In the last two articles Conventional Insurance vs Islamic Insurance: Relationship between Parties and Conventional vs. Islamic Insurance: The Roles, Rights and Obligations of the Parties, we have discussed how structure of Islamic insurance is different from conventional. The difference is so fundamental leading to different roles, rights and obligations of the parties involved. We should also understand that these differences are necessary in implementation of risk sharing concept to replace risk transfer.
In the discussion below, we are linking up the implementation of risk sharing with the Shariah views by outlining the fatwa of the National Sharia Council – Indonesian Council of Ulama (DSN-MUI). There are two DSN-MUI fatwas on the Islamic insurance model, namely fatwa no. 52/DSN-MUI/III/2006 concerning Akad of Wakalah bil ujrah in Shariah Insurance and Reinsurance and fatwa no. 53/DSN-MUI/III/2006 concerning Akad of Tabarru’ in Shariah Insurance. Both were published after the previous fatwa no. 21 / DSN-MUI / X / 2001 concerning Guidelines on Shariah General Insurance is considered insufficient for the fast-growing Islamic insurance industry. This deficiency is clearly stated as the first point in the chapter of Menimbang (Considering) of latest two fatwas.
It has become the standard of any DSN-MUI fatwa, the chapter of Menimbang (Considering) cites several relevant verses from the Qur’an. Meanwhile the chapter of Mengingat (In view of) contains some of the hadiths of Rasulullah SAW, fiqh rules and opinions of scholars, including contemporary scholars.
Although these fatwas on Islamic insurance are recorded in two separate documents, they are actually interrelated and should be read as one unit. Each fatwa separately addresses akad of Tabarru’ and Wakala bil Ujrah, two types of akad or agreements that operate simultaneously in Islamic insurance.
Akad of Tabarru’ is an agreement or contract among the participants while the akad of wakalah bil ujrah is between the participant and the Islamic insurance company as the operator.
Let’s start reading the first fatwa on the Tabarru’ agreement.
The chapter of Menimbang (Considering) quotes several verses from the Qur’an, namely QS An Nisa (4): 2, QS An Nisa (4): 9, QS Al Hasyr (59): 18, QS Al Maida (5): 1, QS An Nisa (4) 4): 58 and QS An Nisa (4): 29
In the chapter of Mengingat (In view of), in addition to a number of hadiths, this fatwa also cites contemporary scholar Wahbah Suhaily that “Some funds (premiums) provided by insurance participants are tabarru’ (good deeds) from participants to (through) companies used to help participants in need based on agreed provisions; and the company gives it (to participants) as tabarru ‘or pure grants without compensation. (Wahbah al-Zuhaili, al-Mu’amalat al-Maliyyah al-Mu’ashirah, [Dimasyq: Dar al-Fikr, 2002], p. 287)
In the chapter of General Provisions, this fatwa confirms that the akad of Tabarru’ is a contract made between participants (policyholders) and must be used in all insurance products, both general and life as well as reinsurance. In other words, there is no Islamic insurance or reinsurance without the akad of Tabarru’.
In the chapter of Terms of Akad, this fatwa states that the tabarru’ contract in insurance is a hibah (grant or charitable) type of contract with the aim of doing good deeds and to help each other between participants, not for commercial purposes. This agreement must at least regulate or establish the rights and obligations of participants, both individually and/or collectively, the manner and time of payment of claims and others.
This fatwa is very clear in term of the position of the parties in the Tabarru’ agreement. As an individual participant is entitled to receive claim from tabarru’ fund (mu’amman/mutabarra ‘lahu, مؤمّن / متبرَّع له) and collectively the participants act as the insurer (mu’ammin / mutabarri’ مؤمّن / متبرِّع).
Meanwhile, Islamic insurance company act as manager of Tabarru’ fund, based on the akad of Wakala bil Ujrah between the company and each participant. This paragraph links the akad of tabarru and the wakalah bil ujrah contract in Islamic insurance set up.
This fatwa also stipulates that the management of Islamic insurance and reinsurance must be carried out by institution that function as trust holder. Also, the bookkeeping of Tabarru’ fund must be separated from other funds.
As for the investment of the Tabarru fund, it is collectively owned by the participants. However, it is possible for the operator to receive a share in the investment income through profit sharing mechanism under Mudharabah or Mudharabah Musytarakah contract or receive a fee from Wakalah contract.
At the end of the fatwa, it also regulates underwriting surpluses and underwriting deficits. Several options must be made available on the treatment of underwriting surplus. It could be fully reserved in Tabarru funds, or partially reserved and partially distributed to participants. Alternatively, it could also be distributed to participants, Islamic insurance company and the rest remain in the Tabarru’ fund.
In the case of an underwriting deficit in Tabarru fund, the Islamic insurance company is required to address it through qardh (benevolent or no interest loan) whose repayments are made from the future surplus of Tabarru fund.
The Closing chapter states that disputes can be settled through the Shariah Arbitration Board.