21 Feb

Challenges of Life Insurance Marketing

I learnt how to type first on a Remingten typewriter typing away life insurance policy proposals and articles Aba wrote for the Insurance Journal. From issue dealing with trust to issues dealing with Fiqah and Islamic thought on life insurance, my early education on this subject was primarily on account of the work I did for my father. A few years later the Remington was replaced by a daisy wheel electric type writer and the life insurance proposals were replaced by union negotiations but my education through Aba’s articles and his work continued.

Two decades later I am now a qualified actuary who has worked in the appointed actuary role with three life insurance companies, two conventional, one Takaful and I have personally faced some of the challenges associated with that role that my father foresaw as early as in 1988. If it wasn’t for the work I did on a light blue typewriter as a fourteen year old, I possibly would never have picked up an interest in this field and travelled the eleven year path to become an actuary. As long as you are associated with the insurance industry either as a sales oriented professional, as a manager or as a regulator, the book has something to offer to you.

When Reboot finally came out in print, Aba started putting together all the work he had done over the last 45 years in the field of life insurance on his laptop and between Sama, Nadeem, Sana, Adnan, Fawzia and myself we had a cover, a profile photo and a blog up and running for the book. The book is expected to come out in print before the summer inshahallah and the blog has a complete sample chapter posted on it.


By Rizwan Ahmed Farid

21 Feb

Insurance in Islamic thought: Takaful, Family Takaful, Re-Takatful – Part ii

By Rizwan Ahmed Farid

(An extract from a series of articles on Insurance in Islamic thought by Rizwan Ahmed Farid, from his upcoming book on Challenges of Life Insurance Marketing)


El-Gamal, Mahmoud A., of Rice University writes:


“Interestingly, while the Islamic insurance industry has adopted a name suggestive of a mutual cooperative system, takaful companies have generally been structured as for profit shareholder-owned companies, or subdivisions thereof. In other words, the corporate form of those takaful companies is identical to that of the commercial insurance companies whose contracts the Ulama forbade. Takaful companies invoke non commutativity by stipulating that the shareholders pay policyholder claims as a form of voluntary contribution (tabarru`), where the operator is usually set up in the form of silent partnership (mudaraba), with the exception of few recent attempts at using agency (wakala) – while still falling short of mutual forms. In both structures, there are unresolved fiqhi issues about bindingness of promises in such voluntary tabarru`. It would appear, thus, that in the Islamic insurance (risk intermediation) industry as well as in the Islamic banking (credit intermediation) industry, mutuality can align rhetoric with reality and resolve simultaneously a number of corporate governance, religious, and financial problems.”


The element of ribā – the receiving of interest – as well as the forbidden ventures, such as gambling, dealing in alcohol, and night club activities, ambiguity or deception, etc. leaves many financial products, including conventional insurance, in opposition to Shari’ah. Thus one billion eight hundred and twenty-three million in 2009, which number is increasing at the rate of 1.84% annually, have but few options when shopping for products that conform to their faith.


After years of efforts and representation, the provision of Policy Holders Directors in the Insurance Act, 1938, was increased from one fourth to one third through the Insurance Amendment Ordinance in 1970. Rule. 48(1) of the Insurance Act, 1938, which was repealed on 19th August 2000 through the promulgation of the Insurance Ordinance, 2000, stated that:

“Where the insurer is a company incorporated under the Companies Act, 1913, and carries on the business of life insurance, not less than one third of the directors of the company shall not withstanding anything to the contrary in the Articles of Association of the company be elected in the prescribed manner by the holders of policies of life insurance issued by the company.”

However, as I have written earlier that local and foreign powerful lobbies and vested interest groups who were behind the scene, influenced the consultants to delete and totally drop the provision of Mutual insurance companies and the important provision of the Policyholder Directors on the Board of the company, to watch the interests of the life insurance policyholders from the new legislation, Insurance Ordinance, 2000.

It is high time that the government and the parliamentarians make an immediate amendment in the Insurance Ordinance 2000, and insert a specific provision for ‘mutual insurance company’ operations as well as representation of not less than two-third Policyholders’ Directors on the Board of a commercial Family Takaful Operator to watch and safeguard the interests of the policyholders.

Takaful Models are based on mutual cooperation, responsibility, assurance, protection and assistance among groups of participants. Its principles are similar to those that underpin mainstream mutual insurance contracts. Besides, a Takaful product needs to strictly follow the norms of Shari’ah compatible principles. The Board of Islamic Shari’ah Scholars’ role has been specifically assigned to vet business decisions.

Each Takaful operator under Ruletion 34 (1) of the Takaful Rules 2005 is required to appoint a Shari’ah Board (SB) of not less than three members which shall be responsible for the approval of products, documentation as well as approval of all operational practices and investment of funds. The Takaful operator shall appoint only high caliber scholars who are specialized jurists in fiqh almu’amalat (Islamic commercial jurisprudence) to such Boards. In addition, they shall have knowledge of modern financial dealings and transactions.


So far, two Family Takaful Operators (life insurance companies) Pak-Qatar Family Takaful Limited, and Dawood Family Takaful Limited, launched their Family Takaful products, respectively in 2007 and 2009. Pak-Kuwait Takaful Company Limited, Pak Qatar General Takaful, and Takaful Pakistan Limited are also registered for causality insurance business.

Under the conventional structure of insurance the insured shifts the risk to the insurer, but under takaful mode by incorporating risk bearing condition the insured is also the insurer. The golden principle of ‘bear ye one another’s burdens’ applies as on the occurrence of a loss the members share the risk themselves. The participants’ (voluntary) contributions towards the pool to mitigate losses expunge the element of gharar from the contract. Conditions of risk-bearing, indemnity in kind and shari’ah compliance investments change the character of insurance in vogue and free it from the odium of contractual riba, qimar and, to some extent, gharar.


Conventional insurance falls down because it involves the taking of a financial risk that the policyholder will make a loss if a claim does not occur. This uncertainty of happening of the insured event, which many Shari’ah scholars pronounce constitutes a qimar i.e. gambling. Unlike conventional insurance, where risk is transferred from the policyholder to the insurance company, takaful mode requires all participants to share risk among them. They pay contributions for the quantum of risk as that with conventional insurance practice, and are calculated on the basis of the published morbidity and mortality tables. These tables are being developed regularly and validated for the last two hundred and thirty years to ascertain the probable number of years any man or woman of a given age and of ordinary health will live. A mortality table expresses on the basis of the group studied the probability that, of a number of persons of equal expectations of life who are living at the beginning of any year, a certain number of deaths will occur within that year.


These contributions are then pooled in ‘Participants Takaful Fund’ which is invested strictly in Shari’ah approved ventures, under Ruletion 19 of the Takaful Rules 2005. The Investment of participants’ contributions within the Participants Takaful Fund (PTF) as well as in the Participants Investment Fund (PIF) shall be managed under a Wakala contract, a Mudarabah contract or a combination contract as determined to be sound and workable by the Shari’ah Board of the Takaful operator. The Takaful operator shall set the fee structure and the profit sharing ratio on the investment management based on the advice of the Shari’ah Board and the Appointed Actuary, if any.

21 Feb

Insurance in Islamic thought: The issue of extortion or Akal-e-Haram

By Rizwan Ahmed Farid

The report states that the presence of ‘gharar’, ‘qimar’, and ‘ribā’, make the insurance contract a transaction totally void under the tenets of Sharia’h, because the money extorted by each party, in such a contract, constitutes an illegal income.


The Ulmā refer to the verses 2:188 Al-Baqara and 4:29 An-Nisaah of the Holy Qur-ān:




The Shari’ah Scholars have recommended that since the conventional insurance business in vogue is not based on the idea of mutual cooperation but serves as a device for extortion of money from the people to utilize it in interest bearing ventures, therefore, it is forbidden. The business aims at multiplication of capital in the hands of insurance companies and, therefore, is liable to be considered as illegal in Shari’ah!

The basis of co-operation between capital and enterprise which Islam cherishes is equitable sharing of the risk and gains between them. The Ulamā of the Islamic Ideology Council have deduced that:

“The above verse (A-Nissa – 4:29), can be interpreted that taking away of each other’s wealth, property or capital by unlawful means such as interest, gambling or fraud is prohibited while deriving benefit from each other’s wealth, property or capital under an equitable business deal struck by mutual consent is permitted.”

“The essential element of “trading” is that the return on capital employed depends upon actual operating results of the business undertaken.”

The Council’s report, Beema-wa-Qawaneen-e-Beema, page 12, recommended the following opinion about the lawful, Shari’ah compatible, form of insurance.

” There is no repugnance in Shari’ah if insurance is undertaken with the sentiments of and is founded on cooperation, reciprocal responsibility, mutual surety and volition. If, therefore, an insurance company is established in such a manner that each one of its members is insured and these insured persons enter into a mutual agreement of cooperation and reciprocal responsibility, then such agreement will be lawful in Shari’ah …”


The Council of Islamic Ideology examined the system and laws of insurance and, proposed in its Report, Beema-wa-Qawaneen-e-Beema, in 1984, to the Government that:


“In order to prepare an Islamic alternative, that is, System of Collective Responsibility and Cooperation in place of the existing insurance system, a working group may be constituted in which Ulamā of the Council and the insurance experts may be included. They may expunge un-Islamic elements from the insurance system as per Report of the Council and bring out the alternate Islamic system.”


The reader should keep his mind crystal clear that Shari’ah Scholars of all schools of thought do not condemn the theme, need, importance and viability of insurance system. They question and express their reservations to the conventional model of insurance currently in vogue.

Instead of writing on the need and importance of insurance I would prefer to quote below the Council’s views on the subject:

“In the early stage of the new economic system of the world, Insurance business related to a large extent to the coverage of sea-ships and their cargo. But along-with the growth of industry and trade and banking business in the Western countries the field of insurance also continued expanding in extent. Now it has come to this that sea-ships, aeroplanes, cars, factories, commercial and private buildings and besides human life, human limbs, voice, etc. are also being insured. Due to this, it has assured a regular and vast business proportion. On the strength of their capital big capitalists sell expensive policies to simple minded persons, involving real or imaginary possibilities or apprehensions. Like this, they make hundreds of million dollars annually. This capital is further invested in business and profit is reaped in astronomical figures. In other words, money-business is being indulged in , in many shapes and forms. On the one hand this giving rise to inflation, Ruleondly prices of commodities and services are under extraordinary pressure. Not only this but many economic evils like concentration of wealth, recessions, etc. are also coming into existence which in their own way are a big source of corruption. As, however, the individuals and nations devoid of the wealth of faith and belief have no remedy for these evils, they are treading on these paths only.


“As far as developing countries and economically weak nations like Pakistan are concerned, in this matter they are absolutely helpless and are perforce the target of exploitation of the developed nations.”

21 Feb

Insurance in Islamic thought : The issue of riba or interest

By Rizwan Ahmed Farid

The Council of Islamic Ideology’s report quotes, verse 279 of Al-Baqara:



For, upon a claim on an insurance policy the insured receives more than what he has paid (the premium) to the insurer, the excess amount constitutes ‘Ribā’. Usury is condemned and prohibited in the strongest possible terms. I cite below four verses,2:75-76, 3:130, 4:161 of the Holy Quran and the meaning with commentary, about ribā:

Below is the commentary on the verse 2:275 of Al-Bakara:


“Usury is condemned and prohibited in the strongest possible terms. There can be no question about the prohibition. When we come to the definition of usury there is room for difference of opinion. Hadhrat ‘Umer, according to Ibn Kathir, felt some difficulty in the matter, as the Prophet (PBUH) left this world before the details of the question were settled. This was one of the three questions on which he wished he had had more light from the Prophet. Our ‘Ulmā’, ancient and modern, have worked out a great body of literature on Usury, based mainly on economic conditions as they existed at the rise of Islam”.


“An apt smile: whereas legitimate trade or industry increases the properity and stability of men and nations, a dependence on Usury would merely encourage a race of idlers, cruel blood-suckers, and worthless fellows who do not know their own good and therefore akin to madmen.


“Owing to the fact that the interest occupies a central position in modern economic life, and especially since interst is the very life blood of the existing financial institution, a number of Muslims have been inclined to interpret in a manner which is radically different from the understanding of Muslim Scholars throughout the last fourteen centuries and is also sharply in conflict with the categorical statements of the Prophet (peace be on him). According to the Islamic teachings any excess on the capital is ribā (interest). Islam accepts no distinction, in so far as prohibition is concerned, between reasonable and exorbitant rate of interest, and thus what come to be regarded as the difference between usury and interst; nor between returns on bonus for consumption and those for production purposes and so on.”