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Sharia life insurance products not a question of faith
Despite its young age, sharia life insurance industry is gradually tapping into a wider market that is attracting both Muslim and non-Muslims customers
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D
espite its young age, sharia life insurance industry is gradually tapping into a wider market that is attracting both Muslim and non-Muslims customers.
A major insurer in Indonesia recently reported that the sales growth of sharia life insurance was more than 30 percent, higher than the conventional life insurance, which stood at around 25 percent.
Despite the fact that Muslims make up the majority of Indonesia's population, Islamic sharia based financial products have only been developed in the past five or six years.
What are the differences between conventional and sharia life insurance?
Muslims around the world have, for generations, grown up with the conviction that life insurance is forbidden because it contravenes certain Islamic life rules.
'Conventional life insurance was declared to be unacceptable in 1903 by prominent Arab scholars,' said Asep Burhanudin, who was educated at Al-Azhar Cairo University, Egypt.
The elements of uncertainty or gambling in the contract of insurance and interest in the investment activities of conventional insurance companies contravenes Sharia.
'Islamic scholars issued a ruling opinion that conventional life insurance is not permissible because it contains elements of: gharar [funds that are not transparent], maysir [gambling] and riba [interest],' Asep further explained.
'The sharia insurance avoids all three forbidden factors.'
The basic of sharia life insurance
Asep explained: 'Indeed, some Muslims consider life insurance to be against the laws of Islam,' however, he further added that 'others are of the opinion that accidents, misfortune and death are Allah's creation'.
'So it is allowed, according to them, to minimize the risk, especially the financial risks that may occur,' he further explained. 'One's efforts, like savings, are often not sufficient, so one should turn to sharia insurance instead'.
Another Islamic scholar, KH Badru Kamal commented that 'In short, taking financial planning action is not against Allah's will, in fact, Islam advises us to plan for our future and protect it'.
'Sharia insurance is a form of co-operative insurance, where participating members contribute a certain sum of money to a common pool', the 55-year old alumni of Al-Azhar University in Cairo added.
'The purpose of this system is not about creating profits, but to advocate the principle of 'bear ye one another's burden.'
The concept of Sharia insurance, where resources are pooled to help the needy, does not contradict Sharia.
'It is based on the concept of mutuality; the insurer oversees a pool of funds contributed by all policy holders, but does not necessarily bear risk itself,' Asep explained.
This concept is in accordance with the principles of compensation and shared responsibilities among the community.
'The important thing is that the insurance aqad (contract) complies with sharia insurance principles and does not contain tadlis [deception], taghrir/gharar [uncertainty in transaction], riba [usury], maysir [gambling], or unlawful goods and services,' he said.
References indicate that is not a new concept, and has been practiced by the Muhajrin (emigrants) of Mecca and the Ansar (supporters or followers) of Medina following the hijra of the Prophet Muhammad over 1,400 years ago.
Benefits of sharia life insurance
Many customers believe that with sharia life insurance, people will not only be more aware of the importance of having insurance but they also find the sharia insurance adds values to their life.
'For sharia life insurance, the allocation of premiums should be aligned with the sharia principals,' a sharia life insurance practitioner, Shamy Rahmaputri, explained.
There is also a social mission of the insurance toward society's welfare.
'Many insurers have committed that if the insurer gains profit through professional services from the sharia business unit, then 2.5 percent of the profit should be allocated for zakat [charity],' Shamy said.
Sharia insurance has attracted many enthusiastic Muslims, previously 'untouchable' by conventional products.
Another sharia life insurance practitioner, Lilis Nurbaeti, said that, 'My customers like sharia products because it gives members the opportunity to benefit in two ways at once'.
'From the financial security of a risk sharing arrangement and secondly from the spiritual benefit participants can obtain, in terms of meeting the religious and social responsibilities of helping others,' Lilis explains further.
It's not about religion
The benefit of sharia insurance is not only for Muslims, it is a universal concept available to all denominations regardless of religious belief. The product's unique risk sharing model, society mission and its transparency also attracts non-Muslim customers.
A non-Muslim customer who prefers to be remaining anonymous describes, 'The concept of risk sharing is one of the main attractions of this product, which is suitable for Muslim and also non Muslim customers like me'.
'It is simply a large group of people orchestrated to help each other when one of them faces the difficult circumstances that always come with filing an insurance claim,' she said. 'After all, caring for and helping each other is a concept that is not against any religion that I know of.'
What's next?
Until today, Sharia life insurance in Indonesia has great untapped potential.
An insurer, who prefers to remain anonymous commented that: 'Given Indonesia's large Muslim population, insurance observers equate the sharia insurance industry in Indonesia to a sleeping tiger'.
The Indonesia Sharia Insurance Association (AASI) approximates that the sharia insurance industry has grown by 30-40 percent in 2013. It forecasted that the coming year will see the industry's peak growth in Indonesia.
Firms offering sharia products in Indonesia include Britain's biggest insurer Prudential, Toronto-based Manulife Financial Corporation, Europe's top insurer Allianz, and French insurer AXA, to name a few.
So now, it is up to us insurers to awaken the sleeping tiger.
Many analysts believe that there is no doubt that if a serious attempt at running a full fledged campaign on Sharia compliant insurance products is made, that is well-planned and properly run by competent insurers, that it would turn into a huge success for the industry.
They also believe that not only among Muslims, but anyone who measure up to the advantages of this cooperative system to what exists today will definitely want to switch to the cooperative model.
It solves many of the problems of commercial insurance corporations, while being more cost-effective. And most important of all, it is simply more ethical.
