Executive Summary
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Islamic scholars object to the concept of conventional insurance due to three key elements: riba (usury), gharar (uncertainty), and maysir (gambling).
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Islamic insurance or takaful operators have therefore redesigned their management and accounting practices to comply with shariah law.
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Takaful, and conventional or traditional insurance policy wordings, both operate in a similar way, with the protection that is provided to the client being exactly the same.
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The differences between Islamic and conventional insurance lie in the ownership and financing of the company, in the management and accounting systems, and in the entities in which the premiums are invested.
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Islamic insurance is a very close concept to that of “mutual insurers” in the West and, in particular, to those we call “ethical” insurers.
Introduction
Insurance plays a vital role in supporting both national and international economic development and growth. Islamic countries are no exception. The main issue for insurers in the Islamic world is that many Islamic scholars view conventional insurance as prohibited by Islam.
Muslim scholars are not against the concept of risk mitigation, risk sharing, or risk management, including risk financing, per se. In fact, they support the compensation of victims of misfortune. However, many scholars consider some aspects of conventional insurance contracts as being prohibited from a shariah (Islamic law) point of view. Shariah covers all aspects of a Muslim’s life, not just worship.
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