By 2004, the total gross written premium (GWP) for takaful business (life and non-life combined) had grown to just under $1.4 billion.
Takaful Insurance Resources
Understanding Takaful Practice
Takaful originates from Arabic word Kafalah, which means "guaranteeing each other" or "joint guarantee". In principle, the Takaful system is based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants
Takaful Concept for Risk Financing
In Takaful, risk from individuals or organizations is spread or shared with other individuals or organizations that have a relatively homogenous pattern.
Depending on which model the Takaful operator adopts, individuals or organizations pay a contribution (Mushahamah) or in the form of donation (Tabarru) with a condition that in the event a risk materializes, they will receive proceeds of Takaful funds in order to recover from their loss
To avoid Gharar, Maisir, and Riba, the Takaful concept has a protection wall which is the contract itself. Instead of sales contract, Takaful utilizes a Mudharabah (Profit Sharing) contract or a Wakalah (Agency Contract), or other suitable contracts that would fit a particular scheme.
Inside the protection wall or the contract, the following Takaful best practice tasks must be carried.
- Proper risk identification and risk analysis
- Proper underwriting practice to ensure an adequacy of funds to pay losses but at the same time should not be of an excessive level that would in turn become a burden to the participants
- Proper risk sharing and the risk spreading. Operators must ensure proper and healthy risk sharing between participants; furthermore by anticipating potential losses above their capacity, operators could further spread the risk to other operators in the Takaful or Retakaful market.
