Summary

The rules of conventional insurance have many issues contradicting the rules of Islamic Economy that caused them to be unacceptable by the absolute majority of Muslims. This resulted in the creation of a new industry; Takaful, so described as a Sharia-compliant cooperative insurance. Yet, huge skepticism still exists among the masses because the insurance industry has not addressed the roots of the problem in the most appropriate way. This analysis gives insight into these roots.

Analysis

Islamic insurance: is it possible?
This article of the Financial Times pulls the attention to a basic issue the Insurance Industry is facing in Muslim societies. Needles to say, the Insurance Industry is a huge one, and in Muslim societies (we are not talking about the Saudi society here) where adherence to Islamic norms has a priority, it has been facing serious obstacles. The reason is simple: there is a fundamental problem in the concept of Insurance that makes it non-compliant with the basic principles of Islamic Economy, where there are rules for any contract to be deemed valid, and these rules are not observed in the basis of the Insurance contract.
First of all, let’s highlight the various types of contracts in Islamic Economy:
· Valid Contract;
· Corrupt Contract;
· Invalid Contract.
The Valid Contract adheres in total to all the relevant rules set by Islam. The Corrupt Contract does not adhere in total to the relevant Islamic rules but it has one or more conditions that deviate from that. However, the contract can be fully observed while such conditions are circumvented. In the Invalid Contract, the condition(s) that deviates from the relevant Islamic rules cannot be circumvented. So, the Valid Contract is always acceptable in Islamic Economy (the Muslim is allowed to sign it and observe it), while Invalid Contract is always unacceptable (the Muslim commits a sin in case of signing it, and certainly cannot observe it). In the case of Corrupt Contract, the Muslim can sign and observe it but the non-Islamic condition(s) must be circumvented.
In the case of Insurance Contract, in its very simple definition, the insurer commits to make it up for the insuree once a loss takes place by an asset or its price (for products and commodities), or a pre-determined sum of money (for life). From a terminological point of view, the term (insurance) is not accurate; the fact is: it is a contract with a commitment to make it up in case of loss, as the life itself might be lost or the commodities might be damaged and the insurer does not take a step to protect them; rather promises a compensation if something wrong (loss, damage...etc) happens to them.
The Insurance Contract is a contract because it involves agreement between two parties, and involves an initiation of a contractual relationship and its acceptance; hence it must observe the rules of Islamic Economy for a contract to be deemed valid. The reality is: the Insurance Contract is Invalid according to the rules of Islamic Economy from two perspectives:
1. For a contract to be Valid, a benefit (e.g. renting a house) or an asset (e.g. a house itself) must be the subject of it. The Insurance Contract’s subject is neither; its subject is a mere commitment with no benefit or asset. The commitment itself cannot be regarded as an asset (like a purchased cell phone) because it cannot be used or consumed. Also, its benefit cannot be acquired (like benefiting from a rented house); the compensation that might result from the commitment is not a benefit of it; rather, it’s a consequence of it. Hence; in the absence of asset and benefit, the contract is deemed Invalid from Islamic Economic point of view.
2. The insurer gives a commitment to compensate within certain conditions; hence this is a Guarantee, and a Guarantee must observe certain conditions to be accepted by Islamic Economy. These are:
2.1 The responsibility of the Guarantee Giver (the insurer in our case) must be combined with the responsibility of another entity. For example; someone dies and has a debt, then a relative of him states that he will take care of that debt. In this case, the relative has combined his responsibility with that of the dead person in paying the debt off;
2.2 There must be a monetary right of the Guarantee Taker (the creditor in the above example) against some entity, and the Guarantee Giver (the relative in the above example) is in fact guaranteeing that monetary right;
2.3 The compensation the Guarantee Giver (the relative) is committing must be a right of the Guarantee Taker (the creditor) at the moment of contract signature;
2.4 Three entities must exist in the Guarantee: Giver (the relative), Taker (the creditor), and the Guaranteed-Off (the dead person);
2.5 The Guarantee must be free of charge (the relative is committing to pay the dead person’s debt to the creditor without expecting anything in return).
The Insurance Contract lacks all these five conditions; hence, it cannot be accepted as a Guarantee from Islamic Economy perspective.
As a result, Insurance in its conventional way is forbidden in Islam and cannot be accepted. This explains the askance the Financial Times article talks about. This led to the creation of Takaful; a “Sharia-compliant cooperative insurance”, as the article described it. Yet, many of the entities that offer Takaful are perceived with great skepticism, and scholars review each product such entities offer. Yet again, scholars disagree in many occasions, and those allowing many of those products are perceived to lean against the wind. In the current absence of the authority that has the exclusive right to talk on behalf of Muslims and takes decisions on their behalf, such disagreements will continue to exist, and such industries will keep facing problems (the fact mentioned in the article that regulatory efforts have been partially responsible of the increased insurance in Saudi Arabia is a manifestation of that), unless they take radical measures to eradicate all sources of doubt in the minds and hearts of huge masses that are still reject the insurance concept all together.
Dr. Mosab Hawarey
http://mosab.hawarey.org