Differ to Conventional

Under conventional insurance, insurance is a risk transfer mechanism by which an organization can exchange its uncertainty for certainty. The uncertainty experiences would include whether loss will occur, when it will take place, how severe it will be and how many there might be in a year. Insurance offer the opportunity to exchange this uncertain loss with certain loss, i.e the insurance premium. The organization agrees to pay fixed premium and in return, the insurance company agree to meet any loss which fail within the terms of the policy

Exchange of uncertain loss with certain loss as it is done in conventional insurance is exactly fall into Gharar meaning and it is not allowable in Islam. In Takaful concept therefore, there is no transfer of risk from participants to the Takaful operator. Risks are shared among participants under a mutual guarantee scheme or Takaful scheme works. It is part of the merely as Wakeel (agent) to make the scheme works. It is part of the operator role to ensure that each participant pay equitable contribution, as well to ensure that the unfortunate one who suffers a loss will get proper compensation.

Picture 1.1 and Picture 1.2 below are showing different concept between conventional insurance (risk transfer) and Takaful (risk sharing)