Insurance on high

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Centering on Islamic ethics, the concept of takaful insurance reaches out to clients who value transparent policies and financial practices, which steer clear of investments which are morally less-than-pristine. As financial security scheme, the takaful approach by its very name implies mutual protection and solidarity among policyholders. While the term relates to the entire range of Islamic insurance, some operators associate it in particularity with the Islamic alternative to conventional life products. Present for over three decades in some markets, beginning with Sudan, and gaining strength in the Islamic countries in Southeast Asia, Malaysia and Indonesia, TAKAFUL has lately attracted growing attention in European countries with significant Muslim populations, such as the United Kingdom. In Lebanon, insurance firm Al Aman Takaful Insurance (ATI) began operations as the country’s first Islamic insurance operator in 2002 and is expanding. “We are the first takaful insurance provider in the Lebanese market and deal with all classes of insurance, where we aim to reach $4 million in premiums by 2008,” Jihad Faytrouni, ATI’s general manager, told EXECUTIVE. An important factor for computing the new company’s growth prospects is the affiliation with Al Baraka Bank, a 70% shareholder in ATI and linked to the gulf-based, financially capacious Dalla Al Baraka Group. After recently completing a restructuring, Lebanon’s Al Baraka bank has aggressive expansion aims in the domestic market, in which ATI plays an integral role. In its first full year of doing business, ATI wrote 1,040 contracts with new clients in 2003, a large portion of whom were referred by Al Baraka Bank. At a production in the $200,000 range, this result amounts to small fries even by the comparatively minor scale of the Lebanese insurance market. It must be seen in context of ATI’s careful product rollout, which began with general products in October 2002, added life-related takaful in April of last year, and is currently developing a medical line. “It is new but it is growing,” said Safaa Farroukh, underwriter at ATI. “Clients like it that we emphasize transparency. There is no small print in our contracts, no vague statements. Members of our Sharia board supervise all conditions and the wording of contracts.” These experts are versed in both Islam and finance, she explains, and investments of the takaful fund maintain a line of compliance with Islamic standards that prohibit financial participation in certain interest-earning investments or business ventures involved in, among others, arms, alcoholic beverages, and gambling. Another specific of Islamic insurance, which ATI adheres to, is the structural requirement under which the insurance operator is a managing entity for client contributions. “Our job is to manage funds, investing in Islamic investments, and manage insurance for our clients,” said Faytrouni.

The takaful operation is structured into two funds, a shareholder fund which acts as capital and a policyholders’ fund where all payments by participants are managed and from which appropriate disbursements are allocated in claims cases. A portion of the takaful contributions in the policyholders’ fund is allocated to compensating the operator for its expenses. The operator also participates in the gains achieved from managing and investing the money in the policyholders’ fund. At ATI, this share is set at 20%. As a central stipulation under the TAKAFUL principle of mutuality, the insured participate in the fund‘s surplus retained after deduction of technical reserves and provisions. In its SHARIA-driven aspects, the takaful concept is still subject to discussions over fine points of Koranic interpretation, which are best left to Islamic scholars. While these discussions can be expected to lead to further evolutions of specific rulings in areas such as defining the exact nature of financial contributions under a takaful agreement, experts widely contend that on the technical side of actuarial design and compliance with established insurance regulations, takaful is easily reconciled with proven best conventional practices.

For the discussion of evolving insurance paradigms, the growing interest in takaful serves as reminder that the term ‘life insurance’ is a radical misnomer under the perspective of what insurance can achieve. Although the assumption of protecting one’s life against existential vagaries has a proven appeal to large numbers of people, no insurance can accomplish thus.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.