1. I was
asked by a friend recently about the motor Takaful product which according to
him is less superior in terms of pricing, flexibility and meeting with the
customers need as compared to the conventional product. Accoding to this friend, a Takaful operator
offered him a motor Takaful coverage for a total sum cover of about RM290,000
for a cost of approximately RM4,000, while another conventional insurer was
willing to offer a total cover of only RM160,000 which would cost him about
RM2,300. After an intense discussion,
the Takaful operator was willing to
reduce the sum of coverage to RM160,000, provided that he signs an undertaking
letter with respect to the average
clause as provided in the certificate.
This situation is not uncommon in the insurance/takaful industry and
some consumers might have already faced the same experience. It may also happen among the conventional
insurance companies.
2. At a
glance, we might be tempted to conclude that Takaful is not fair and
expensive. The additional contribution
(premium) of RM1,700 (RM4,000-RM2,300)
was definately more than double the cost charged by the conventional
insurer. This contradicts the concept of
fairness and equitable as promoted by Takaful operators as well as any other
Islamic Financial Institutions (IFI) nowadays.
3. Ok, let
me clarify the above situation based on two perspectives, namely Shariah and
technical. As Shariah justification may
not be appealed to non-Moslem, they may consider the technical explaination. Nevertheless, I will try to explain the
Shariah concept in the universal context as well.
4. 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.”
5. 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 yield more reward as
compared to RM2,300, as the quantum going into the way of Allah is
significantly higher. Based on the
multiplying effect, don’t we want to invest for our hereafter as much as
possible? 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 US60 billion to help those
in need and Buffett giving shares worth nearly US20 million to eight unnamed
charities. And they are still among the richest men in the world bestowed with
more wealth.
6. Now,
let’s look at from technical point of view.
Ask yourself, why would you purchase an insurance policy or participant
in a Takaful plan? Obviously, for
protection against any unexpected misfortunes,
in the event of which, our asset (insured under the general insurance/takaful)
is exposed to the maximum probable loss which is equivalent to the cost of
replacing the asset based on the current market value.
7. Back to
my friend's story, when a takaful operator offers to cover his 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 him, as
participant, with an amount of RM290,000 to enable him to purchase a
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 disadvantaged as
he won’t be able to purchase another vehicle of similar condition as
replacement. He might be able to save
RM1,700 at the inception of the business transaction but he exposed himself to
a maximum total shortfall of RM130,000 compensation should misfortune befalls
him.
8. Some 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. 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.
9. In
summary, Takaful business is the most fairness and equitable as the fundamental
objective is to help each other to protect against unexpected misfortunes.
