An attempt is made to review the existing literature in the field of the study which enables us to explore the origin of the Islamic insurance, theoretical and conceptual framework that have enable the development of Takaful so as to allow us to have a comprehensive understanding of the subject matter.
The chapter has equally discussed the Shari’ah justification on the concept of Islamic insurance (Takaful), various misconception about insurance especially among Muslims and analysis on the empirical evidences drawn from the studies conducted in the Malaysian Takaful industry.
Origin of the Islamic Insurance (Takaful)
The known historical facts on the human development indicate that there exists a social insurance which has been very common among different communities, tribes, region or countries of this world. It has been postulated that every society has its own unique risk management strategy which does evolve over a period of time.
That is why; Isa & Dandago (2010) are reported to have said that the concept of protecting people or wealth against loss by natural perils is traceable back, according to some historians, to at least 215 BC. This was more precisely, the time when the Roman governments were required by its suppliers of military stores to accept all risk of loss arising from the attacks of enemies or from the storms which resulted in the suppliers to be insured by the government.
In the same vein, some have acknowledged that the act of Pharaoh of Egypt who accepts advices from Prophet Yusuf (See Qur’an 12:55 where the Pharaoh requested the Prophet to interpret his dream) has been tantamount to the modern day Takaful. For almost ten centuries before the advent of conventional insurance companies, the Muslim societies in Arabia had adopted the concept of risk mitigation to assist victims of natural disasters or hazards of trade on a journey, (Jafer, Ismail, Noor & Unwin, 2010).
In the same argument, Billah (Undated (d)) said that the practice of insurance had been in existence in Arab’s culture since before the time of Holy Prophet (SAW) of Islam. The Prophet only approved the transaction which was later developed further by his successors.
Al-Aqilah, a doctrine which was founded in the ancient Arab tribes as a tribal custom became the genesis of the modern day’s Islamic insurance. The doctrine, as justified by many encyclopedias, refers to as a mandate that if any member of a tribe kills another member of a different tribe, the heirs of the victim will be paid with an amount of blood money as compensation by the close relatives of the killer.
The relatives of the killer are addressed as Aqila. As noted, the word is an Arabic terminology which means Asaba that denotes paternal relatives of the killer (Billah, undated (d); Swartz & Coetzer, 2010; Isa & Dandago, 2010; and Maiturare, 2009).
Al-Aqilah practice at the time of the Holy Prophet (SAW) marked the second phase of Islamic insurance development. The concept enjoyed the Holy Prophet’s (SAW) affirmation which had resulted in the emergence of the verdict from the Sunnah (tradition of the Holy Prophet (SAW)).
The Sunnah had stated as narrated by Abu Hurairah (R.A) that once there were two women from Huzail tribe who clashed with each other that had led to a death of a pregnant one. Holy Prophet’s (SAW) verdict was sought who said “the compensation of the foetus is this and for a woman is that” as it was fully explained in Sahih Al-Bakhari, Vol. 9, and No 45:34. It was this verdict that had become part of the first constitution of Medina in 622 BC (Farooq – Chaundry, Alam & Ahmad, 2010 and Billah, undated (d)).
In 14th to 17th century, there existed the Sufi order of Kazeeruniyya that had become very active especially in the port cities of Malabar and in China. This Sufi order served as a kind of Marine travel insurance company. It had been associated with the tomb of Abu Ishaq Ibahim Ibn Shahariyalib (963 – 1035:C.E) whose blessings (as people believed) were considered as protection against peril during the sea voyage which meant his blessing had acted as insurance for merchant who travel through sea.
By the 19th century, some Muslim merchant had begun to doubt the validity of this insurance, especially with regard to Islamic injunction. Therefore, they sought for a fatwa (Islamic opinion) of the Hanafi lawyer, Sayed Ibn Abidin (1784-1836) about the validity of Marine insurance under Islamic law.
According to him; “I see that it is not permitted to any merchant to get indemnity for his damaged property against the payment of a certain sum of money known as insurance premium. This is a commitment for what should never be committed to (Farooq, 2010 et al; Al-Ghadyan, 1999; Billah, undated (a); and Khan, 2011).
For many years, the practice of mutual assistance was not made to enjoy commercial connotation as neither profit nor gain or loss was incurred at the expense of others. Rather, it evolved as a useful social insurance practice to mitigate the burden of an individual by dividing it among fellow members.
This resembles the practice of social insurance that is common among Nigerians where in Hausa community, it is called with different names such as Adashi, Zubin Biki, Ajo etc which are collectable by each member periodically or as contribution to assist members in need or to assist members in naming ceremonies, marriage or a member who has suffered a loss (Aliero, 2006; Yusuf, 2009: 36; and Isa & Dandago, 2010).
By 20th century, the two Fatwas of a well-known Islamic jurist, Muhammad Abdul, on the insurance transaction made the practice to enjoy some commercial bearing. He says: the insurance is like a transaction of al-Mudharabah financing technique while life insurance resembles an endowment, which according to him, are legal in Islam (Billah, undated (a)).
A Halal-Haram argument (that is lawful or unlawful) continues among scholars concerning the position of conventional insurance in Islam. By 1976, when the first International Islamic conference on Islamic economics was held in Mecca, Saudi Arabia, the outcome of the meetings was as follows; that all kinds of conventional commercial insurance were declared invalid in Shariah (Hamid & Othman, 2009).
In the modern day context, the practice of Islamic insurance (Takaful) company was founded in Sudan by the Faisal Islamic Bank in January, 1979 and in the same year, Islamic Arab insurance company was established in Saudi Arabia and later in 1980 the same company opened another division in United Arab Emirate (U.A.E). From then, the growth of Takaful has begun to manifest across the world. It is asserted that currently there are more than 130
Takaful companies in operation worldwide. Nearly half are found in Gulf Cooperation Countries (G.C.C) of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. Countries with majority Muslim populations such as Nigeria, Pakistan, Egypt and Bangladesh, the Takaful market take off are at embryonic stage and are almost totally untapped market in which insurance penetration hover somewhere below 2% of their GDP. Globally, it is estimated that the industry is growing at 20% to 25% per annum far outstripping the 2.5% to 5% annual growth for conventional insurance premium. Scholars argue that the Takaful market is now, currently concentrated in Malaysia (since its inception in 1984 to date) and Middle East.
They said that the Takaful industry gained momentum in early 2000 when the Malaysian government promoted it and the significant growth was witnessed thereafter (Swartz and Coetzer, 2010; Jaffer,et al 2010; Ahmad, Masood & Khan, 2010; Khan, undated and, Isa & Dandago, 2010).
However, the concept of Takaful came to be known in Nigeria, somewhere around 2003. This was when African Alliance Insurance Plc introduced its family Takaful products. Then, Cornerstone insurance Plc followed suit by setting up a division called Halal Nigeria Limited which offers general Takaful products into Nigerian insurance market. Niger insurance Plc has later joined the trend.