GOROOT – Getting to know Sharia Insurance, Islamic financial products are now increasingly diverse. There are also more and more enthusiasts of Islamic financial products. The large Muslim population in Indonesia is a strong asset for the Islamic finance industry to attract consumers.
Sharia financial products include sharia savings, sharia deposits, sharia financing, sharia shares, sharia mutual funds, and sharia insurance.
One of the Islamic financial products that are increasingly in demand is sharia insurance. What is sharia insurance? How is it different from conventional insurance? What is the fatwa on which it is based? Let’s look at the following explanation.
In simple terms, sharia insurance is an insurance service that is managed based on sharia principles. In Indonesia, the Indonesian Ulema Council (MUI) has released a sharia insurance fatwa under Number 21/DSN/MUI/X/2001 concerning General Guidelines for Sharia Insurance.
In the fatwa, Sharia insurance (or referred to as ta’min, takaful or tadhamun) is an effort to protect and help each other among a number of people/parties through investment in the form of assets and/or tabarru’ which provides a pattern of returns to deal with risks. certain through a contract (engagement) in accordance with sharia
In simple language, sharia insurance is an effort to help each other between policyholders (participants) which is carried out by collecting tabarru funds , which provide a pattern of returns in the face of certain risks through sharia contracts.
This tabarru fund is only used for four things, namely ujrah, insurance compensation or risk claims, paying for reinsurance, and underwiring surplus.
Sharia insurance uses the principle of risk-sharing where the risk of one person is passed on to all people who are policyholders. This is different from conventional insurance which uses a transfer of risk system, where the risk from a policyholder is transferred to the insurance company.
This means that sharia insurance companies actually play a role in managing operations and investments from a number of funds received from policyholders. In contrast to conventional insurance, which has a role as a risk-taker.
The contract used in sharia insurance uses the principle of mutual assistance between policyholders and representatives or cooperation of policyholders with sharia insurance companies. Meanwhile, the contract used by conventional insurance is based on the principle of exchange (buying and selling).
Actually, both conventional insurance and sharia insurance have their own pluses and minuses. Therefore, the determination in choosing insurance products returns to the tastes and beliefs of consumers. Of course, tailored to the needs and financial capabilities of consumers. We have reviewed more deeply about sharia insurance in the following article: Sharia Insurance in a Pandemic entanglement.
Difference between Sharia and Conventional Insurance
In addition to the basic differences in terms of management, other differences between Islamic and conventional insurance include the following:
1. Contract / Agreement / Akad
The contract alias contract in sharia insurance is a grant contract (type of tabarru contracts) as a form of ta’awun or help. This principle of helping each other is what we call risk sharing, aka sharing the risk between fellow participants.
While in conventional insurance, the contract of coverage is held by the insurance company as the insurer and the policyholder as the insured.
2. Fund Ownership
In Islamic insurance, the ownership of funds is collective or joint. If there are participants who experience a disaster, such as an accident, illness, or death, the other participants will help by providing compensation through the tabarru fund pool. Again, this principle is what we call risk sharing.
The above certainly does not apply to conventional insurance where the insurance company fully manages and determines customer protection funds from monthly premium payments.
3. Underwriting surplus
The underwriting surplus is the excess (positive) difference from the underwriting risk management of the tabarru fund which is reduced by the payment of compensation, reinsurance and technical reserves. The number is calculated in a certain period.
In sharia insurance, this underwriting surplus is distributed to all participants in accordance with existing regulations and the agreed contract.
Whereas in conventional insurance, there is no term underwriting surplus. In conventional insurance, profits are the property of the insurance company and there is no distribution to insurance participants.
4. Has a Sharia Supervisory Board
The existence of a sharia supervisory board functions to ensure that all sharia principles run well. This does not exist in conventional insurance.
5. Not Doing Prohibited Transactions
As the name implies, of course, sharia insurance does not carry out transactions that are prohibited by Islam, such as elements of maysir (chance), gharar (obscurity), and usury and risywah (bribes).
Sharia insurance products are certainly halal because investments in the form of tabarru are carried out according to Islamic sharia. So that the investment portfolio only involves sharia instruments.