takaful(islamic insurance); comparative study on conventional insurance and islamic insurance

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TAKAFUL – ISLAMIC INSURANCE

Comparative Study of Conventional

Insurance and Islamic Insurance

A project report submitted to the

Department of Management and Commerce

In partial fulfillment of the requirement of the award of the degree

Of

Master of Business Administration

Under the Guidance of

Dr. S.K Safiuddin

Assistant Professor at Department of Management and Commerce

Submitted by:

MISAB P.T

Enrollment No: 130301-0343

2013-2015

A Comparative study of conventional insurance and Islamic Insurance

TAKAFUL (Islamic Insurance)


TAKAFUL (Islamic Insurance);


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3






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ACKNOWLEDGEMENT

First of all I humbly express my heartfelt gratitude to Almighty

Allah without whose will and wish this project report would have not

been possible.

My sincere thanks and deep sense of gratitude to honorable project

guide Dr. S.K Safiuddin for the kind encouragement and constant

support extended in completion of this project work.

I wish to thank the management of Apollo Munich Health

Insurance for their kind gesture of following me to undertake this

project, and its various employees who lent their helping hand towards

the completion of this study.

I am also thankful to all my friends and family who have

incidentally helped me, through their valued guidance, cooperation and

unstinted support during the course of my project.

MISAB P.T

130301-0343



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CONTENTS

CHAPTERS

Chapter -1:

INTRODUCTION………………………………………………01

1.1 Executive summary

1.2 Significance of the study

1.3 Introduction

Chapter- 2:

RESEARCH METHODOLOGY................................................18

2.1 Objective of the study 2.2 Methodology of the study 2.3 Scope and limitation of the study 2.4 Review of Literature

Chapter-3:

PROFILE OF THEORGANIZATIONS…………………...….24

3.1 Industry profile of Conventional Insurance 3.2 Company Profile (Conventional Insurance) 3.3 Industry profile of Takaful Insurance 3.4 Company Profile (Takaful Insurance)

Chapter-4:

COMPARATIVE ANALYSIS…….……...................................40

4.1 Islamic Insurance (Takaful) and Conventional Insurance - A Comparison 4.2 Data Analysis; SALAMA and Apollo Health Insurances 4.3Findings

Chapter-5:

CONCLUSION………………………………………………....68 5.1 Suggestions 5.2 Conclusion 5.3 References 5.4 Annexure



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CHAPTER -1

INTRODUCTION TO THE TOPIC

• Executive Summary

• Significance of the study

• Introduction



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Executive Summary

Takaful is Islamic Insurance which is the most appropriate substitute of the

conventional insurance for individuals and financial institutions. It is based on the

concept of cooperation and mutual assistance which is supposed to function in line

with principles of Islamic Law (Shari’ah). Takaful is being widely used by several

banks all over the world to assist their customers who are paying attention to have

better insurance coverage under Islamic features of insurance.

There are several studies which describes the difference between Takaful

insurance and conventional insurance. Most of the conducted research focused either

on theoretical aspects of Takaful Insurance or comparative analysis between Takaful

companies itself except few comparative studies between two industries in a whole.

This study is based on explorative analysis of Takaful insurance and

conventional insurance where it distinguishes by an attempt to analyze Takaful Health

insurance in comparison with conventional health insurance. The purpose of the

current study is to establish Takaful is a viable alternative and is more preferable than

conventional insurance by exploring the factors like methods of operation,

governance, profit sharing mechanism, risk assurance, responsibility and role of

policy holders, extend of benefits, coverage, premiums, regulations and conditions.

The data has been taken from official websites and brochures of two leading

insurance companies operating in Takaful industry (namely SALAMA-Islamic Arab

Insurance) and conventional health insurance for conducting this study.

My study begins with an introduction to concept of insurance its origin,

development and general principles followed by description of concept of Takaful

insurance, its meaning, origin, evolution as an alternative to conventional insurance

in late 19th century and operational mechanisms applied. The second chapter consists



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of methodology of research, objectives, scope and limitation and review of previous

studies in areas related to the topic. The third chapter gives a consolidated description

of industry profiles and company profiles of conventional and Takaful insurances.

The final chapter analyzes conceptual and operational differences between Takaful

insurance and conventional insurance which is followed by comparative study of

health insurance services offered by companies from both Takaful and conventional

industry.

The overall result shows that Takaful Health Insurance Company performs

well and is more preferable and equitable than conventional insurance from the aspect

of benefits and coverage, social wellbeing and solidarity. Hence it is observed that

Takaful products are enough capable of being a good alternative and competitive

opponent in insurance industry.



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SIGNIFICANCE OF THE STUDY

This study is important in following aspects in the current world of

globalization and industrialization. Everyone is exposed to possibility of risk and

disasters and hence they are enforced to have insurance coverage throughout the life.

But conventional form of insurance is not acceptable for religious people especially

followers of Islam due to involvement of elements that are prohibited by Islamic laws

(Shari’ah), such as interest (riba), gambling (maisir,) uncertainty (Gharar). An

alternative form of insurance called Takaful (Islamic Insurance) has come into

existence in Middle East, Saudi Arabia and Malaysia and many European countries

like Britain, Germany and Switzerland. In recent years the Takaful industry has

experienced continued strong double digit growth.

However this Takaful insurance is not available in India where 10% (177

million) of the world’s Muslim population inhibits1. And a considerable number

Muslims had been reluctant to purchase interest bearing insurance policies and were

keeping aloof from doing business with present financial system due to their faith in

Islam prohibits the use of financial instruments that pay interest. The non availability

of Islamic financial instruments here resulted in Indian Muslims financial exclusion

and backwardness. The Rajeender Sachar committee report revealed that on many

aspects Indian Muslims are behind even the SC/ST community in terms of economic

well-being. And according to the report 80% of country’s population does not have

any kind of insurance coverage2.

Therefore there is a need to introduce Islamic insurance in India. With its

implementation, the Government’s 12th five year plan mission which emphasis

financial inclusion of disadvantaged minorities could be achieved and realized3. This

may a vital instrument for inclusion of Muslims in the mainstream financial system. It

will help in bringing the huge assts (estimated to about $1.5 trillion) controlled by

1Muslim Population in India, http://www.indiaonlinepages.com/population/muslim-population-in-

india.html 2 Rajinder Sachar Committee Report, 30.November.2006

3 12th Five Year Plan of the Government of India (2012–17)



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Indian Muslims to the Indian mainstream economy. This will also give access to

substantial sources of savings and investments from other countries especially from

Middle East. Moreover, the introduction of Islamic insurance (Takaful) can make

insurance sector services affordable to poor Indians and improve social solidarity and

mutual cooperation among citizens of Country.

The major hurdle ahead of introducing Islamic insurance in this country is lack

awareness regarding Islamic financial instruments. Second challenge is that the

current insurance law does not allow incorporation of Takaful insurance system which

is totally deferent from pattern of conventional insurance. Some sort of early

initiatives and discussions to solve this systematic problem are under process.

The present study is confined to insurance sector with special reference to

Islamic concept of insurance called Takaful. A comparative study between

conventional insurance and Islamic insurance has been conducted. India being the

second largest in Muslim population in the world doesn’t have Takaful as an

alternative scheme. Introduction of this would definitely attract a lot of people and

help in inclusion of Muslims in India in Mainstream insurance. There is need to assess

the present insurance sector reforms with reference to both conventional and Islamic

insurance. This study also become notable as it tries to find out impact of different

insurance systems on social integrity and cultural solidarity. It also identifies that

insurance is not an exploiting corporate business but it is social institutional set up for

the sake of security and brotherhood of whole society. This is kind system can be

enjoyed by all citizens regardless of their cast, religion and regions.



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INTRODUCTION TO INSURANCE

Meaning and Definition

According to the human history, the insurance appears simultaneously with

the appearance of human society. Basically, ‘a form of people helping each other

inside their community when catastrophes occurred is’ called insurance. The concept

of insurance has been interpreted in different ways through its developmental stages.

In modern percept it is defined as ‘the act whereby for a consideration, the premium,

one party the insurer, binds himself in a contract, the policy, to indemnify of or

guarantee another, the insured, against loss through the happening of a specified

contingency, the risk’4. It is a contract of transferring risk of loss or damage, caused

by events beyond the control of the human beings, from one entity to another in

exchange for an initial payment.

From objective analysis we can find a great disparity between insurance in its

earliest forms and insurance as it has developed in the course of time. In its inception

it is a mutual institution to meet the actual loss when it occurs but in its development

it is a devise to cover the chances of loss, i.e. risks which are abstract and

indeterminate. ‘The term insurance in its real sense, is community pooling, to

alleviate the burden of the individual, lest it should be ruinous to him’5: ‘The simplest

and most general conception of insurance is a provision made by a group of persons,

each singly is in a danger of some loss, the incidence of which cannot be foreseen,

that when such loss shall occur to any of them it shall be distributed over the whole

group’6.

Thus the aim of insurance is to make provision against unforeseen risks and

losses which destroy human life and dealings. It is, in fact, the danger of loss which

makes men seriously think about some safety devices to avoid it. These devices vary

according to the degree of losses. ‘If the loss is foreseeable and small the individual

4 Insurance, in Encyclopedia of Americana, Vol.15, p.181

5 Musleh-ud-din, Insurance and Islamic law, p.3.

6 Insurance, in Encyclopedia of Britannica (11

th edition), Vol. 14, p.656



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may assume it him-self, but the difficulty arise when it is unforeseen and large as it

can neither be prevented nor assumed. On such occasions the individual is completely

destroyed if the assistance of community or group is not forthcoming. For the

community as a whole such a loss will be negligible but the individual will be totally

ruined if exposed to it singly.’7 This is the theoretical background of insurance which

has been devised to meet a loss unknown in time and in amount.

Origin of insurance

The idea of insurance is intimately concerned with the group. In other words

group life is the starting point of insurance but it is still unknown to the world when it

actually started and in what type of group it was developed. Group life, most

probably, begin somewhere in between savagery and barbarianism which were

succeeded by civilization.

In the early civilizations of Egypt and Mesopotamia, men ceased to wander

and settled down in the valleys of Nile and Euphrates, almost unaware all about their

nomadic life. Group life is thus lost in the wider ripples of territorial settled

organization. It is perhaps for this quick transition from totemic to that territorial

organization that we fail to see growth of insurance amidst the men of these areas of

early civilization.

In further investigation of the nomadic groups of early history where insurance

should have taken root we come upon a desert between Egypt and Mesopotamia

which is known as Arabia. People of Arabia were brave, sturdy and warlike with a

strong passion for adventures and plunder which served them to form into a group.

They were often involved in rides and looting. ‘To rob camels, wives and children

from other tribes and to spill as little blood as possible, is Beduin’s ideal life’8. The

booty is divided according to fixed rules. The Shaikh (head of Tribe) receives large

share. On the other hand the loss is born by all men of plundered camp and sheikh is

7 Insurance, in Encyclopedia of Chambers, Vol.7, p.617.

8 De Geoje, Arabia, in Encyclopedia of Islam, Vol.1, p.375



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expected to contribute handsomely. They were united so as to consider loss of

individual member as its own. The unity also takes steps to cover such loss which is

none other than insurance.

The insurance finds its expression in the payment of blood money by the group so as

to lighten the burden of individual member. This assumed the form a custom known

as ‘ma’aqil’ (blood white). ‘The term ma’aqil plural of maaqal is derived from the

word aql. Originally this word was employed in the sense of binding the folded legs

of camel to his thighs’9 and was later applied to the wergild as it has a binding force

upon aqila (those who have to pay it).

The Encyclopedia of Islam explain it as following: Aqila is the name of man’s

male relations who according to the percept of religious law have to pay the penalty

(the akl) for him when unintentionally he has caused the death of a Muslim.

This reflects the original custom of ancient Arabs whereby the whole tribe had

to pay the wergild. It is this community pooling and spirit of mutual cooperation

which has been aptly described as the essence of insurance.

Development of modern contract of insurance

Methods for transferring or distributing risk were practiced by Chinese and

Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.

Chinese merchants travelling treacherous river rapids would redistribute their wares

across many vessels to limit the loss due to any single vessel's capsizing. The

Babylonians developed a system which was recorded in the famous Code of

Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a

merchant received a loan to fund his shipment, he would pay the lender an additional

sum in exchange for the lender's guarantee to cancel the loan should the shipment be

stolen or lost at sea.

9 See Al-Munjid – Arabic Dictionary



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At some point in the 1st millennium BC, the inhabitants of Rhodes created the

'general average'. This allowed groups of merchants to pay to insure their goods being

shipped together. The collected premiums would be used to reimburse any merchant

whose goods were jettisoned during transport, whether to storm or sinkage.

Separate insurance contracts (i.e., insurance policies not bundled with loans or

other kinds of contracts) were invented in Genoa in the 14th century, as were

insurance pools backed by pledges of landed estates. The first known insurance

contract dates from Genoa in 1347, and in the next century maritime insurance

developed widely and premiums were intuitively varied with risks. These new

insurance contracts allowed insurance to be separated from investment, a separation

of roles that first proved useful in marine insurance.

To sum up the modern contract of insurance seems to have its origin in the marine

loans of the Ancient Greeks. The insurance element in Greek loans was formed in the

provision that the security upon which the money was advanced was lost or destroyed,

and then the debt was cancelled.

Modern insurance has retained the characteristics of same old marine loans

with only difference that the insurer or underwriter, in the modern contract, instead of

advancing of the loan before, undertakes to pay it afterwards, in the form of

compensation, on the happening of a specified contingency. The premium of the

modern contract, therefore, represents the high rate of interest of the marine loans of

the past.

GENERAL PRINCIPLES OF INSURANCE

1. Principle of Utmost Good Faith

‘Principle of Uberrimae fidei (a Latin phrase), or in simple english words, the

Principle of Utmost Good Faith, is a very basic and first primary principle of

insurance. According to this principle, the insurance contract must be signed by both

parties (i.e insurer and insured) in an absolute good faith or belief or trust.



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The person getting insured must willingly disclose and surrender to the insurer his

complete true information regarding the subject matter of insurance. The insurer's

liability gets void (i.e legally revoked or cancelled) if any facts, about the subject

matter of insurance are either omitted, hidden, falsified or presented in a wrong

manner by the insured.

The principle of Principle of Utmost Good Faith applies to all types of insurance

contracts.

2. Insurable Interest

Insurable interest is a person’s legally recognized relationship to the subject

matter of insurance that gives them the right to effect insurance on it. Since the

relationship must be a legal one, a thief in possession of stolen goods does not have

the right to insure them.

The principle of insurable interest states that the person getting insured must have

insurable interest in the object of insurance. A person has an insurable interest when

the physical existence of the insured object gives him some gain but its non-existence

will give him a loss. In simple words, the insured person must suffer some financial

loss by the damage of the insured object.

For example: The owner of a taxicab has insurable interest in the taxicab because

he is getting income from it. But, if he sells it, he will not have an insurable interest

left in that taxicab.

From above example, we can conclude that, ownership plays a very crucial role in

evaluating insurable interest. Every person has an insurable interest in his own life. A

merchant has insurable interest in his business of trading. Similarly, a creditor has

insurable interest in his debtor.

3. Principle of Indemnity



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Indemnity means security, protection and compensation given against damage,

loss or injury.

According to the principle of indemnity, an insurance contract is signed only for

getting protection against unpredicted financial losses arising due to future

uncertainties. Insurance contract is not made for making profit else its sole purpose is

to give compensation in case of any damage or loss.

In an insurance contract, the amount of compensations paid is in proportion to the

incurred losses. The amount of compensations is limited to the amount assured or the

actual losses, whichever is less. The compensation must not be less or more than the

actual damage. Compensation is not paid if the specified loss does not happen due to a

particular reason during a specific time period. Thus, insurance is only for giving

protection against losses and not for making profit.

However, in case of life insurance, the principle of indemnity does not apply

because the value of human life cannot be measured in terms of money.

4. Principle of Contribution

Principle of Contribution is a corollary of the principle of indemnity. It applies

to all contracts of indemnity, if the insured has taken out more than one policy on the

same subject matter. According to this principle, the insured can claim the

compensation only to the extent of actual loss either from all insurers or from any one

insurer. If one insurer pays full compensation then that insurer can claim

proportionate claim from the other insurers.

5. Principle of Subrogation

Subrogation means substituting one creditor for another.

Principle of Subrogation is an extension and another corollary of the principle of

indemnity. It also applies to all contracts of indemnity.



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According to the principle of subrogation, when the insured is compensated for

the losses due to damage to his insured property, then the ownership right of such

property shifts to the insurer.

6. Principle of Loss Minimization

According to the Principle of Loss Minimization, insured must always try his

level best to minimize the loss of his insured property, in case of uncertain events like

a fire outbreak or blast, etc. The insured must take all possible measures and

necessary steps to control and reduce the losses in such a scenario. The insured must

not neglect and behave irresponsibly during such events just because the property is

insured. Hence it is a responsibility of the insured to protect his insured property and

avoid further losses.

7. Principle of Causa Proxima (Nearest Cause)

Principle of Causa Proxima (a Latin phrase), or in simple english words, the

Principle of Proximate (i.e Nearest) Cause, means when a loss is caused by more than

one causes, the proximate or the nearest or the closest cause should be taken into

consideration to decide the liability of the insurer.’10

TAKAFUL (ISLAMIC INSURNACE)

Takaful is the Islamic version of conventional insurance. It is based on the

concept of cooperation and mutual assistance, whereby a group of participants agree

to support one another jointly against a specified loss. The participants make

voluntary contributions (Tabarru) to a fund (participants’ fund), which in turn

provides financial aid to those that suffer a loss.

Meaning and Definition

10

Seven Principles of Insurance, http://bit.ly/1Gf5gFe



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The term ‘‘Takaful’ is derived from the Arabic root-word “Kafala”, a verb,

which means guarantee, bail, warrant or an act of securing one’s need. Therefore,

Takaful (in its reciprocal form) means joint guarantee.’11 Takaful is based on Quranic

concept of ta’awun (mutual assistance) as Allah enjoins upon Muslims; “help you one

another righteousness and pious duty, help not one another unto sin transgression but

keep your duty to Allah”. Section 2 of Takaful Act of Malaysia defines Takaful as ‘a

scheme based on brotherhood, solidarity and mutual assistance which provides for

mutual financial aid assistance to the participants in case of need whereby participants

mutually agree to contribute for purpose’.

Takaful differs from conventional insurance in the sense that the company is not

the ‘insurer’ insuring the participants. The persons participating in the scheme

mutually insure one another and this is the very essence of Takaful in Arabic. The

Takaful operator simply handles the matters of investment, business and

administration.

In terms of operation Takaful may operate on either commercial or cooperative

basis. In cooperative or mutual Takaful model Takaful Company is part and parcel of

participants. The participants themselves elect a board of management, to manage the

insurance and invest the fund, against a fee for their professional services. All the

profit of surplus, if any, will be put into the fund to be distributed among the

participants proportionately. In commercial Takaful, Takaful fund is managed and

invested by a commercial and corporate body that does not belong to participants. The

whole purpose of business is to earn an underwriting surplus plus other revenues from

investment whereby this surplus will be shared between the company and participants.

Development of Takaful

The practice of Takaful can be traced to the second century of the Islamic era

when Muslim Arabs, while expanding their trade into Asia, mutually agreed to

contribute to a fund to protect themselves in the event of mishaps or robberies along

their numerous sea voyages (marine insurance).

11

Engku Rabiah Adawiah, E.A, (2008). Essential Guide toTakaful (Islamic Insurance),p.03



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‘The development of Takaful in modern times was theoretically initiated by Ibn

Abidin, a lawyer and Islamic jurist who looked into the concept of insurance. He

looked at marine insurance as it was the first form of insurance that came into being in

Islamic countries. Similarly, Muhammad Abduh, another Islamic jurist, issued two

fatwas permitting insurance practice. The first of two fatwas, looked at insurance

transaction as that of Mudaraba financing. While the second stated that the transaction

which is similar to endowment or life insurance is legal.

Practical efforts towards institutionalizing Takaful were made by Sudan in 1979

and Malaysia in 1984. But the major role in the development of Takaful was played

by the declaration of Grand Counsel of Islamic Scholars in Makkah, Saudi Arabia and

Majma Al-Fiqh in 1985 when the

conventional commercial insurance was declared Haram (forbidden) and only

insurance based on the application of Shari’ah-compliant cooperative principles and

charitable donations, was declared Halal (permissible)’12.

Takaful Operational Mechanisms

1. Mudarabah Model

In a Mudaraba model, the Takaful operator acts as a mudarib (fund manager) and

the Tabarru Fund / Takaful Fund as Rab al Mal (capital provider). The surplus or

profit derived from the operations of the Takaful fund investments are shared between

the operator and the Tabarru Fund / Takaful Fund in the pre-agreed ratio. Any losses

or deficits if incurred are borne solely by the Tabarru Fund / Takaful Fund (as rab-al-

maal). The operator (as mudarib) is not entitled to receive any salary for its efforts

except the profit share. The Takaful operator as Wakil (Agent) has responsibility to

allocate or distribute the profits to the participants of the fund on the basis of their

contributions and in accordance with the terms of the Takaful contract.

12

Marifa's-Practical-Guide-to-Islamic-Banking-and-Finance, Chapter 8, p.187



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This model is designed on the basis of wakala contract. Wakala can be defined as the

delegation of one person (the principal) for another (the agent) to take the person’s

place in a known and permissible dealing.

2. Wakala Model

In this type of model, the Takaful operator acts as the agent on behalf of the

participants to establish the Takaful / Tabarru Fund which is also the case in the

Mudarba model. However, for the investment of the fund, the operator acts as an

Agent (Wakil) of Tabarru / Takaful Fund. The operator is paid a pre-agreed

management fee for the services rendered. The profit and the losses derived from the

operations of Takaful fund and the investments belong to Tabarru / Takaful Fund

only.

3. Waqaf Model

This model is designed on the basis of waqaf. ‘Waqaf’ means ‘as if it were owned

by God’. In its application, the Takaful waqaf fund is owned by God and the

participants have no ownership on the amount contributed to the waqaf fund.

The beneficiaries or participants become members of the Takaful Waqaf fund by

subscribing and paying the donations as Tabarru. An operator is appointed as a Wakil

or mudarib to manage the fund and paid a Wakala fee or profit share as per

predetermined ratio. The participants can only claim the damages of loss from the

fund and are not entitled to any surplus. The surplus or profits arising from the

operations of the fund or from the investment would remain in the fund itself.

4. Hybrid Model

Hybrid model is the combination of both Wakala and Mudaraba models. In this

model, the participants and the fund operator sign two contracts, i.e. wakala and

mudaraba. The fund operator as per the Wakala contract is entitled to a wakala fee

from the contribution paid by the participants and is also entitled to the predetermined

percentage share of profit realized from the part of contribution amounts that is

invested in any Shari’ah-compliant business. It is to be noted that the fund operator



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does not share the reserve amounts of the part of the contributions that remain after

paying the claims.

BASIC CONCEPTS OF TAKAFUL

Takaful Contribution:

It is the amount, which the participant donates, along with its related profits,

for the benefit of the Takaful scheme.

Takaful Amount:

It is the amount paid by the company out of the Takaful account at the

occurrence of the risk insured.

Risk Insured Against:

It is the probable, legally acceptable, accident. In other word risk is the

uncertain event caused by peril (that may be coupled by hazard), the result of which is

the loss. There are two types risks pure risk and speculative risk. Under conventional

insurance speculative risks are not insurable due to chance of gambling. On contrary

to this all types of risks are insurable from Islamic point of view. As the Takaful

contract is meant to provide mutual help and assistance to face a loss resulted from a

risk be it pure or speculative. And the argument that speculative risk is identical to

gambling is not valid. Because the risk in gambling and speculation are not similar;

gambling creates risk in order to gain while actions of speculative risk carry the risk

that is integral to them.

Takaful Participant:

Participant is a person who accepts the Takaful scheme, signs the related Takaful

policy and undertakes to observe its consequent commitments. It may be referred to as

the insured, the insured for and the policyholder.

Takaful Account:

It is the account established by the company by virtue of its articles of

association, to accommodate the contribution of the participants and the returns



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thereon as well as the reserves. Such account has an independent financial liability

towards its own claims and commitments, though it is represented by the company for

its all affairs. This account is also known as the Takaful fund, the policyholders

account or the portfolio of the participants group.

Takaful Surplus:

The surplus comprises residual contribution of the participants (the insured) in

addition to the reserves and profits, after deducting all expenses and indemnity

amounts (paid or payable during the same year). The residual amount, thus computed,

is considered as surplus, rather than profit.



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CHAPTER-2

RESEARCH METHODOLOGY

• Objectives of the study

• Research questions

• Methodology of the study

• Scope of the study

• Review of Literature



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OBJECTIVES OF THE STUDY

The objectives of the study are:

1. To examine major differences between Takaful insurance system and

Conventional insurance system.

2. To compare insurance policies, coverage, benefits offered by Apollo Munich

Health Insurance Company and Salama Islamic Arab Insurance Company.

3. To compare both the insurance systems with reference to select factors.

4. To create awareness to public about the benefits of Islamic insurance policies

over conventional insurance.

RESEARCH QUESTIONS

The study address following research questions to examine through analysis. The

questions are:-

Why Islamic insurance is needed, while there is conventional insurance in

market?

What is Takaful insurance? How Takaful Insurance can be differing through

Conventional setting?

Why people go for Takaful insurance?

What are the main attributes and competitive advantages that a Takaful

company enjoys aloof from conventional insurance company?

METHODOLOGY OF THE STUDY

The research methodology used for this study is “Exploratory” in nature.

Exploratory research is defined as the initial research into a hypothetical or theoretical

idea. This is where a researcher has an idea or has observed something and seeks to

understand more about it. An exploratory research project is an attempt to lay the

groundwork that will lead to future studies, or to determine if what is being observed

might be explained by a currently existing theory. Most often, exploratory research

lays the initial groundwork for future research



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In this research it is being explored underlying principles and prospects of

Takaful insurance which makes it more preferable than conventional insurance

system, in order to create awareness for people of India especially for Muslim

minorities affected by financial exclusion, about this fast growing Islamic cooperative

insurance system.

Sources of Data

The data has been collected from different secondary sources including

different research papers, published articles and journals, broachers and official

websites of leading Takaful insurance and conventional insurance companies.

SCOPE OF THE STUDY

Scope of this study is confined to comparative study between Takaful system

and Conventional insurance system with reference to Salama and Apollo companies.

It explores the underlining concepts of conventional insurance and Takaful insurance.

And analyses how Takaful contributes to social cooperation, solidarity and security.

REVIEW OF LITERATURE

Tahira & Arshad conducted a Comparative study on performance of Islamic

and conventional insurance companies in Pakistan. The data from 4 Takaful and 15

conventional insurance companies have been taken from the year 2008 to 2011.

Descriptive statistics and Anova analysis are applied on the data to find out the

performance of insurance companies. The liquidity ratio, risk and solvency ratio and

capital adequacy ratio gives the significant results of the p value and the profitability

result is not significant. The other aspect of this research paper also discussed the

difference between the Islamic and conventional insurance companies. Islamic

insurance company saves themselves from the catastrophe by not using the Riba that

is the main exploitive factor in the conventional insurance company’s financial crises.

(Hafiza Tahira and Zeeshan Arshad (2014)

Khan et al (2011) also presented a comparative study on Islamic and

conventional insurance according to the criteria of Islamic principles. He tried to find



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out whether Islamic insurance can overcome the conventional insurance system.

Results concluded that Islamic insurance is more suitable and preferable in the world

especially in Muslim countries. The chances of risk and uncertainty are very less in

Islamic insurance system due to its interest free system. This Islamic system prevents

the industry from the major global financial crises. (Khan et al, 2011).

Muhammad Ayub describes in his literature about the Takaful insurance and

presents the Takaful as a substitutive of the conventional insurance system. He

defines the Takaful as an insurance system in which people acts as a group of people

who agrees to jointly cover the loss that may inflict upon any of them, out of the fund

they denote collectively. According to him Takaful companies undertake only

Shari’ah compliant business and profits of Takaful insurance companies are

distributed according to pre agree ratio. Researcher has also defined the operating

models of Takaful that are Mudharbah model, Wakalah model and Wakalah Waqf

model. (Muhammad Ayub).

Noreen and khan conducted research that’s objective was to compare the

efficiency analysis of conventional insurance and Takaful insurance within Pakistan.

For this purpose data had taken for the period of 2006 to 2009. Non-parametric

technique was used that’s based on empirical testing and Malmquist productivity

index. DEA applied to estimates the technical, allocate the cost efficiencies. Empirical

findings showed that conventional and Takaful insurance remained cost inefficient.

For Takaful insurance Malmquist productivity index showed significant improvement

in scale efficiency. (Noreen and khan).

Moghadam et al (2012) conducted research on comparing the performance of

insurance companies in Iran from the month of March to December 2011. According

to them measuring the performance is compulsory to gain competitive advantage in

the market and to identify the top competitors for the sake of promotion in insurance

companies. Descriptive statistics and ANOVA used to compare the compensation

ratio and the growth rate of manufacturing premium among the insurance companies.

Data collection sources were library, computer networks and data base. On the base of



28

Anova results concluded that insurance companies had significant difference in terms

of performance. (Moghadam et al, 2012).

Norma Md. Saad tried to find out the efficiency of Takaful and conventional

insurance in Malaysia for the period of 2007 to 2009. Twenty eight insurance

companies were taken in which six were Takaful of the 28 companies. Data

envelopment analysis was used to measure the efficiency. In data envelopment

analysis Malmquist index was used. Two inputs and outputs were considered to

investigate the efficiency. Input includes commission and management expenses;

output includes premium and net investment income. Results concluded that overall

efficiency of Takaful insurance companies below the conventional insurance

companies. From the six Takaful insurance companies only one company showing

higher efficiency above the industrial average. (Norma Md. Saad).

Swartz and Coetzer (2010) prioritized the Takaful insurance company on the

conventional insurance company. According to them conventional insurance company

based on interest, gambling and uncertainty while Takaful insurance runs their

operations on the principles of Supervisory Shari’ah board. They consider Takaful

insurance as an Islamic way of mutual assistance to deal with uncertainties of life.

The objective of the research was to provide the awareness about Takaful insurance

that was very low, and to remove the misconception that the Takaful insurance is just

for Muslims. The structure of the Takaful insurance was not based on profit models

but it totally differs. Company is just managing the funds; there is separation between

the participants and shareholders’ funds. (Swartz and Coetzer, 2010).

Yon Bahiah Wan Aris researched that the first Takaful company introduced in

Malaysia in 1984 with the order of prime minister Tun Mahathir Muhammad. This

Takaful company provides services that confirms with the Islamic principles. This

research paper tried to provide know how about the operations, mechanism and also

on the concept of Islamic Takaful insurance that how it differs with conventional

insurance. To accumulate the results researcher applied regression analysis based on

empirical analysis. He has taken the macro level variables of zakat, GDP,



29

employment opportunities and inflation. Results concluded that zakat and

employment opportunities showed the profitability of the general and family Takaful

insurance while GDP and inflation does not shows significant effectiveness of

profitability. (Yon Bahiah Wan Aris).

Matsawali et al (2012) describes in their research paper that Takaful insurance

system based on Islamic principles that are mutual assistance and voluntary

contribution. The research objective was to know the public preference and

understanding between the conventional and Islamic insurance in Brunei. For this

purpose a survey was conducted in which questionnaire based on 3 sections,

demographic section, respondents preferences between Takaful and conventional

insurance products section and the last one section about the respondents

understanding about the Takaful. Primary data were taken from the survey and

secondary data were from journals, published articles, and Takaful companies.

Results concluded that people preferred to Takaful because to Islamic insurance but

they have limited awareness about the Takaful. (Matsawali et al,2012).



30

CHAPTER -3

PROFILE OF THE ORGANIZATIONS

• Industry profile of Conventional Insurance

• Company Profile (Conventional Insurance)

• Industry profile of Takaful Insurance

• Company Profile (Takaful Insurance)



31

INDUSTRY PROFILE

The insurance industry of India consists of 52 insurance companies of which

28 are non-life insurers and 24 are in life insurance business. Among the non-life

insurers there are six public sector insurers. In addition to these, there is sole national

re-insurer, namely, General Insurance Corporation of India. Other stakeholders in

Indian Insurance market include agents (individual and corporate), brokers, surveyors

and third party administrators servicing health insurance claims.

‘Out of 28 non-life insurance companies, five private sector insurers are

registered to underwrite policies exclusively in health, personal accident and travel

insurance segments. They are Apollo Munich Health Insurance Company Ltd, Star

Health and Allied Insurance Company Ltd, Max Bupa Health Insurance Company

Ltd, Religare Health Insurance Company Ltd and Cigna TTK Health Insurance

Company Ltd. There are two more specialized insurers belonging to public sector,

namely, Export Credit Guarantee Corporation of India for Credit Insurance and

Agriculture Insurance Company Ltd for crop insurance’13.

Market Size

‘India's insurance sector is among biggest in the world with about 36 crore

policies which are expected to increase at a compound annual growth rate (CAGR) of

12-15 per cent over the next five years. The insurance industry plans to hike

penetration levels to five per cent by 2020, and could top the US$ 1 trillion mark in

the next seven years. The total market size of India's insurance sector is projected to

touch US$ 350-400 billion by 2020 from US$ 66.4 billion in FY13’14.

Health Insurance Sector

The policies in this sector provide benefits packages that policyholders pay a

premium to enjoy. Health insurance has gone through some major overhauls,

13

Indian brand equity foundation, www.ibef.org/industry/insurance-sector-india.aspx 14

Ibid. ibef



32

including the replacement of fixed-fee Blue Cross Blue Shield-inspired policies with

managed care networks. The life insurance business is experiencing slow growth, and

life insurance companies are likely to be merging with banks and securities firms.

Property and Casualty Insurance

The focus in this sector is on protection for owners of cars, homes, and

businesses from loss, damage, and injury. Competition is fierce in this sector, and

profits are falling. Only the strong will survive as weaker companies continue to tank

and even more secure ones sell off this line.

Insurance Brokers

Brokers act as go-betweens, uniting buyers and sellers of insurance and

creating the contracts that bind them. Furthermore, they play the role of risk

consultants for large clients, researching industry information to advise companies on

managing risk exposure.

Reinsurance

In the simplest terms, reinsurance is the insurance of insurance companies.

Insurance companies pay reinsurers to assume some or all of the risk the insurers have

taken on in writing policies for their clients. Insurers use reinsurance to protect against

the risk of unusual losses. Reinsurers write reinsurance because their business allows

them to pool enormous numbers of individual insurance risks, making their risks even

more predictable than the risks faced by primary insurers.



33

COMPANY PROFILE:

APOLLO MUNICH HEALTH INSURANCE CO. LTD.

Company Overview

Apollo Munich Health Insurance Company Limited (launched as Apollo

DKV) is a joint venture between Apollo Group of Hospitals and Munich Health, one

of Munich Re’s newest business segment, established in 2007 for providing

healthcare solutions. The company has its registered office in Jubilee Hills,

Hyderabad, Telengana. Apollo DKV rechristened itself as Apollo Munich in 2009.

Apollo Hospitals was established in 1983 to provide private healthcare in

India. At present, Apollo hospitals are present in 120 countries around the world. The

group continues to adopt new technology to increase the standard of medical care. It

is involved in research in various areas with focus on exploring potential of robotics

in the field of medical care. The group has also recognized the increasing risk of heart

diseases in India and has been actively working towards this issue. Munich Re works

on its combined knowledge of primary insurance and reinsurance. Under the Munich

Health arm, established in 2009, Munich Re utilizes its global healthcare knowledge

in primary insurance and reinsurance. The purpose of Munich Health is to cater to

individual local needs to attain a sustainable growth for all its partners.

Apollo Munich provides individual as well as group policies. Recently it has

also started bank assurance as a major distribution tool to reach out to masses.15

About The Apollo Hospitals Group

Apollo Hospitals is an Indian hospital chain based in Chennai, India. It was

founded by Dr Prathap C. Reddy in 1983 and has hospitals in India, Sri Lanka,

Bangladesh, Ghana, Nigeria, Mauritius, Qatar, Oman and Kuwait. Several of the

15

http://en.wikipedia.org/wiki/Apollo_Hospitals, 2015



34

group's hospitals have been among the first in India to receive international healthcare

accreditation by America-based Joint Commission International (JCI).

The group has developed services in telemedicine, after starting a pilot project

in 2000 in Pratap Reddy's home village. It is now the largest telemedicine provider in

India with 71 centers. The success of Apollo Hospitals has made it a topic for Harvard

Business School case study.

A stamp was released on 2 November 2009 to commemorate the service of

Apollo Hospitals The group's "Billion Hearts Beating" campaign, a national

communication campaign of the Apollo Hospitals Group and the Times of India, won

the "Global Award for Brand Excellence" of the "Campaign of the Year Award" at

the World Brand Congress 2010 at Mumbai.16

History

Initially, Apollo Munich Health Insurance was called Apollo DKV Insurance

Co. Ltd. and was rechristened Apollo Munich Health Insurance at the end of 2009,

when the company embarked on a new re-branding exercise. The announcement of

the ’Apollo Munich’ name was a significant milestone for the company as it set to

scale business to garner a sizable share of the growing market for health insurance.

Back in the year 2007, Apollo Munich (Then known as Apollo DKV) was

launched in the Indian market with the aim to introduce a whole new way of looking

at health insurance. With the core belief of prevention is better than cure.

Apollo Munich was the second pure health insurance player in the country.

Health insurance before the year 2007 was mostly sold by the general insurance

companies.

Products and Services offered

Apollo Munich Health Insurance offers the best health insurance plans in India

today, for men and women of any age. Apollo Munich offers health and travel

insurance plans for individuals, family, senior citizen, floater health insurance plans

16

https://www.apollohospitals.com/



35

and group health insurance policies for corporate. Ranging from Easy Health to

Optima Restore to Energy, these health insurance policies will not only guard you

against the present and future spiraling healthcare costs, but will also guide you on the

path to wellness for the long term.

1. Health Insurance Plans

Optima Restore - The Unbelievable Health Plan

Energy – The Sweetest Thing for people living with Diabetes

Easy Health - Our Plan For Young Family

Easy Health - Our Premium Plan

Easy Health - Our Most Popular Plan

Optima Cash - Daily Hospital Cash Plan

Optima Plus - A Top Up Plan

Maxima - Plan That Covers For the Little Illnesses Too

Optima Super – Aggregate Top up Plan

Optima Vital- The critical Illness Plan

Optima Senior- for senior citizens

2. Travel insurance plans

Easy Travel – Individual

Easy Travel – Family

Easy Travel - Senior Citizen

Easy Travel - Annual Multi Trip Plan17

Vision, Mission and Principles

Vision

To be a trusted leader in the health insurance sector by providing innovative

solutions to the citizens of India.

Mission

Constantly introduce innovative Health Insurance and Wellness solutions that

meet customer needs.

Build an organization on the principles of transparency, trust and integrity.

17

www.apollomunichinsurance.com/Health



36

Create opportunities for our employees to learn and grow in an enjoyable work

culture.

Constantly deliver on our commitments to all our stakeholders.

Values

Inspiring passion

Delivering on our promises

Being responsive to our customers

Managing relationships

Thinking and acting transparently

Customer Care Principles

Compassionate

Accountable

Responsive

Expert18

Management Profile

Dr. Prathap C. Reddy- Chairman, Apollo Hospitals Group

Under the stewardship of Padma Vibhushan Dr. Reddy, Apollo Group has

demonstrated that Indian healthcare is equivalent to the best in the world. Dr. Reddy

campaigned relentlessly for privatization of Health Insurance in India.

Ms. Shobana Kamineni- Director of new initiatives

Ms. Kamineni, the Whole Time Director, has 20 years of experience in the healthcare

industry, largely in the sphere of project management wherein she established most of

the Apollo Hospitals Group's large projects. She is also a part of the founding family.

Ms. Suneeta Reddy- Director

Ms. Suneeta Reddy, Director with Apollo Munich also holds the position of Executive

Director-Finance at Apollo Hospitals Enterprise Limited (AHEL). She is widely

18

http://www.apollomunichinsurance.com/apollo-munich-values.aspx



37

recognized for her contribution to the Indian healthcare industry, and is an active

member of various industry bodies representing the healthcare segment.

Dr. Doris Hopke - Director

Dr. Doris Hopke was born in Georgsmarienhütte in 1966. She completed her law

studies at the universities of Osnabruck, Hanover and Leiden with a doctorate. She

commenced her career as assistant to the Board member responsible for industrial

liability insurance at HDI Haftpflichtverband der Deutschen Industrie V.a.G. in 1996.

Mr. Andrew Kielty- Director

Andrew Kielty was born in London in 1962 and has received an MBA from the

International Management College, Buckingham, United Kingdom. He has held

senior leadership positions as Managing Director or President/CEO in operating

companies at BUPA and CIGNA, in markets covering Europe, Asia, Australia and the

US.

Mr. M.B.N. Rao- Independent Director

Mr. Bernhard Steinruecke- Independent Director

Mr. Antony Jacob- Chief Executive Officer

First CEO of a private General Insurer in India, Mr. Jacob brings 27 years of diverse

global experience to the organization, besides enthusiasm and professional exposure

in various sectors. Mr. Jacob is passionate about Customer service.

Mr. Krishnan Ramachandran- Deputy Chief Executive Officer

Mr. Srikanth K- Chief Financial Officer and Company Secretary

Dr. Sriharsha A Achar- Chief People Officer19

Company Partners

• Canara Bank

• CitiBAnk

19

http://www.apollomunichinsurance.com/management-profile.aspx



38

Corporate Agents:

• Muthoot Fin Corp

• Vogue Stock Commodities Ltd.

• Accord Financial Services

• Furdoonji and Sons

• Principal Retierment AdvisorPVT. Ltd.20

Campaigns

Let’s Uncomplicate: We believe in uncomplicating and here’s the journey of “Let’s

Uncomplicate” campaign.

Awards and Achievements

2014 Health Insurance Company of the Year from Fintelekt.

2014 Model Insurer Award Risk Management Category from Celent Model Insurer

Asia.

2013 Asia’s Most Promising Brands and Leaders from World Consulting &

Research Corporation.

2012 Innovation of the year award from Asia Insurance Review.

2012 TOP Green IT Enterprise Award from CIO & APC.

2012 Best Employer Brand Award by Institute of Public Enterprise (IPE) & BFSI.

2011 OOH 2011 for Outdoor Advertising & Digital Signage from Mudra Max.

2010 ISO – 9001:2008 certification by DNV Audit.

2009 Outdoor Advertising Awards 2009 by Mudra Max.21

20

http://www.apollomunichinsurance.com/health-insurance-our-partners.aspx 21

http://www.apollomunichinsurance.com/apollo-munich-awards.aspx



39

TAKAFUL INDUSTRY PROFILE:

Market Overview

The Takaful industry is roughly 36 years young as the first Takaful company

was established in 1979 - the Islamic Insurance Company of Sudan. There are

currently more than 130 Takaful companies in operation worldwide, of which nearly

half are to be found in the GCC countries of Bahrain, Kuwait, Oman, Qatar, Saudi

Arabia and the UAE. The Takaful growth rate in these countries is well ahead of the

conventional insurance market in the region. With regard to Takaful, the market is

expected to be worth $4 billion in the next few years at the present rate of expansion,

compared with about $170 million today.

In some countries with majority Muslim populations, such as Nigeria,

Pakistan, Egypt and Bangladesh, the Takaful market can be considered very much in

the embryonic stage. These are almost totally untapped markets, in which insurance

penetration hovers somewhere below 2% of GDP.7 Globally, some estimate that the

global Takaful industry is growing at 20% per year, far outstripping the 2.5% annual

growth for conventional insurance premiums.8 Moody’s has predicted that global

Takaful premiums will rise to $7bn by 201522.

Growth Potential

The world’s 1.5 billion Muslims represent a potential customer base that no

insurer can afford to ignore. Unlike most Western countries, the bulk of the world’s

Muslim population is youthful. In fact, 60% of the global Muslim population is under

25 years of age. This youthful population is starting to achieve a certain level of

affluence and if it can be captured early, has the potential to be a customer base to be

retained for 40 years or more. The under-insured status of most Muslims is also a

significant enticement for potential Takaful operators. Taken as a percentage of GDP,

premiums in the developed world, including Japan and the Asian ‘Tiger Economies’,

22

Mohd. Izhar Ahmad, Problems and Prospects of Islamic Banking: a case Study of Takaful, p.7



40

average is 9.3%. In the Middle East, Africa, South and East Asia, premiums amount

to only 3% of GDP. Growth forecasts for Takaful vary, but the consensus amongst

most market forecasters is for the current level of worldwide contributions written by

Takaful insurers, estimated at roughly $2.0 to $2.6 billion as of 2006, to soar to $7.0

billion or more by 2015. This is well on its way to becoming a reality, for the forecast

of $2.1 billion in contributions by 2010, which was published by Asian Insurance

Review a decade ago, has already been surpassed. However, when compared with the

$3.7 trillion level of global premiums for conventional insurance, the enormous

growth potential for Takaful becomes obvious23.

Challenges

The potential for Takaful is beyond question, but there are many hurdles to overcome

if this market is to realize its potential:

• Severe shortage of qualified staff that can understand both technical insurance

principles and have an adequate awareness of Shari’ah finance.

• Customer misconception that insurance is contrary to the principles of Islam

• Inadequacy of standards and principles on how Takaful business should be taxed

and accounted

• The limited availability of short-term non-equity financial instruments

• Global standardization of Takaful terminology, the development of an

acceptable form of life insurance (family Takaful) especially for countries in

the Arab regions.

• Absence of a common consensus for a system to determine profits (or surplus)

distributable to participants and shareholders.

23

Ibid. p.8



41

COMPANY PROFILE:

SALAMA-ISLAMIC ARAB INSURANCE

Overview

SALAMA - Islamic Arab Insurance Company is a UAE based leading

provider of Shari'ah compliant Takaful solutions around the world. The company was

incorporated in 1979 in Dubai, UAE and continued as pioneers in the Takaful industry

to the present staying true to its values and principles. The trading symbol for the

Islamic Arab Insurance company (IAIC) had been got changed into “SALAMA” as it

is now in July 27, 2009.

SALAMA–Islamic Arab Insurance Company embarked from Dubai on its

quest for expansion through acquisitions and participation in a number of Takaful and

Re-Takaful companies in many Arab and Islamic countries. Today SALAMA is the

largest Takaful and Re-Takaful Group in the world with a capital of AED 1.21 billion

(USD 330 Million) and is listed in the Dubai Financial Market under the symbol

"SALAMA". Among the prominent subsidiaries of SALAMA, is the wholly owned

Tunisia-based BEST Re, the largest global Re-Takaful company, serving customers in

more than 70 countries. SALAMA-Islamic Arab Insurance Co. (PSC), one of the

region's leading Islamic insurance (Takaful) companies, has won the 'Best Takaful

Provider' award for 2009 from Global Finance magazine, the leading international

financial publication headquartered in New York. The recognition reaffirms

SALAMA's leadership in the Takaful Insurance milieu and is a major milestone in the

company's unprecedented success as it marks its 30th anniversary celebrations in

2009. Reinforcing the company's global presence and leadership in the International

Takaful insurance sector, SALAMA was also awarded the 'Best Takaful Company' at

the recently held International Takaful Awards in London.24

Mission and Vision

24

SALAMA Islamic Arab Insurance Co. FROM https://salama.ae/takaful.aspx



42

Mission: To be the leading provider of innovative and customized Takaful solutions

backed by strong financial and human resources.

Vision: To achieve a global leadership in Takaful and Re-Takaful industry in terms of

market share and/or shareholders’ equity.

Value Statements

• We are committed to follow Shari’ah principles in conduct of our business.

• We are customer focused, aiming to provide highest quality of service against

international benchmark.

• We are committed to apply highest ethical standards in dealing with all

stakeholders. We should be guided by the ethical principles of honesty,

integrity, fairness and trustworthiness.

• We aim to achieve operational excellence to maximize stakeholders value.

• We aim to create a professional and open environment where employees’

contributions are recognized, valued and rewarded.

• We encourage and support employees to undertake initiatives leading to their

professional development and growth within the company.

• We will invest in our employees.

• We encourage ambitious goal-setting and support their achievement by all the

required resources, with clear responsibilities and accountabilities.

Major Products and Services

SALAMA is UAE's specialized Takaful company and is one of the few

Takaful operators offering comprehensive range of General, Family and Health, Auto

and travel Takaful solutions to Individuals, families and companies. At present, they

have 6 direct Takaful companies who provide Takaful solutions to customers based in

UAE, Saudi Arabia, Egypt, Senegal, Algeria and Jordan.



43

The company offers motor comprehensive and motor third party liability

insurance products.

It also offers family Takaful solutions, which include finance protection plans,

savings plans, child’s future plans, investment plans, and retirement plans, as well as

health Takaful solutions, including individual, small-group, and group health Takaful

products.

In addition, the company provides general Takaful solutions, such as travel,

fire and allied perils, property all risk, business interruption, money insurance, fidelity

guarantee, bankers blanket cover, workman compensation, employers and public

liability, erection all risk, contractor all risk, individual and group personal accident,

hull and machinery, marine cargo, vehicle export insurance, stock deterioration,

electronic equipment, machinery loss of profit, machinery breakdown, contractor

plant and machinery, and yacht and boat insurance products and services. 25

Board of Directors

H. E. Sh. Khaled Bin Zayed Al Nehayan (Chairman)

Dr. Saleh J. Malaikah (Vice Chairman & CEO)

Mr. Suhail Mubarak Al Dhaheri (Director)

Mr. Marwan Ahmed Majid Al Ghurair (Director)

Mr. Hussein Hassan Biyari (Director)26

Subsidiaries

BEST RE (L) Limited

Brumby Centre, Lot 42, Jalan Muhibbah 8700 Labuan F.T., Malaysia, Tel: +6

03 27886007, Fax: +6 03 27886008, Email: [email protected],

Website: www.best-re.com

TARIIC HOLDING COMPANY B.S.C (CLOSED) - Bahrain

25

https://salama.ae/services.aspx 26

https://salama.ae/comp_directors.aspx



44

Apartment 43 - 4th Floor Al-Ahly Building, P.O.Box 2948, Manama, Bahrain,

Tel: +973 214 455, Fax: +973 227 122, Website: www.tariic.com

SALAMA Assurances Algerie (formerly Al Baraka Oua Al Amane) – Algeria,

Cite des P.T.T No. 77, Hydra, Alger, Algeria. Tel: +213 21 480310

Egypt Saudi Insurance Home (ESIH) - Egypt 54, Al Batal Ahmed A. El Aziz

Street, Mohandissen, Egypt. Tel: +202 748 5787

SALAMA Assurances Senegal (formerly SOSAR) - Senegal , 67 , Boulevard

de la Republique BP:21 022 Dakar, Senegal. Tel: +221 849 4802

Associates

Saudi IAIC Corporative Insurance Co. (SALAMA) - KSA

Islamic Insurance Company - Jordan

GEPAR: Generale d'Etudes et de Placement en Assurance Reassurance27

Salama Head Office Dubai

4th Floor, Block A, Spectrum Building. Oud Metha, Sheikh Rashid Road, Dubai.

U.A.E. P.O. Box: 10214, Tel: +971 4 3577000, General Takaful Fax: +971 4

3577996, Health Takaful Fax: +971 4 3577930, Email Us:

[email protected]. http://www.salama.ae/about.aspx.

27

https://salama.ae/subsidiaries.aspx



45

CHAPTER- 4

COMPARATIVE ANALYSIS

• Islamic Insurance (Takaful) and Conventional Insurance - A

Comparison

• Data Analysis; SALAMA and Apollo Health Insurances

• Findings



46

ISLAMIC INSURANCE (TAKAFUL) AND CONVENTIONAL

INSURANCE - A COMPARISON

Objective

Having defined the contract of insurance under both Islamic and conventional

perspectives, it is the purpose of this closing chapter to compare conceptual and

operational differences of conventional insurance and Takaful insurance. This chapter

highlights the specific features of Takaful insurance that make it more contributing to

social security and benefits, by comparing between services and insurance coverage

offered by Apollo Munich Health insurance and SALAMA Takaful insurance.

Conventional Insurance and Takaful: Conceptual and Operational Differences

Conventional insurance and Islamic insurance can be compared and evaluated

through various viewpoints. In this chapter, Islamic and conventional insurance are

compared on the following bases:

Governance

First of all, the governance viewpoint the Takaful principles have their roots in

Shari’ah. Sacred orders of Allah in Al- Qura’n, religious, social and commercial

practices of The Holy Prophet (SAW), Ijma’ (the agreement of whole Islamic world

on an issue) and Qiyas (comparative arguments), form the basis of Shari’ah. Shari’ah

is the constitution of Islamic world. According to Islam, the basic principles of

Shari’ah are necessary for an action to be approved religiously.

In conventional insurance system rules and regulations are made according to human

mind and thinking. Currently, most of the rules implemented in the insurance world

are driven from western philosophy which is naturally on the basis of materialism and

secularism. The laws created by human mind have many limitations; still there exist

conflict regarding the source, motive, supreme end of the law. According to the

Theological school ‘Law is the product of human reason and is intimately related to



47

the notion of purpose’28 where as Austinian School hold that law is the command of

sovereign and Good and evil are interpreted in terms of pleasure and pain. Modern

law recognize the liberty of legislation, for it would be incompatible with ethical

control of human actions and, ultimately of society. Human thought, unaided, cannot

discern true values and standards.

Unlike the secular laws which are rationalistic and, therefore, liable to err,

which depend for their existence upon the vagaries of public opinion and which alter

with every change in society, the divine of law of Islam ‘finds its chief source in the

will of Allah as revealed to the prophet Muhammed. The peculiarity of this law

(Shari’ah) is that it stands for reforming society by way of persuasion rather than

coercion.

Goal

The goal of conventional insurance is to maximize profit in favour of

shareholders because they are stock companies and ignore client while in contrast

Takaful goal is well-being and self-sustaining operation without earning high profit.

In another word, the payment of premiums to pool is voluntary for mutual assistance

without individual monetary gain.

Risk Transfer/Sharing

Conventional Insurance is a mechanism whereby individual or business

enterprises by paying out contribution (termed ‘premium’ in insurance) transfer some

of the uncertainty of risks to the insurer. Insurer in the event of loss from insured peril

compensates the victim (insured) out of the contribution so gathered from large

numbers of insured. The contribution is usually a very small amount compared to the

amount of protection available. Unlike conventional insurance, which risk is

transferred from the insured to the insurer, the Takaful Insurance mutual risk is

shared amongst the participants. Takaful operations are based upon the principles of

28

Paton, Jurisprudence, p.3.



48

mutuality, whereby each participant makes a donation to a Takaful fund. In the event

of its loss, the participant will receive the amount of its claim.29

Social Solidarity/ Shared Responsibility

Takaful, the Islamic alternative to conventional insurance is based on the idea

of social solidarity, cooperation and joint indemnification of losses of the members. It

is an agreement among a group of persons who agree to jointly share responsibility of

loss or damage that may inflict upon any of them; out of the fund they donate

collectively but in conventional setup loss is indemnified by the insurance company

according to the terms and condition of the policy.

Takaful insurance has grown not only as an innovative financial instrument,

but also on religious consideration. The contract of Takaful provides solidarity in

respect of any tragedy in human life and loss to business or property30. The Islamic

model of insurance policy is based on the fundamental principle of mutual

cooperation and solidarity, as ordained by Allah (SWT) mentioned to this effect in the

Holy Quran.

But for conventional insurance there is no any religious boundaries and the purpose of

insurance is to protect risk-averse from suffering the full cost of those actions on the

part of nature which affect them unfavorably.

Joint Guarantee/Taawun

Takaful is conceptually defined as an Islamic financial protection system

which involves a joint guarantee scheme in providing possible indemnity or

contingency but conventional insurance is based on compensation of loss in exchange

of premium which is paid by insured. Takaful operation is based on the concepts of

29

Mohamed Mazair, Conventional Insurance And Takaful: Conceptual AndOperational Differences,p.6 30

Ayub, M. (2003). An introduction to Takaful – an alternative to insurance. Islamic Banking

Department, State Bank of Pakistan, Karachi. p.3.



49

taawun (mutual help or co operation) solidarity, trusteeship, and brotherhood but

conventional insurance is based on to take material gain on behalf of other31.

In Islamic society Takaful system worked on the basis of Taawun and

Tabarru. Participants mutually agree to help and guarantee each other by collecting

contribution from individual, for the sake of mutual cooperation. Literally, insurance

is worked on risk transferring process under which one protects themselves on behalf

of others.

The main purpose of Takaful under the Islamic system is to bring equity to all

parties involved, and the objective of the contract is to help the policyholders through

bad times. Profit earnings is not the main goal, while sharing any profit generated

incidentally is acceptable but in conventional system business is started with the aim

to earn profit32.

Coverage against Loss or Chance of Loss

Actually, Conventional insurance is coverage against chance of loss (risk) not

against the loss itself. It is an arrangement against risk. Willet observes that the

importance of insurance lies in its capacity to convert uncertain and indeterminate risk

into fixed cost by way of consolidation33. Risk, he says, though subjective and

immeasurable yet can be objectified and measured with aid of knowledge of past

occurrences or events. Hence risk theory of large numbers and probability is said to

be basis of conventional insurance.

But how far does it hold good? What is the limit of large numbers and how

extensive should be the size of groups to predict the regularity and probability of the

phenomenon?

‘It would be a serious error to contend that the greater the number of risks

observed, the more exact is application of this law, for if mass observation goes

31

Maysami, R. C. and Kwon, W. J. (1999). An analysis of Islamic Takaful insurance- a cooperative

insurance mechanism. Journal of Insurance Regulation 18: p.109 32

Ibid, p. 112. 33

Willet, The economics theory of Risk and Insurance ,p.5.



50

beyond a certain limit, numerous important distinctions will lose their identities. For

example, a North American insurance company, devoted exclusively for north

American, would not be benefited by the mortality statics for the inhabitants of the

rest of the world in which all differences] would be wiped out’34. The law of large

number is nothing but the application of the principle of probability which cannot be

accurate in its estimation of risks even by their classification because the conditions of

phenomenon are constantly changing. Moreover, the estimates based on past

experience cannot be applied precisely to the future. They are only approximations

and not exactitudes. Under circumstances it would be mere speculation to act upon the

results of such calculations. Risk, being abstract in its nature, can, by no means, be

predetermined except when it occurs in the shape of loss. Therefore, genuine

insurance may be described, more aptly, as a device to cover losses when they occur

by distributing them over a community or group as Takaful insurance.

Takaful is obviously based upon loss theory where the great stress is laid upon

the distribution of actual losses as the essential element of insurance. Here it is the

compensation of actual loss that Takaful provides for its participants.

Ownership

Takaful fund is managed by operator but ownership is of participants. They

have a complete right of contribution and benefits. In conventional insurance the

policyholder purchase policy and there exist seller – purchaser relationship. Takaful

company performs trustee and operator functions. In conventional insurance there

exist one to one relationship between policy holder and company.

Monitoring committee

In Takaful companies, having a one of the mandatory committees should be included

in the system of Takaful. The Shari’ah Supervisory Board is to be formed by the

operators and their role is to review the operations, supervise its development of

Shari’ah insurance products, and determine the Shari’ah compliance of these

34

Manes, Insurance: facts and Problems, p.60.



51

products and the investments. The Shari’ah Supervisory Board have to carry their

own independent audit and certify that nothing relating to any of the operations

involve any element that is prohibited by Shari’ah35. While in conventional insurance

there is no such Shari’ah supervisory committee to monitor the activities of the

company in order to be under the Shari’ah guideline.36

Unlawful elements

Different elements like Riba (Interest), Gharar (uncertainty) and Maysir

(Gambling) are involved in conventional insurance. For instance, in non-life policies

if a policyholder does not make a claim, his insurance company keeps the whole

amount.

If he/she cancels the policy contract also loses all premiums which he/she has

deposited. Likewise if the insurance company terminates its activities, the

policyholders will be refunded proportionally.

The uncertainty is also observable in the conventional insurance. The premium

Payment from the policyholder is certain but is uncertain from the shareholders or the

company as well as the benefits to be paid depend on the outcome of future events not

known at the time of contract. In order to eliminate the element of uncertainty in the

Takaful contract, the concept of "tabarru’" (to donate or give away) is incorporated in

it. In relation to this, a participant agrees to relinquish as tabarru’ certain proportion

of his Takaful installments or contributions that he agrees or undertakes to pay thus

enabling him to fulfill his obligation of mutual help and joint guarantee, should any of

his fellow participants suffer a defined loss. In Takaful the element of uncertainty is

eliminated as subscription and compensation is concerned. And also there are some

features alike gambling in conventional insurance. The policyholder pays his

premium, he/she might get a very big amount if the losses indicated in the policy

occurred, if not he/she will lose all the premiums paid. It works by mere chance,

35

Qureshi , Analyzing the Shari’ah compliant issues currently faced

by Islamic Insurance, 2011,p.287. 36

Mohamed Mazair, ibid, p.6



52

speculation and conjecture and not from work, taking responsibility or real sector

business.

The nature of the principles of Takaful is different from the conventional

insurance because all the operation in Takaful is in line with the Shari’ah principles.

The operation of Takaful is based on the principle of Al- Mudarabah which is profit

and loss sharing techniques which is alternative to interest (Riba) in Conventional

Insurance.

As a result of these non-permitted elements, the majority of Muslim scholars

have generally decided that the practice and operation of conventional insurance

ascurrently practiced do not fulfil the rules and requirements of Shari’ah. Therefore,

in June 1972 the Malaysian National Fatwa Council resoled that the present-day life

insurance as provided by the conventional insurance companies was not in line with

the principles of Shari’ah. Similarly, in comprehensive deliberation, the Fiqh council

of The Muslim World League in 1978 and the Fiqh Academy of the Organization of

Islamic Conference (OIC), at gathering in December 1985, resolved that no form of

insurance, life or general, confirmed to Islamic principles and therefore it was haram

(prohibited).

Operation

Takaful system operates in such a way that the participants contribute their

money as premium to a company. The company divides the contributions into two

parts i.e. donation (Tabarru’) for meeting mortality liability or losses of the fellow

policyholders and the other part for investment. Accordingly, the clause of Tabarru´

is incorporated in the contract. Both the accounts are invested in Shari’ah compliant

investments and returns thereof distributed on Mudarabah principle between the

participants and the Takaful operators. The profit attributable to the participants is

credited into the two accounts respectively.

Conventional insurance operates in such a way that premium is paid by policy

holders to insurance company and then this amount is invested by insurance company

in interest bearing or non-Shari’ah compliant investing areas. Amount of interest and



53

profit is received by insurance companies and then surplus is retained in the company

without distributing it among policy holders and only claims are met with this surplus.

And also Takaful operates on mutual assistance principle. Conventional insurance

operates on business principle.

Contract

Conventional insurance is a buy-sell contract in which the insurance company

offers and sells protection and the participants (policyholders) accepts and buys the

premium at a certain price. In case of Islamic insurance, the participants give up

individual rights to attain collective rights over contribution and benefits along with

the Takaful operator as the one who manage the fund. The contract under Islamic

insurance is usually involves the concepts of Tabarru’, Mudarabah and Wakalah.

Investment

Distinction between the conventional insurance and Takaful business is more

visible with respect to investment of funds. While insurance companies invest their

funds in interest-based avenues and without any regard for the concept of Halal-o-

Haram. Takaful companies undertake only Shari’ah compliant business and the

profits are distributed in accordance with the initially agreed ratios in the Takaful

contract37. In addition to that the Governments of the countries in which Muslims are

in majority have introduced a legal framework which helps in introduction of new

Shari’ah compliant products.

Mudarabah certificates are the instruments which are evolved from such legal

framework. While a conventional insurance company invests in interest based

instruments like treasury bills, certificates of deposits, interest bearing bonds etc.

Surplus

Likewise the policyholders of Takaful share in any surplus or loss from the

pool collectively. Takaful system has a built-in mechanism to counter any over-

37

Syed Umar Farooq, (2010), European Journal of Economics, Finance and

Administrative Sciences - Issue 20, p.58.



54

pricing policies of the insurance companies, because whatever premium charged, the

surplus would normally go back to the participants in proportion to their

contributions38. While in conventional insurance profit is not shared between

members in a specific ratio and in some year bonus is provided and sometime not.

Moreover, if unfortunate lose not happened the paid premiums will not be reimbursed.

Takaful differs from conventional insurance in the sense that the company

manages and employs the funds for investment, business and administration on behalf

of the participants. Profits attributed to the participants’ funds are shared between the

Takaful company and the participants according to an agreed formula. In case of

conventional insurance, the premium funds become property of the company and any

profits or losses go to the company’s account.

Forfeiture

In insurance contract there is clause that insurer can forfeit the premium

amount that is paid by the policy holders under certain circumstances. Islam does not

allow the forfeiture of premium, wholly or partly, as the amount of premium is

considered as loan by insured to insurer. In Takaful there is no forfeiture of

contributions and it is distributed among the participants in form of surplus

Encouragement for goodness

Takaful helps people to accumulate their saving for goodness of whole

community. An opportunity is provided by Takaful scheme to people to practice

Islamic way. The Holy Prophet (PBUH) saying is “whosever removes the hardship

from believer, Allah will remove hardship from him one of the hardship of the Day of

Judgment” (Sahih Muslim). Insurance is vice versa.

The following table briefs the differences between Takaful and conventional insurance:

38

Ibid, p.58.



55

NO

ISSUE

CONV. INSURANCE TAKAFUL

1

Basis Risk transfer,

company assurance

Cooperative risk sharing, joint

guarantee

2

Governance

Corporate governance: No religious

Consideration, solely profit motivated

Shari’ah governance: (Al-Qura’n, Al-

Hadith,Ijma’, Qiyas, Islamic Ethics)

3

Form of contract

Contract of sale

Agency contract (Wakalah) or Waqf

with Tabarru’

(contributions), cooperative

assistance using investment vehichles

like Mudarabah.

4

Organizational Principle

Profit for shareholders

Mutual goodness for participants

5

Laws Secular/Regulations Shari’ah & prudential

6

Ownership Shareholders Participants

7

Management status

Company management

Operator

8

Responsibility of Policy holders/Participants

Policy holders pay premium

to the insurer

Participants make contribution to the scheme & mutually

guarantee each other under the scheme

9

Investments

No restriction, mostly

Interest based, non-Shari’ah compliant

Only Shari’ah compliant & Riba-free

investments are allowed

Belong to Shared between



56

10 Profit

shareholders participants and operator

based on profit sharing

principles

11

Surplus

Shareholders’ Account

Participants’ Account

12 Shari’ah Council Not applicable Obligatory

Table: 1



57

DATA ANALYSIS; SALAMA AND APOLLO HEALTH

INSURANCES

Why Choose SALAMA:

The economic challenges in today’s health care climate make it more difficult

than ever to offer the benefits your employees want. We continually work to create

innovate, flexible benefit plans that combine today’s distinct health care needs with

today’s economics.

Our wide range of group and individual health plans are specifically designed to offer

quality, value and security that can be depend on!

We have the experience, the expertise, the technology- and an unsurpassed

commitment to customer service- which makes us a leading choice for a preferred

Takaful solution provider.

SALAMA OFFERS

• Affordable Shari’ah-Compliant Healthcare solutions that can be customized to

meet specific needs of our increasingly quality-conscious customers.

• Flexible coverage limits ranging from AED25, 000 to AED5 Million.

• Access on a 24-hour basis, 365 days a year to a team of medical professionals

whose mission is to provide you with the guidance and assistance you need.

• One of GCC’s largest physician & hospital networks, giving you more choices

for doctors, specialists, hospitals, diagnostic centers and pharmacies.

• Free access plan that gives you the opportunity to benefit from a network of

quality hospitals and clinics wherein, we settle claims on your behalf directly.

• You are not only assured of the best treatment by the best doctors but your

diagnosis and subsequent medical treatment is also rigorously monitored by a

team of experts worldwide to spot mismanagement of treatment.

• Availability of emergency treatment on a worldwide basis for our discerning

customers.



58

• With a network of over 4,000 hospitals across Europe, America, Middle East

and South East Asia, you can be rest assured that world-class Healthcare is

available wherever you are and whenever you need it.39

Main Coverage

Annual limit per person per policy year = SR 500,000:

1. In-patient (Hospitalization)

2. Out-patient

3. Diagnostic Tests

4. Consultation

5. Chronic and pre-existing conditions

6. Maternity (maximum up to SR 15,000)

7. Acute Psychological Treatment (maximum up to SR 15,000)

8. Hospital accommodation

9. Dialysis (covered up to SR 100,000 per person per policy period)

10. Congenital diseases in new born, if life threatening

11. Dental (covered up to AED 2,000)

l2. Optical (covered up to AED 400)

13. Hearing test and hearing aid (covered up to policy max limit AED 6000)

14. Acute Psychological Treatment (maximum up to AED 15,000)

15. Death Repatriation (maximum up to AED 10,000)

16. Consultation:

General Practitioner AED 50

First Specialist AED 200

Second Specialist AED 100

Consultant AED 300

Rare Specialties such as Cardiovascular, Neurosurgery and subspecialties

according to the standards of the Saudi Council for Health Specialties.

AED 500

17. Physiotherapy (if medically necessary and recommended) 39

Salama Health Brochure, Stronger Foundations for a Healthier Future, p.2.



59

18. Hospitals and clinics network (as per standard TPA’s network)

19. In-Patient Deductible None

20. Premature Babies Up to Annual Limit

21. Acquired Heart Valves Deficiency AED 70,000

22. Organ Donation for “Donor” - Operation cost for Donor AED 50,000

23. Alzheimer AED 15,000

24. Autism AED 15,000

25. The cost of the National Program for early examination of newborns to reduce

"disability’s AED100,000

26. Disability AED 100,000

27. Circumcision (males) AED 500

28. Ear piercing (females) AED 300

Major Exclusions:

• Intentional self-inflicted injury

• Sicknesses resulting from abuse of some medicines, stimulants or

tranquilizers, or from use of alcohol, narcotics and the like.

• Cosmetic treatment or surgery unless necessitated by a bodily injury not

excluded in this section.

• General checkups, inoculations, drugs or preventive measures not required for

medical treatment covered under this policy (excluding preventive measures

determined by the Ministry of Health such as vaccinations)

• Treatment received by a beneficiary free of charge.

• Rest cures, general health cures and treatment in social welfare institutions.

• Any illness or injury resulting directly from the beneficiary's profession.

• Medically recognized venereal or sexually transmitted diseases.

• Costs of treatment following diagnosis of HIV or any disease related to HIV,

including AIDS and its derivatives, alternatives or other forms.

• All costs related to tooth implant, dentures, fixed or movable bridges or

orthodontic treatment, unless resulting from violent external means.



60

• Vision or hearing correction tests and visual or hearing aids, unless requested

by a licensed physician.

• The beneficiary's transportation expenses within and between cities in the

Kingdom by other than ambulances of the Saudi Red Crescent or licensed

ambulances.

• Hair loss, baldness or artificial hair

• Psychological, mental or nervous disorders, unless of an acute nature as

specified in this policy schedule.

• Allergy tests of any nature, unless relating to medicines, diagnosis or

treatment.

• Equipment, means, drugs and procedures, or hormone treatment aimed at

regulating reproduction, contraception, fertility, infertility, impotence,

secondary sterility, in-vitro fertilization or any other method of artificial

fertilization.

• Any congenital weakness or deformity unless it is life threatening, except for

cases requiring treatment in accordance with a medical report issued by the

health facility approved by the Council.

• Any costs or additional expenses incurred by the beneficiary's companion

during a hospital stay, except for hospital room and board charges for one

companion such as a mother companying her child aged up to twelve years or

wherever medically necessary as assessed by the attending physician.

• Treatment of acne or any treatment relating to obesity or overweight.

• Organ or marrow transplant, or implant of artificial organs to replace any

organ of the body.

• Personal risks i.e. any activity known to involve high risk of exposing a person

to an illness or accident, or is expected to aggravate a previous illness or

injury.

• Alternative medicine procedures and medications.

• Artificial and ancillary limbs except those required by the beneficiary as per a

medical decision issued by the health care facility approved by the Council.



61

• Natural Changes related to menopause, including menstrual disorder40

Why APOLLO Health Insurance

Today people live in a fast paced and progressive world that sometimes takes

away more that it gives. Changing lifestyles are making Indians increasingly fall

prey to the non-communicable critical illnesses such as cancer, heart stroke,

hypertension, diabetes etc. These critical illnesses are always associated with an

increased cost of treatment along with a long and expensive recovery process. A

basic health insurance policy may not be sufficient to cover all medical costs,

especially in case of critical illness or accident which require a long term

treatment. This financial burden needs to be supported by a special financial

protection plans and specially designed insurance coverage.

APOLLO Health Insurance General Benefits:

• Wide Sum Insured Options - Choose from a wide choice of Sum Insured

starting from Rs. 1 lakh to Rs. 15 lakhs and enjoy best health insurance

benefits at affordable premium.

• Pre-Hospitalization and Post-Hospitalization Cover - Our health insurance

plans come with Pre-Hospitalization and Post-Hospitalization cover that takes

care of medical expenses incurred for treatment before and after

hospitalization. It gives you relief from the medical expenses incurred before

and after the hospitalization, that can sometimes prove to be as costly as the

hospitalization expenses itself.

• Quick Claims Approval - Our empanelled hospitals, cashless procedures,

wide presence across India all make the claims approval process quick and

easy. We have a specialized in-house claims processing team of doctors that

processes your claim compassionately, yet professionally. When it comes to

40

Salama Health Brochure, Schedule of Benefits – Family Care Plan (DHA), p.7.



62

claim settlement, Apollo Munich is one of the fastest in the industry to honor

every genuine claim. About 98% of our claims are settled within 15 days.

• Portability - Apollo Munich health insurance offers customer-friendly health

insurance policies that ensure that you avail most of the accrued benefits when

you port your plans to Apollo Munich’s health insurance plans. The waiting

period or any another accumulated benefit will be carried forward without any

trouble – That’s our promise to you!

• Tax Benefits - Get tax benefits on our health insurance plans for the premium

amount under Section 80D of the Income Tax Act.

• Lifelong Renewal - Enjoy the lifetime renewal benefit of a health insurance

policy and be secure against medical expenses. Our health insurance plans

save you from the financial burden and stress caused by a medical emergency

and keeps you well prepared to handle any situation.

• Earn upto 100% No Claim Bonus - If you have had a claim-free year, we

increase your basic sum insured by 50% at no extra charge. If you do not

claim even in the second year, we double the sum insured, making it 100% of

the basic sum insured. For instance, if you have a Rs. 5 lakhs health insurance

plan and you do not make any claim in the first year, we will increase your

cover to Rs. 7.5 lakhs in the first year and Rs. 10 lakhs in the second claim

free year. It means, at the end of the second claim free year you would be

paying for a Rs. 5 lakhs plan but receiving the benefits of a Rs. 10 lakhs plan.

• Restore Benefit - If you or your family member exhausts your sum insured

during the year, Apollo Munich will restore the full amount back for usage for

any new illnesses without any paperwork or any extra charge!

• Health and Wellness Portal - As a customer, you can benefit from our Health

Portal. Explore healthy living, improve your lifestyle, never miss

appointments, access reports 24X7 anywhere, chat with a health coach, and

lots more.41

Optima Vital Plan

41

Apollo Brochure, Easy Health Family, p.4.



63

Nowadays people live in a fast paced and progressive world. Along with

development our modern life is also accompanied with increasing stress, lack of diet

or proper exercise. Owing to this they are now more vulnerable to non-communicable

diseases; these critical illnesses are always associated with an increased cost of

treatment along with a long and expensive recovery process. This financial burden

needs to be supported by a special financial protection plans. Optima Vital is Apollo’s

unique Critical Illness insurance policy that protects you financially in the event of

any of the listed critical illnesses occurring.

Key Benefits

• Lump sum benefit: Optima Vital offers you lumpsum amount for the

identified critical illness, medical event or surgical procedure

• 100% lifelong renewal: 100% lifelong renewal with no cover ceasing age

• Wider coverage for critical Illnesses: Cover for 37 critical illnesses

• E-opinion: Optima Vital offers a second opinion with our panel of medical

specialists health risk Assessment and health line support: Access to online

health risk assessment tool and rich health content.

• 100% payout: For diagnosed critical illness, medical event or surgical

procedure

• 90 days waiting period: Any claim under the policy would be eligible for

consideration after the first 90 days of the policy

• Pre-existing disease: In case you have any existing condition, please

remember to declare all such medical conditions at the time of taking the

policy. Pre-existing diseases, except for any medical condition/disease for

which we have applied specific exclusion, shall be covered from 4th year of

the policy if the proposal is accepted and policy is issued to you.



64

• Survival period: Claim would be considered for payment after the completion

of survival period from the date of confirmed diagnosis or undergoing of the

procedure as the case may be.42

Eligibility

• This policy covers persons in the age group of 18 years onwards with

maximum entry age of 65 years. A dependent child can be covered from 18

years up to 25 years provided both parents are covered in a critical illness plan

of an Indian Insurer.

• You and/ or your family members namely spouse, dependent children,

dependent parents are eligible for buying this cover on individual sum insured

basis.

• Maximum 6 members can be added in a single policy. In an individual policy,

a maximum of 4 adults and a maximum of 5 children can be included in a

single policy.

• Your premium at renewal may change due to a change in your age or changes

in the applicable tax rate.

• The policy period options include period of 1 or 2 years(s). (We offer 7.5%

discount if you opt for a 2 year policy)

Apollo Munich would not provide cover for:

• Expenses arising out of medical conditions like HIV, AIDS & related

disease.

• Expenses arising out of medical conditions pertaining to Internal &

external congenital diseases.

• Expenses for Cosmetic treatment or items of personal comfort and

convenience.

Renewal Policies:

42

42

Apollo Brochure, Optima Vital, p.2



65

• Our Optima Vital policy offers lifelong renewability i.e there is no maximum

cover ceasing age in this policy.

• Grace Period of 30 days for renewing the policy is provided under this policy.

• Waiting periods as mentioned in the policy wording gets reduced by 1 year on

every continuous renewal of your Optima Vital Insurance policy.

• Renewal premium are subject to change with prior approval from IRDA. Any

change in benefits or premium (other than due to change in age) will be done

with the approval of the IRDA and will be intimated atleast 3 months in

advance.

Exclusions

• All illnesses & treatments within the first 90 days of the cover

• Any pre-existing condition will be covered after a waiting period of 48 months

• Any critical illness in presence of HIV infection and / or any AIDS

• Congenital internal and external diseases, defects or anomalies

• Abuse of intoxicant or hallucinogenic substances like intoxicating drugs and

alcohol

• War or an act of war or due to a nuclear, chemical or biological weapon and

radiation of any kind

• Any treatment arising from pregnancy (including voluntary termination),

miscarriage, maternity or birth (including caesarean section)

Critical illnesses covered under policy



66

1. Cancer of Specified Severity

2. Kidney Failure requiring Regular

Dialysis

3. Multiple Sclerosis with Persisting

Symptoms

4. End Stage Liver Disease of Specified

Severity

5. First Heart Attack of Specified

Severity

6. COMA of Specified Severity

7. Major Burns

8. Good pasture’s Syndrome

9. Apallic Syndrome

10. Aplastic Anaemia

11. Systemic Lupus Erythematosis

12. Bacterial Meningitis

13. Multiple System Atrophy

14. Progressive Scleroderma

15. Open Chest CABG

16. Major Organ/Bone Marrow

Transplant

17. Aorta Graft Surgery

18. Open Heart Replacement or Repair

of Heart Valve

19. Pneumonectomy

20. Pulmonary Artery Graft Surgery

21. Primary Parkinson’s Disease

22. Alzheimer’s Disease

23. Motor Neuron Disease with

Permanent Symptoms

24. Stroke resulting in Permanent

Symptoms

25. Permanent Paralysis of Limbs

26. Primary Pulmonary Arterial

Hypertension

27. Benign Brain Tumour [resulting in

permanent neurological symptoms]

28. Cardiomyopathy

29. End stage Lung Disease

30. Brain Surgery

31. Progressive Supranuclear Palsy

32. Creutzfeldt-Jakob Disease (CJD)

33. Major Head Trauma

34. Encephalitis

35. Blindness

36. Deafness

37. Total Loss of Speech 43

43

Ibid,p.2-3.



67

COMPARATIVE ANALYSIS

Insurance sector is now getting more popular with the passage of time, as

people are considering its importance in their life. A comparison between Takaful

insurance company Salama and conventional insurance company Apollo Munich is

presented below. The list of Services, benefits, premiums, offers, exclusions and

coverage provided by both companies are used for analysis. The main sections

discussed are inpatient treatment, outpatient treatment, maternity coverage, dental

benefits and other salient benefits.

NO Services & Offers

SALAMA

TAKAFUL

INSURANCE

APOLLO

MUNICH

INSURANCE

1 Annual Benefit Limit per person Rs. 16,950,000 Rs. 1,000,000

2 Basic sum insured options 3lacs to50lacs

4lacs to 8cror (25000-50 million

AED)

3

Geographical Scope of Coverage for Elective & Emergency Treatment

World wide India

4 Coverage Criteria for Treatment outside UAE

Coverage outside UAE is limited to 90 days per treatment A single holiday or business trip may

not exceed 90 days

Not applicable

INPATIENT TREATMENT

5 Hospitalization Class Private Room No room rent limit

6 Hospital Accommodation and related Services

Covered Covered

7 Companion Room & Board expenses for

Beneficiary below 16 years of age

Covered maximum up to

Rs. 1695 per night

Covered maximum up to

Rs. 800 per day

8 Intensive care unit and coronary artery disease

treatment Covered Covered*

9 Repatriation costs for the transport of mortal

remains to the country of origin

Covered up to AED 7,500/-

Not covered



68

10 Emergency Ambulance Services Covered

Upto Rs. 2000 per Hospitalization

11

Ayush benifits Not Available

Treatment under Ayurveda, Unani,

Sidha and Homeopathy

OUTPATIENT TREATMENT

12

Physician Consultation

20% Copay on all outpatient services including consultations

Covered

13 Diagnostics and Laboratory Tests

11 diagnostic procedures Angiographies , Endoscopies , CT scans , MRI’s , FNAC, IVP , MCU , Excretory Urography , Myelogram , Nuclear studies

and Oral Cholecystogram

Not covered

14 Health check up Not covered

Upto 1% of sum insured (Max

Rs.5000) 5 times

15 Pharmaceuticals

Covered Chronic Medications prescribed for more than 1 month &

prescription cost above AED 500/-

require pre-authorization

Not covered

16 New Born baby coverage

Babies born in UAE - New born expenses are covered from day 1 (from Date of Birth) under its own policy up to the policy annual limit

Additional benefit on payment of

additional premium



69

17

Physiotherapy

Covered up to 15 sessions/ PMPY-pre-authorization

needs

Not covered

18

Alternative Medicine Benefit covers: Osteopathy, Chiropractic, Homeopathy, Acupuncture, Ayurveda and Herbal Treatments

Covered up to AED 1,600/- PMPY

Only on reimbursement basis

Not Covered

19

Vaccination Covered as per MOH schedule (Require pre-authorization)

Covered both on *Free Access & reimbursement basis(100% of actual covered cost)

Not Covered

MATERNITY BENEFITS

20

Normal Delivery expenses covered up to a sub limit of Rs. 169,500 (no waiting period )

Rs. 30,000*

21 Medically necessary Caesarean

covered up to Rs. 169,500 (no waiting

period limit)

Rs. 50,000* (including Natal limit of 5000 and New born limit 5000) waiting period of three

years

22 Medical Emergency expenses

related to Maternity

Covered up to a sublimit of (AED 150,000) Rs. 2,542,500

Not Covered

23 screening tests related to

Maternity

FBC and Platelets, Blood group,

Rhesus status and antibodies,VDRL, MSU & urinalysis, Rubella serology, HIV, Hepatitis C

offered to high risk patients, GTT, FBS,

Random blood sugar,

Ultrasonography: 3 scans

Not Covered



70

24 Free Access outside Country

In Patient Treatment in Oman, Qatar, Kuwait & Bahrain Lebanon, Jordan, KSA, India, Europe & USA, All other countries – on cash payment and settlement basis

Cashless hospitalization at

over 4000 network hospitals

25

Tax Benefits Not Available Benefits under

section 80D

DENTAL BENEFIT

26 Dental Consultation Covered Not Covered

27 Tooth Extraction: simple

Extraction,

Surgical Extraction Covered Not Covered

28

Tooth filling

Amalgam filling

Composite filling

Glass Ionomer filling

Covered Not Covered

29 Root Canal Treatment (R.C.T) Covered Not Covered

30 Medications

Covered Not Covered

31

Intra Oral { Bite wing/

Periapical / Occlusal} Extra Oral {

Panoramic X-ray &

Tomograms}

Covered Not Covered

32

Intra Oral { Bite wing/

Periapical /

Occlusal}

Extra Oral { Panoramic X-

ray &

Tomograms}

Covered Not Covered

33

Antibiotics

Analgesics

Antacids

Enzyme preparations (

Edema

reductions) Vitamins ( only with

antibiotics)

Covered Not Covered



71

OTHER SALIENT BENEFITS

34 Day care Treatment Covered Covered 144 day care procedures

35 Out Patient Surgery Covered Not Covered

36 Emergency Mental health

Treatments Covered Not Covered

37 Dental treatment

Dental treatment

for accidental

damage to natural teeth by a external means

Outpatient dental treatment waiting period of 3 years

38 New Born baby coverage

Babies born in UAE - New born expenses are covered from day 1 (from Date of Birth) under its own policy up to the policy annual limit

Additional benefit on payment of

additional premium

39 Preventive services for members

over 8 years of age

Cover Fasting Blood Sugar and HBA1C tests are covered once a policy year for eligible members

Not covered

40 Pre-hospitalization and post-

hospitalization Not covered

Medical expenses 60 days before and

90 days after hospitalization

41

Hearing and vision aids, and

vision correction

Covered only in cases of medical

emergencies

Every third year upto Rs.10000

42 Global Emergency Assistance

services coverage

No Financial limitations applicable under this benefit, Worldwide Emergency Medical Evacuation

Not Available

Table: 2

FINDINGS

The above analysis between Salama Takaful insurance and Apollo insurance

shows that in overall concern Salama offers more benefits and coverage than Apollo.


Out of 42 items analyzed Salama offers coverage for 38 items while Apollo offers

only for 22 items. Apollo and Salama do not have coverage for 20 and 4

respectively.

The result significantly shows that there is huge difference in quantity of

claims offered by both companies. In most cases SALAMA stands in first grade in

giving large amount of claims especially for maternity benefits and annual total

benefit limit (this is independent analysis without regarding disparity in life style

expenses across countries of operation).

However Apollo outstands in some areas such as Tax benefit, multiplier

benefit, and cumulative bonus which are not offered by S

This study makes it clear than an insurance company based upon Takaful

principle can perform well in providing all kinds of insurance services and coverage

as well as conventional insurance or more better. The requirement of Shari’ah

compliance is not a barrier in this regard rather it enforces the moral and ethical

commitment of policy holders towards company and society as whole.




only for 22 items. Apollo and Salama do not have coverage for 20 and 4





expenses across countries of operation).


benefit, and cumulative bonus which are not offered by Salama in such Extend.






SALAMA

TAKAFUL

COVERAGE

45%

APOLLO

INSURANCE

COVERAGE

26%

APOLLO NON

COVERAGE

24%

SALAMA NON

COVERAGE

5%

INSURANCE COVERAGE



72


only for 22 items. Apollo and Salama do not have coverage for 20 and 4 items






alama in such Extend.








73

CHAPTER- 5

CONCLUSION

• Suggestions

• Conclusion

• References

• Annexure



74

SUGGESTIONS

• This study suggests that SALAMA have to introduce multiplier benefits,

restore options to Takaful policy holders.

• Apollo Munich should improve their products, services, offerings in line with

Takaful companies which are new market competent.

• Since Takaful insurance companies are in the introductory phase in the

industry there is a strong need to conduct performance evaluation studies and

feasibility studies so that it can be introduced to more potential new markets

such as India.

• Further studies should be conducted on a broad basis by including large

sample size of companies from both industries to reflect real face and

peculiarities of insurance systems prevailing in the current market.

• This research provides new avenues for future research.

CONCLUSION

After comparing conventional insurance with Takaful insurance, it is indicated

that Takaful is more suitable than conventional insurance to whole mankind especially

to the vast Muslim community of the world. The goal of Takaful, well-being

individuals and self-sustaining operation without earning high profit, makes it distinct

from conventional insurance and appropriate for inclusive growth. The concept of

mutual risk sharing and shared responsibility in Takaful is very instrumental for

promoting social solidarity, harmony and cooperation among the social beings. When

people try to donate collectively to assist their fellow members in society it creates

helping mentality and reduce the corporate profiteering habits. Takaful policy holders

are feeling happy and secure disregarding of getting claims, as the Takaful fund is

considered as property of themselves and surplus will be distributed whenever exist.

The major differences between Takaful and conventional insurance are

regarding their conceptual and operational framework. Takaful is risk sharing

mechanism (Ta’awun & Tabaru’u) governed by Shari’ah principles whereas



75

conventional insurance is risk transferring mechanism governed by human laws.

Conventional insurance give coverage against chance of loss (risk) not against the loss

itself by its capacity to convert uncertain and indeterminate risk into fixed cost by way

of consolidation. On contrary, Takaful is based upon loss theory where the great stress

is laid upon the distribution of actual losses as the essential element of insurance.

Here Takaful is the compensation of actual loss for its participants by the way of

community pooling which reflects the essence of insurance.

The last part of this study gives a comparative analysis of Islamic and

conventional insurance companies. After comparing two leading companies’

insurance policies, premiums, benefits and coverage it found that company offerning

Takaful insurance is leading than conventional insurance company in most cases.

This indicates that Takaful insurance is not an utopia rather is a practical alternative to

conventional insurance and that it is apt to introduce in India where there is untapped

demand and unavoidable need as a large volume of Muslim communities are deprived

of formal insurance system due to their faith in Islam.

References

Fr. Louis Ma’luf al-Yassu’i and Fr. Bernard Tottel al-Yassu’i, Al-Munjid –

Arabic Dictionary, 1908.

Asif Ahmed Qureshi, Analyzing the Shari’ah compliant issues currently faced

by Islamic Insurance, Interdisciplinary Journal of Contemporary Research in

Business, 2011.

Ayub, M. An introduction to Takaful – an alternative to insurance. Islamic

Banking Department, State Bank of Pakistan, Karachi, 2003.

Encyclopedia of Americana, New York etc. 1957

Encyclopedia of Britannica (11th edition), Cambridge, 1910-11.

Encyclopedia of Chambers’s (new edition), London, 1959.

Encyclopedia of Islam, Leyden and London, 1913-34.



76

Engku Rabiah Adawiah, E.A, (2008). Essential Guide toTakaful (Islamic

Insurance),

Hafiza Tahira, Comparative performance of Islamic and conventional insurance

companies in Pakistan, IOSR Journal of Business and Management, 2014.

Indian brand equity foundation, 2015, from www.ibef.org/industry/insurance-

sector-india.aspx

Manes, Insurance: facts and Problems, New York, London, 1938.

Marifa Acadamy -Practical-Guide-to-Islamic-Banking-and-Finance.

Maysami, R. C. An analysis of Islamic Takaful insurance- a cooperative.

Mher Mushtaq Hussain, Conceptual And Operational Differences Between

General Takaful And Conventional Insurance, Australian Journal of Business

and Management Research, 2011.

Mohd. Izhar Ahmad, Problems and Prospects of Islamic Banking: a case

Study of Takaful.

Nor Aini Ali, Asmak Ab Rahman, Comparative Study Between Auto Takaful

And Auto Insurance Purchasing Behaviour Among Malaysian

Undergraduates, Jurnal Syariah Jil, 2008.

Muhammad Musleh-ud-din, Insurance and Islamic law, New Delhi, 2006.

Paton, G.W, Jurisprudence, Oxford, 1951.

Seven Principles of Insurance, 2015, from http://bit.ly/1Gf5gFe

Seyed Mohamed Mohamed Mazair, Conventional Insurance And Takaful:

Conceptual And Operational Differences, Paper Proceeding of 5th Islamic Economics

System Conference, 2013.

Syed Umar Farooq, Finance and Administrative Sciences , European Journal

of Economics, Issue 20, 2010.

Willet,A.H, The economic theory of Risk and Insurance, Philadelphia, 1951.

SALAMA Islamic Arab Insurance Co., from https://salama.ae/takaful.aspx 2014,

https://salama.ae/family_insurance.aspx, https://salama.ae/healthtakaful_products.aspx, 2015

APOLLO Munich Health Insurance, from www.apollomunichinsurance.com/Health,

www.apollomunichrestore.com/optima_restore.aspx, 2015.

APOLLO Hospitals, from en.wikipedia.org/wiki/Apollo_Hospitals, 2015.



77

Annexure1: SALAMA insurance Brochure



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Apollo Munich Health insurance Brochures



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takaful(islamic insurance); comparative study on conventional insurance and islamic insurance

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