ISLAMIC INSURANCE (TAKAFUL) – GAMBLING AND INSURANCE
Gambling and insurance are two distinct and different operations. Gambling is speculative in its risk assessment whereas insurance is a pure risk and is non-speculative. In gambling, one may win or lose by creating that risk. In insurance, the risk is already there, and one is trying to minimize the financial effects of that risk. Insurance shifts the impact of that risk to someone else and relieves the person of risk.
The risk nevertheless still remains. While gambling promotes dissension, ruin and hatred, insurance based on cooperative principles, enables the insured to lessen the financial impact without which it could drive the individual and his dependents to poverty, thereby weakening their place in the society.
There is nothing in Islam that prevents individuals from making a provision for their dependents. Seen collectively for large groups of insured population, insurance strengthens the financial base of the society. Islamic scholar, Yoosuf Ali, in his translation of The Holy Qur’an, comments on Sura (chapter) Al-Baqara, ayat (verse) 219,
“Insurance is not gambling, when conducted on business principles. Here the basis for calculation is statistics on a large scale, from which mere chance is eliminated. The insurers charge premium in proportion to the risks, exactly and scientifically calculated”.
BASIS AND PRINCIPLES OF TAKAFUL
Islamic insurance requires each participant to contribute into a fund that is used to support one another with each participant contributing sufficient amounts to cover expected claims. The underlying principles of Takaful may be summarized as follows:
- Policyholders co-operate among themselves for their common good.
- Every policyholder pays a part of the contribution as a donation to help those that need assistance.
- Losses are divided and liabilities spread according to the community pooling system.
- Uncertainty is eliminated in respect of subscription and compensation.
- It does not seek to derive advantage at the cost of others. Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profiting but to uphold the principle of “bear ye one another’s burden.”
WHY NO TO CONVENTIONAL INSURANCE
In modern business, one of the ways to reduce the risk of loss due to misfortunes is through insurance. The concept of insurance where resources are pooled to help the needy does not necessarily contradict Islamic principles. Three important differences distinguish conventional insurance from Takaful:
- Conventional insurance involves the elements of excessive uncertainty (gharar) in the contract of insurance.
- Gambling (maysir) as the consequences of the presence of excessive uncertainty that rely on future outcomes
- Interest (riba) in the investment activities of the conventional insurance companies. Conventional insurance companies are motivated by the desire for profit for the shareholders. The conventional system of insurance can be subject to exploitation. For example, it is possible to charge high premium (especially in monopolistic situations) with the full benefit of such over-pricing going to the company.
The key difference between Takaful and conventional insurance rests in the way the risk is assessed and handled, as well as how the Takaful fund is managed. Further differences are also present in the relationship between the operator (under conventional insurance using the term: insurer) and the participants (under conventional it is the insured or the assured).
Takaful business is also different from the conventional insurance in which the policyholders, rather than the shareholders, solely benefit from the profits generated from the Takaful and Investment assets.