The first Islamic insurance company was set up in Sudan in 1979. Today there are many Islamic insurance operators in Muslim as well as non-Muslim countries. The main concept of Islamic insurance is that it is an alternative to conventional insurance, with characteristics and features that comply with shariah requirements. This is done by eliminating the objections against conventional insurance. “The term takaful is an infinitive noun which is derived from the Arabic root verb kafal’ or kafala, meaning to guarantee or bear responsibility for.” (Kassar, 2008, p. 26).
The main features of Islamic insurance are:
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cooperative risk sharing by using charitable donations to eliminate gharar and riba;
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clear financial segregation between the participant (insured) and the operator (insurance company);
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shariah-compliant underwriting policies and investment strategies.
Cooperative Risk Sharing
The characteristics of a cooperative include self-responsibility, democracy, equality, equity, solidarity, honesty, openness, social responsibility, and caring for others. While mutuality or cooperative risk sharing is at the core of Islamic insurance, it cannot alone create an Islamic insurance operation. Islamic insurance is based on more than one contractual relationship: The first relationship is a mutual insurance contract between policyholders (contributors) and each other. This is similar to a pure mutual insurance relationship, taking into consideration the concept of donation (tabarru) instead of premiums and an ethical framework of Islamic transactions. The main features behind cooperative insurance are:
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