Sharia insurance is a system where the participants share the risks by donating (infaq) part or the entire contribution through the tabarru’ that will be used to pay the claim, in case an accident occurs to one or some of the participants. The company’s role in this case is only as the fiduciary company to manage and invest the tabarru’ collected from participants’ contribution. The company is responsible only for the operational management of the funds and not as the underwriter as commonly found in conventional insurance.
Some of the akad that are used in the Sharia insurance are:
- Akad Tabarru’ is used among participants where participants provided a grant in the form of contribution (premium) through tabarru’ that will be used to help other participants who suffer a misfortune. The insurance company in this case only serves to manage the grant.
- Akad Tijarah or Akad among Participants (collectively or individually) with the insurance company with commercial goals.
- Akad Wakalah Bil Ujrah is used as the basis for participants to trust the management of their funds to the insurance company, it is a Tijarah Akad that provides power to the company as the participants’ trustee to manage the Tabarru’ and/or participants’ investment, in accordance with the power or authority provided in return for a Ujrah (fee).
- Akad Mudharabah is used for investment management, it is a Tijarah Akad that grant the power to the company as the mudharib to manage Tabarru’ investment funds and/or participants’ investment funds, in accordance with the power or authority granted in return for a revenue share (nisbah) with an amount that has been initially agreed.
Below is the difference between conventional insurance and sharia insurance.
| PRINCIPLES | CONVENTIONAL | SHARIA |
|---|---|---|
| Concept | Transfers of risk from the insured to the insurer | Sharing of risks among participants |
| Akad | Buy and Sell | Help each other |
| Ownership of funds | The premium fund is entirely belong to the company hence the company has the liberty to use and invest it. | Part of the participants’ fund will be returned to the participants and the other part will be given to the company as the fiduciary that manages the fund. |
| Source of claim payment | From the company’s account as the consequences of the insurer to the insured | From tabarru’ account that belongs to the participants |
| Investment & yield of investment | Free to be invested in any instrument. The yield is entirely belong to the company | Must be invested in sharia-based instrument. The yield will be divided between participants and the manager (company) |
| Underwriting surplus* | Entirely belong to the company | Can be shared between tabarru’ reserves, the company, and the participants in the form of endowment or waad to allocate surplus* |
| Sharia Supervisory Board | Not existed | Exist to supervise and to ensure that the management, the products, and the investment is in accordance with the sharia principles |
