A
Takaful operator offers a motor takaful coverage for a sum cover of
RM290,000 with total contribution of
RM4,000. However, a conventional
insurance company willing to offer at a lower sum cover of RM160,000 with a
cost of only RM2,300. After a heated
argument, the takaful operator finally willing to reduce
the coverage to RM160,000 provided that the participant sign a document
pertaining the average clause provision.
Takaful operator is seemed to be less flexible to accommodate the participant and
charging much higher cost.
This is a typical scenario in the motor takaful
business in Malaysia and perhaps few other countries which practice dual
financial system.
At a glance, we might be inclined to conclude that
Takaful is not fair, inflexible and expensive. The additional
contribution (premium) of RM1,700 (RM4,000-RM2,300) is definitely
significant and creates the impression that Takaful is very expensive compared
to conventional insurer. This may
contradict the concept of fairness and equitable as promoted by Takaful
operators as well as any other Islamic Financial Institutions (IFI) nowadays.
Let’s delve the case thoroughly using two different
perspectives, namely Shariah and technical point of view. As Shariah
justification may not appeal to non-Muslim, the discussion using technical
aspect is hopefully able to explain the rationale on the situation. Nevertheless, Shariah concept is also a
universal concept which is acceptable and understandable to all.
What is the major different between Takaful and
conventional insurance? Takaful is based on the concept of helping one
another where all participants (policyholders) contribute a certain amount of
money to a pool, with the main objective to help those who might meet with
defined misfortunes as outlined in the contract. This is indeed a
righteous act and commendable act strongly encourage by all religions. In
the Quran (2:261), Allah says “The parable of those who spend their substance
in the way of God is that of a grain of corn: it growth seven ears, and each
ear hath a hundred grains. God giveth manifold increase to who He
pleaseth: and God careth for all and He knoweth all things.”
Thus, Allah promises at least 700 times of reward
for those who contribute their wealth for the sake of Allah. The more you
give, the more return you will reap from Allah swt. Based on the Takaful
practices, most of the contributions are pooled into a fund under the concept
of Tabarru’at which literally means donation. Under the
concept of Tabarru’at (donation), paying RM4,000 would definitely yield more
reward as compared to RM2,300, as the amount going into the way of Allah swt is
significantly higher. Based on the multiplying effect, our investment for
the hereafter will result in significant outcome to be reaped thereafter.
The richest of the rich, just to name a few, like
Bill Gates and Warren Buffett were reported to have given away a large chunk of
their wealth to charity, with Gates donating money amounting to US$60 billion
to help those in need and Buffett giving shares worth nearly US$20 million to
eight unnamed charities. Despite of
their huge amount of charity, they are still among the richest men in the world
bestowed with more wealth.
Now, let’s look at from technical point of
view. Ask yourself, why would you purchase an insurance policy or
participate in a Takaful plan? Obviously, for protection against any
unexpected misfortunes, in the event of which, our asset is exposed to
the maximum probable loss equivalent to the cost of repair or replacement of
the asset based on the current market value.
Based on the above case, when a takaful operator
offers to cover the vehicle for a total coverage of RM290,000, it is based on
the current market value of the vehicle. Meaning that, in the event of a
misfortune which may lead to the total loss of the vehicle, the takaful
operator will compensate the claimant up
to a maximum amount of RM290,000 to enable him to purchase a new vehicle of
similar condition as a replacement. On the other hand, the conventional insurer
would only compensate him with the maximum amount up to RM160,000 which will
definitely upset him and put him at the disadvantage as he won’t be able to
purchase another vehicle of similar condition as replacement. He may save
RM1,700 at the inception of the business transaction but he expose himself to a
potential maximum total shortfall of RM130,000 compensation should misfortune
befalls him.
Some people may say that their chances of total
loss is very slim or insignificant thus making them reluctant to seek a
coverage for their asset equivalent to the market value. This is
similar to a gambling or a betting where you try your luck with the hope that
it does not happen. In fact, the lower
probability of total loss has been factored into the pricing where he is only
charged approximately RM4,000 for a potential benefits of RM290,000.
In summary, Takaful business is the most fairness
and equitable as the fundamental objective is to help each other to protect
against unexpected misfortunes.
