this regard, a number of resolutions have been issued by the Islamic Research Academy of Al-Azhar in addition to the Resolution of the Islamic Fiqh Academy -Makkah Al-Mukarramah and Resolution No. (9) 9/1 of the International Islamic Fiqh Academy which states: “Indeed, the contract which respects the origins of Islamic dealings is the cooperative insurance contract which is based on donation and cooperation…” Moreover, permissibility of cooperative insurance contract has never encountered dispute from any contemporary Fiqh scholar.(5) In addition to what has been stated above, the underlying reasons for permissibility of solidarity reinsurance and impermissibility of commercial reinsurance can be summarized in the following essential differences between the two systems: a) The commercial reinsurance company is an exchange-based financial contract which aims to make profit out of the reinsurance itself, and therefore should become subject to the rulings on exchange-based financial contracts which can be affected by Gharar. In the contrary, in solidarity reinsurance the contract is based on donation and cooperation and thus cannot be affected by Gharar when the contract involves it. b) The company in the Islamic reinsurance contract is an agent of the reinsurance account, whereas in commercial reinsurance the company is a principal party who signs the contract in his own name. c) The company in commercial reinsurance owns the reinsurance premiums against commitment to pay the reinsurance amount, while in Islamic reinsurance the company does not own the contributions, which are owned by the reinsurance account. d) In Islamic reinsurance the remaining part of the contributions and the returns on it -after expenses and compensations- go to the account of the policyholders (such amounts represent the surplus distributed among participants), whereas this cannot be imagined in commercial (5) A Fatwa issued by the Shari’ah Board of the Al Rajhi Banking Company for Investment, Fatwa No. (40). 1027
3. Shari ’ah Standard No. (41): Islamic Reinsurance reinsurance, because the contributions are owned by the company by virtue of the contract and through actual possession. The contributions in the case of commercial reinsurance are even considered as revenue and profit. e) In Islamic reinsurance the returns earned from investment of the principal amount of the contributions go to the account of the policyholder after deduction of the Mudarib’s share by the company, whereas in commercial reinsurance such returns go to the company. f) Islamic reinsurance aims to achieve cooperation among the participating companies rather than profit, whereas commercial reinsurance aims to achieve profit from the reinsurance process itself. g) In Islamic reinsurance the company makes profits by investment of its funds in addition to its share in the Mudarabah, as it assumes the role of the Mudarib and the reinsurance account assumes the role of Rab al-Mal. h) In Islamic reinsurance companies the participant and the reinsurance client are in fact the same person even if legally considered as separate personalities, while in commercial reinsurance companies they are completely different. i) An Islamic reinsurance company observes the rules of the Islamic Shari’ah and the Fatwas issued by its Shari’ah Supervisory Board, whereas the case is not so for commercial reinsurance companies. j) When the allocations deducted from the solidarity reinsurance fund remain unpaid until the time of liquidation they are spent on charitable purposes and are not given to the participants, whereas in commercial reinsurance companies such funds go to participants. ■ The Islamic reinsurance contract is considered as a binding donation contract, because it is analogous to Munahadah (contribution of travelers to a pool of food victuals) or to pledge of donation. Both of the Islamic Fiqh Academy of the Muslim World League and the International Islamic Fiqh Academy stipulated in their resolutions referred to earlier that Islamic reinsurance is based on donation. 1028
4. Shari ’ah Standard No. (41): Islamic Reinsurance The fact that the Islamic reinsurance contract is binding can also be derived from what has been emphasized by Imam Malik about donation. According to Imam Malik a gift in general becomes valid before possession, and this was also said to have been the viewpoint of Ali and Ibn Masood. The Hanbali scholars hold that a gift is binding even if it is not possessed, except in things that are measured in terms of volume and weight.(6) Ibn Rushd (the grandson) said: “Scholars were in disagreement regarding possession…Malik said: “The contract is valid on acceptance, and possession of the gift should be enforced quite like the case in sale…”(7) Ali and Ibn Mas’ud are reported to have said: “Gift is permissible if it is known, whether it is possessed or not”. not”. It is also reported that Abu Bakar and Omar considered the gift to be binding only when it is possessed.(8) Therefore, Malik seems to have taken all these viewpoints into consideration. He derived from the viewpoint of Ali, Ibn Masood and the others that the contract as such is binding, whereas he took the viewpoint of Abu Bakar and Omar to mean that possession is a necessary condition for completion of the contract so as to leave no room for the Dhari’ah (excuse) mentioned by Umar.(9) The fact that a pledge of donation is binding can also be derived from the Hadith of the Prophet (peace be upon him) who said: “The person who retreats from a gift that he offers is like the dog which licks up its vomit” vomit”.(10) ■ The ruling that the company, which assumes the role of the agent in Islamic reinsurance, should not guarantee is based on the unanimous agreement among Fiqh scholars that an agent should not guarantee except in case of transgression, negligence or breach of the contract. ■ The necessity of mentioning the nine principles of Islamic reinsurance in the articles of association of the company stems from the need for reinforcing the donative nature of the contract and laying the Shari’ah foundation (6) “Bidayat Al-Mujtahid” [2: 53]); “Al-Mughni” by Ibn Qudamah [5: 64]). See also: “Bada`i’ Al-Sana`i’” [8: 3960]; and “Al-Ghayah Al-Quswa” [2: 655]. (7) “Bidayat Al-Mujtahid” [2: 534]. (8) See: “Al-Muwatta’” [2: 46]; and “Nasb Al-Rayah” [4: 12]. (9) “Bidayat Al-Mujtahid” [2/53]). (10) “Sahih Al-Bukhari” [5: 19]; and “Sahih Muslim” (H: 1622). 1029
5. Shari ’ah Standard No. (41): Islamic Reinsurance for this important aspect of the company. In the absence of emphasis on these principles which distinguish Islamic reinsurance from commercial reinsurance, Islamic reinsurance may become an exchange-based reinsurance contract, and hence becomes vulnerable to nullification by Gharar, as has been indicated earlier. For illustration of these distinguishing principles of Islamic reinsurance, several Fatwas have been issued including: Fatwa No. (12/11) issued by the 12th Al Baraka Seminar on Islamic Economics, and Fatwa No. (42/3) issued by the Shari’ah Supervisory Board of Al Rajhi Company, as well as the Fatwas of the Shari’ah Supervisory Board of Faisal Islamic Bank, Islamic Insurance company –Jordan-(11) and Islamic Insurance Company of Qatar. ■ The basic elements and conditions of the Islamic reinsurance contract are derived from its nature as a contract which is binding to the two parties in addition to the special nature of the insurance contract with regard to the subject matter of insurance. ■ The reinsurer and the client should honor their commitments because the reinsurance contract is binding to both parties. According to Shari’ah, the two parties should honor what they agree upon as long as it does not contradict with the rules and principles of Islamic Shari’ah. This can be derived from the Quranic Verses and Hadiths which instruct people to observe commitments and conditions they agree upon, including the Verse: {“O you who believe! Fulfill (your) obligations”}(12) and the Hadith of the Prophet (peace be upon him) who said: “Muslims are at their conditions”. conditions” (13) ■ The basis of the ruling that the reinsurance company may assume the responsibility of managing the reinsurance account against a fee or free of charge is the nature of the agency (Wakalah) contract which Fiqh scholars unanimously declare as permissible with or without remuneration. This point of view is supported by the 12th Al Baraka Seminar on Islamic (11) See: “Fatawa Al-Ta`min”, Al-Ta`min”, Dallah Al Baraka Group, reviewed by Dr. Abd Al-Sattar Abu Guddah and Dr. Ezz Al-Din Mohammad Khojah, (pp. 99-108). (12) [Al-Ma`dah (The table):1]. (13) Related by Al-Bukhari with dogmatizing comments from his side: “Fath Al-Bari” [4: 251]; “Al-Tirmidhi” - with “Tuhfat Al-Ahwazi” [4: 584] and he said a good and authentic Hadith. 1030
6. Shari ’ah Standard No. (41): Islamic Reinsurance Economics (Fatwa No. 12/11), the Islamic Fiqh Academy of the Muslim World League (Fatwa No. 961) and the Supreme Council of Ulama of the Kingdom of Saudi Arabia (Fatwa No. 51). ■ Permissibility for the company to invest the funds of the reinsurance account is based on the Mudarabah contract which Fiqh scholars unanimously declare as permissible. Such contract entails prior specification of profit sharing ratios so that the reinsurance account can get its share of the profit as indicated by a number of Fatwas including: Fatwa of the Shari’ah Supervisory Board of Faisal Islamic Bank,(14) Fatwa No. 12/11 of the 12th Seminar of Al Baraka and Shari’ah Standard No. (13) on Mudarabah. ■ Necessity of observing conditions in general, including commitment of the company to present Qard Hasan (benevolent loan) to the reinsurance account, is based on the commitment to honor pledges that are binding to only one party of the contract. Honoring such pledges is emphasized by a number of distinguished Fiqh scholars, and is well supported by Shari’ah Texts and Traditions. One of these texts is the Verse: {“O you who believe! Fulfill (your) obligations”}, obligations”}, which is taken to mean any Shari’ah-acceptable commitment. Several Hadiths have also indicated enforceability of honoring contracts, pledges and promises.(15) In this respect also Fiqh Academies and Shari’ah Supervisory Boards have issued resolutions including: Resolution No. (40-41) 2-3/5(16) of the International Islamic Fiqh Academy, and the Fatwa of the Shari’ah Supervisory Board of the Islamic Insurance Company –Jordan.(17) ■ The ruling that the participant should bear the burden of proving, is based on application of the general rules of evidence which state that evidence is to be provided by the alleger. This rule is supported by explicit indications from the Qur`an and the Sunnah and the viewpoints of knowledgeable Fiqh scholars. A Fatwa in this regard has also been issued by the consolidated Shari’ah Supervisory Board of Al Baraka (Fatwa No. 14/6). (14) See: The Book titled “Al-Mudarabah Fi Kutub Al-Madhahib Al-Fiqhiyyah”; Al-Fiqhiyyah”; and “AlMawsu’ah Al-Kuwaytiyyah”, Al-Kuwaytiyyah”, the term Mudarabah. (15) For more details see: “Mabda` Al-Rida Fi Al-’Uqud” Al-’Uqud”,, a comparative study [2: 1161] and its reliable references. (16) See the Journal of the Academy, No. (5) 2/754-965. (17) “Fatawa Al-Ta`min Al-Ta`min”,”, (P. 106). 1031
7. Shari ’ah Standard No. (41): Islamic Reinsurance ■ The basis of permissibility of the two types of reinsurance is the various evidences of permissibility of insurance and the Fatwas issued by the 2nd Seminar of Al Baraka (Fatwa No. 2/9), the 10th Seminar of Al Baraka (Fatwa No. 10/3/5), and the Fatwas of the Shari’ah Supervisory Boards of Dubai Islamic Bank, Faisal Islamic Bank, Kuwait Finance House, Qatar Islamic Bank and the Islamic Insurance Company.(18) ■ The basis of the rulings relating to the Islamic insurance and reinsurance contract is the general principles of contracts in the Islamic Shari’ah such as forbiddance of cheating and fraud, and necessity of commitment to the time specified for implementation of contracts. In addition to these general principles, the insurance and reinsurance contracts are also based on specific rulings pertaining to insurance coverage indicated by the Resolutions and Fatwas issued by the Islamic Fiqh Academy of the Muslim World League, the Supreme Council of Ulema and the Shari’ah Supervisory Boards of Islamic banks and Islamic insurance companies.(19) ■ The jurisdictions of the company are based on its articles of association, the documents which regulate the contract, the general principles of contracts and conditions, insurance practices and the Fatwas issued by Shari’ah Supervisory Boards.(20) ■ The rulings that relate to regulation of the relationship between the company and the policyholders are based on the articles of association of the company which specify whether the contract is a fee-based agency or not, in addition to the Mudarabah contract regarding the reinsurance fund. ■ The reinsurance coverage is based on the general texts affirming the Hadith which states: “No harm and no reciprocal harm”(21) and the general rules and principles of Islamic Fiqh which stipulate that coverage should be for the actual harms and not at all for making a wealth out of it. The reinsurance coverage is also governed by the donative nature of the Islamic reinsurance contract and the Fatwas issued by competent bodies such as (18) (19) (20) (21) “Fatawa Al-Ta`min” Al-Ta`min”,, (pp. 193 -206). Ibid. Ibid. This is a Hadith narrated by Malik in “Al-Muwatta`” “Al-Muwatta`”,, Kitab Al-Aqdiyah, Al-Aqdiyah, (P. 464); “Musnad Ahmad” [1: 313 and 5: 527]; and Ibn Majah in his “Hashiyah” [2: 784]. 1032
8. Shari ’ah Standard No. (41): Islamic Reinsurance Fatwa No. (3) of the 10th Seminar of Al Baraka and the Fatwas issued by the Shari’ah Supervisory Boards of Islamic banks and insurance companies.(22) ■ The reinsurance surplus is based on the nature of the donation-based contract and what has been reported by Al-Bukhari about the practice of the Sahabah (companions of the Prophet, peace be upon him) in the case of Munahadah.(23) ■ Permissibility of reinsurance with traditional reinsurance companies is based on the practical necessity arising from lack for Islamic reinsurance coverage and the dire public need which ranks up as necessity. Shari’ah recognition for necessity and dire public need is supported by a number of Texts in the Qur`an and the Sunnah. In this respect also a Fatwa has been issued by Faisal Islamic Bank of Sudan (Fatwa No. 5/3). (22) “Fatawa Al-Ta`min” Al-Ta`min”,, (P. 153). (23) Al-Bukhari stated in his “Sahih “Sahih”” with “Fath Al-Bari” [5: 12]), Bab Al-Sharikah Fi AlTa’am Wa Al-Nihd Wa Al-’Urud …because Muslims did not see any harm in Nihd, of which each of them used to eat a part, and he mentioned some Hadiths indicating what he had stated. In his Book “Fath Al-Bari” [5: 129], Ibn Hajar said: “Nihd is a practice in which all the people in companionship (on travel) provide the food. Each of them contributes the same quantity, yet some may consume more than others, even though, the remaining food is shared among them if they do not decide to keep it for another journey”. This is exactly the reinsurance surplus, or quite similar to it. 1033