Co-Operative Insurance and Takaful
Cooperative Insurance and
Takaful
Takaful Forum July 20-21 2005
Overview of presentation
• Cooperative and mutual insurance principles
• The global cooperative and mutual movement
• Similarities and differences with Takaful
• Opportunities for collaboration
Cooperative definition
”A cooperative is an autonomous association of
persons united voluntarily to meet their common
economic, social, and cultural needs and
aspirations through a jointly-owned and
democratically controlled enterprise”.
Source: International Cooperative Alliance (ICA)
Cooperative/mutual values
• Self-help, self-responsibility
• Democracy, equality, equity
• Solidarity
• Honesty, openness
• Social responsibility, caring for others
Cooperative principles
• Voluntary and open membership
• Democratic member control
• Member economic participation
• Autonomy and independence
• Education, training and information
• Cooperation among co-operatives
• Concern for community
Source: International Cooperative Alliance (ICA)
Cooperative v Mutuals
Cooperative principles Mutual principles
Open and voluntary membership Free association
One member, one vote User must be member
Limited interest on shares "Not for profit”
For the benefit of user-members Quality products
Cooperative education Personal development
Cooperation among cooperatives Solidarity
ESTIMATES
Worldwide importance of mutual insurers, 2001
Percent of total premiums
100% = 2416 bio USD
USAUnited States of America
32
EUR
21
CAN
25 19
JAP
16
KOR
14
Source: Swiss Re for worldwide total premium; ICMIF
VERY ROUGH
Europe, importance of mutual insurance sector*, 2002 ESTIMATES
Percentage of gross direct domestic** premium •Mut + Coop +
Joint Stock
written •Mut + Joint
Stock
Finland ~69 Luxembourg ~16 •Coop + Joint
Stock
Sweden ~45 Netherlands ~15
France ~40 Belgium ~15
Germany ~30 UK ~12
Austria ~22 Italy ~12
Slovenia ~21 Ireland ~8
Spain ~20 Hungary ~8
Czech Rep. ~17 Denmark ~8
* Mutual and cooperative insurers; mutual insurers controlled by mutual holding
** Except Luxembourg and Ireland: domestic and foreign
Source: National supervisory authorities; Industry associates; Company websites / annual reports, AISAM and ACME analysis
Similarities and differences
between Cooperative
Insurance and Takaful
Cooperative/mutual values
• Self-help, self-responsibility
• Democracy, equality, equity
• Solidarity
• Honesty, openness
• Social responsibility, caring for others
Principles of Takaful
• Solidarity and joint guarantee
• Self reliance and self sustaining for community well being
• Assist those that need assistance
• Community pooling system
• Shari’ah approved investments and products
“Bear ye one another’s burden”
Fiqh Academy Resolution 1985
• Commerical insurance is prohibited
• Alternative contract confirming to principles of Islamic
dealings is the contract of cooperative insurance, which is
founded on the basis of charitable donation and Shariah
compliant dealings
Takaful model in Sudan
• Surplus belongs to policyholders
– proportionally distributed
– special reserve
– invested on behalf of policyholders
• Policyholders represented on the board of directors
• Shareholders share of investment income
Differences between
Cooperative and Takaful
• Takaful is not insurance
• Shariah compliant investments and products
• Sharholder surplus participation
• Shareholder governance
”A cooperative and mutual scheme providing
Shariah approved products and investments
is permissible under Islamic Law”.
Opportunities for
Collaboration
Technical Cooperation
• Industry development
• 13 Takaful companies are members ICMIF
• Takaful Network
• Takaful Xchange
• Policyholder participation
• Disseminating information www.icmif.org/takaful
Retakaful
• Preferred reinsurance is proportional (quota share or
surplus)
• Non proportional permissible on a strict profit commission
• If takaful reinsurance is unavailable then it is permissible to
use a conventional reinsurer
Reinsurance capacity
“If there is a need to turn to the conventional
reinsurance market then the Takaful
operator should first try and obtain coverage
from the cooperative and mutual
reinsurance sector.”
Takaful for the low-income
sector
Can insurance assist poverty
alleviation?
• The poor are the most vulnerable
• The impact of losses are more severe
• They have minimum means of recovery
• Success of microfinance schemes show the poor can and
want to save
• Savings and credit are used unproductively
• The poor need a safety net to escape poverty
“Insurance is recognized as an
important tool for poverty
alleviation”
Providing microinsurance
The challenges
• Coverage
• Regulation
• Moral hazard and Fraud
• Adverse selection
• Education and trust
• Technical expertise
• Affordability
• Retention
• Sustainability
Providing microinsurance
The possibilities
• The cooperative microinsurance model
History of organising the poor
Operate for the interest of members by
members
Trust
Ownership and loyalty
Peer pressure
Surplus reinvested or redistributed
Providing microinsurance
The possibilities
• The partner agent model
No-risk fee for microinsurance provider
Better coverage for policyholder
Access to new market
Pooling of risks between informal and formal
sector
Providing microinsurance
The possibilities
• The donor agent model
Access to expertise
Financial sustainability
Guiding hand
The need in Muslim countries
• Social services inadequate or unavailable
• Large sectors of poverty in many Muslim countries
• Over half of world’s lowest developed countries have a
majority Muslim population
• Increasing inequality in Middle East and Gulf countries
“Takaful is the second most important social
institution to counter poverty and
deprivation”
Omar Fisher,1999
How can microtakaful be
provided?
• Establish informal cooperative microtakaful schemes
• Encouragement of pro-poor organisations
• Education of government and donor agencies
• Involvement of Takaful sector
Technical expertise
Financial assistance
Partner-agent model
Takaful in Non-Muslim
countries
Takaful in Non-Muslim Countries
Is there a need?
Country Est. Muslim Country Est. Muslim
population population
Argentina 800,000 Italy 600,000
Brazil 1 million Japan 1.3 million
Canada 500,000 Kenya 8.4 million
France 4.8 million Netherlands 500,000
Germany 3 million UK 2 million
Takaful in Non-Muslim countries
Is there a need?
• Fasting growing immigrant population
• Belief in will of God
• Acceptance that insurance is not allowed
• First and second generations are purchasing insurance
• Increased availability of information
• Development of Islamic financial sector
Takaful in Non-Muslim countries
The challenges
• Dispersed population
• Capital requirements
• Regulation
• Awareness
• Credibility
• Technical expertise
Ruling by the European Council of Fatwa
and Research
“… It is well known that in most non-Islamic countries there
are cooperative and mutual insurance companies. There is
no harm from the Shari`ah point of view to participate in
these services. So, it is unlawful for a Muslim living in a
country where there is such a cooperative insurance
company to make an agreement with a commercial
insurance company…..”
Ruling by the European Council of Fatwa
and Research
Muslims are directed to purchase their statutory
insurance requirements from the cooperative and
mutual insurer if there is no Takaful company in the
country
The case of Folksam - Sweden
• 350,000 Muslim population
• Fastest growing immigrant community
• Collaboration with Swedish Muslim Council
• Marketing of Folksam products through
representatives of Council in communities and
mosques
• Insurance committee has been established
The Possibilities in Non-Muslim countries
There is a growing awareness and demand for Islamic
financial instruments including insurance in non-Muslim
countries. There is a great potential for established
financial institutes to set up Takaful windows. In particular
the Shari’ah ruling presents an opportunity for cooperative
and mutual insurers to penetrate this niche market with
minimal costs.
Conclusion
“The Takaful sector is experiencing phenomenal growth
and is facing a multitude of challenges and issues in
its present development cycle. The similarities in
principles with the established cooperative and mutual
insurance sector provides an opportunity for
cooperation which will benefit existing and potential
policyholders in the Muslim world”
Thank you
www.icmif.org/takaful
