THE PROSPECT OF ISLAMIC INSURANCE BEYOND THE FUTURE

Having known the superiority of Islamic Insurance’s concept, it is the purpose of this sub chapter to dwell upon the scope and prospect of the Islamic insurance. The prospect of Islamic future may be traced back to the history of the mutual insurance. The mutual insurance has been developed by people after the industrial revolution in the western world. This revolution brought with a new type of social insecurity for which social and mutual insurance was involved as at least a partial solution.
In course of time, the mutual insurance has developed. It is now wider in scope and larger in size. In Britain the main representatives of mutual insurance are Friendly Societies. They have spread all over Europe. France has several thousands of such small association and their operations have been successful. The same may be said of Switzerland, Belgium and Holland, and particularly of Italy, where large mutual associations have been greatly favoured by governments. The measure of their success may be imagined by the fact that they are most popular in Russia while in the USA there is the leadership of giant mutuals .
By this development, it is understood that the mutual insurance which constitutes the basic thought of the Islamic insurance has the auspicious prospect in future. Admittedly, also, the Islamic insurance is likely accepted by most Islamic countries in the world, especially Middle-East and other surrounding Islamic countries, and particularly countries in where the majority of Muslims live e.g. Indonesia.
Indonesia has approximately 90% Muslim citizens, who, nowadays, seemingly realize to perform their identity on the stage of economic affairs. This forms a large captive-market along with the improvement of political and economic stability. On the other hand, most of the Muslims require the device of trade on the basis of shari'a, and this requirement gets wider all along with the development of financial service industrial affairs. Furthermore, it is required to found many Islamic insurance companies as well as interest free banks to satisfy this urgent demand .
So far, PT Asuransi Takaful Keluarga is the only one of the Islamic insurance company among 52 companies of Life Insurance in Indonesia. Apparently, it is able to eliminate 42 companies in acquiring the amount of policy-holder. See at the table below :
Rank Number Name of Company Number of Policyholder
1 Bringin Jiwa Sejahtera 6,766,345
2 AJB Bumiputera 1912 4,789,062
3 Jiwasraya 3,010,210
4 Koperasi Asuransi Indonesia 2,423,672
10 Asuransi Takaful Keluarga 150,107
Total 52 Companies 20,380,574
Source: tazkia.com 2001
The writer is in no doubt that above fantastic acquisition still can more be enhanced through many strategies. Apart from that, the growth of the Islamic insurance is enormously depending on government’s and society's response, it means that the government is expected to produce the particular regulation and law institution relating to oversee the Islamic insurance operation
Meanwhile, the society is hoped to participate actively in advancing this shari’a economy system, of course, it is neither only in insurance nor banking, but also in increasing the Islamic ummah's quality.

The Mechanism of Funds Management in Islamic Insurance

1. The Mechanism of Funds Management in Islamic Insurance
To eliminate the element of riba, the mechanism of fund management and investment in Islamic Insurance is based on mudharabah system . Mudharabah is a contract of partnership on the principle of profit lost sharing whereby one person gives his capital to another to do business and both parties share in any profit or loss according to mutually agreed terms .
A. Azhar Basyir divided the mechanism of policyholders' fund management into two models, the premium with savings account and the premium without savings account .
a. The Premium with Savings Account
In this model, the first premium installment of policyholder is divided into two accounts, Participant's Account and Participant's Special Account (charity account).
The Participant's Account contains of policyholder's savings fund and the Participant's Special Account contains of tabarru' fund, this fund is providing the intention of policyholders to reciprocally guarantee each other to cover payable claims. The latter account usually ranges from 1,25% to 17,50% of premium, depends on policyholder's age and time span of policy. The more the policyholder ages the bigger tabarru' will be. The table of tabarru' can be seen in the table below :

Age Period of Agreement
5 6 7 8 9 10 11 12
18 - 30 1.25 1.25 1.25 1.75 1.75 1.75 2.25 2.25
31 - 35 1.25 1.25 1.50 1.75 2.00 2.25 2.50 2.75
36 - 40 2.00 2.00 2.25 3.00 3.25 3.50 4.25 4.50
41 - 45 3.00 3.25 3.50 4.75 5.00 5.50 7.00 7.50
46 - 50 5.00 5.50 6.00 8.00 8.75 9.50 11.75 12.75
51 – 55 8.50 9.25 10.00 13.25 14.50 15.50 - -
56 - 60 13.25 - - - - - - -

Age Period of Agreement
13 14 15 16 17 18 19 20
18 - 30 2.25 2.50 2.75 2.75 3.25 3.50 3.75 4.25
31 - 35 3.00 3.50 4.00 4.25 5.00 5.25 5.75 6.50
36 - 40 5.00 6.00 6.50 6.75 8.00 8.50 9.25 10.75
41 - 45 8.00 9.75 10.50 11.25 13.25 14.25 15.25 17.50
46 - 50 13.75 16.25 17.50 17.00 17.75 17.25 16.75 -
Source: PT Asuransi Takaful Keluarga
Furthermore, all policyholder's fund from both accounts shall be booked into the Policyholder's Fund Collection and shall be invested prudently yet to gain an optimal profit. The yield of investment is distributed between policyholders and company (shareholders), in an agreed profit lost sharing basis, for example 60% for the policyholders
40% for the shareholders.
The policyholder's yield (60%) shall be booked into Participant's Savings Account and Participant's Special Account proportionally. The Participant's Savings Account shall be paid back to the policyholder when :
1) The agreement is over,
2) The policyholder retires in the time of agreement,
3) The policyholder passes away in the time of agreement.
And the Participant's Special Account shall be paid back to the policyholder when:
1) The policyholder passes away in the time of agreement,
2) The time agreement is over with the net surplus of tabarru'.
Meanwhile, the shareholder's yield (40%) shall be used for pre-operating expenses, initial costs, and fixed assets with the portion 10 – 15% of the yield, and the rest of the yield shall be invested in time-deposits at bank, equity on stock-market, unit trust, direct investment and others with shari’a basis. The return of investment shall be re-accumulated to the principal to cover all the overhead costs disbursed by the company .
b. The Premium without Savings Account
In this model, all policyholder's premium installment shall be booked into Participant's Special Account, then allocated into Accumulated Participant's Fund and shall be invested prudently to gain an optimal profit with shari’a basis.
Furthermore, the yield of investment is allocated into Accumulated Participant's Fund decreased by Company's Operating Expenses. And the net surplus shall be distributed between policyholders and company (shareholders), in an agreed profit-sharing basis, for example 60% for the policyholders 40% for the shareholders.

The Contract of Conventional Insurance

As stated above that the purpose of all insurances is to seek protection against all kinds of risk to which man is exposed. The purpose of insured is to prepare himself against probable hazard and loss in his life and trade. He tries to shift the burden of the probable loss on to shoulders of others, who are prepared to take the risk for some financial gains to themselves.
All insurance contracts are based on the law of large numbers and the mathematics of probability. In a large homogeneous population it is possible to estimate the normal frequency of common events, such as deaths and accidents. Losses can be predicted with reasonable accuracy, and this accuracy increases as the size of group expands .
All insurance contracts are made on the principle of uncertainty, uncertain events, which involve speculation as well as risk . Both the insurer and the insured enter into contract of mutual risk, the former risking a loss and the latter risking his premiums.
The agreements between the insurer and the insured in insurance contract are embodied in a formal document, called a policy which, afterwards, the insurer is legally bound issue to the insured on the receipt of premium and the insured is legally obligated to pay the premium monthly or annually appropriate with previous agreement between the parties.
The insurance contract is not like the contract of other service companies. It has characteristics as below:
a. Future contract, because the benefits of this contract just appear when the loss is paid in next day,
b. Contingent contract, because the loss happens uncertainly and it undertakes based on probable perils,
c. Service contract, because the insurance provides the services, benefit understanding and suggestions.
d. Risk contract, the base of insurance contract is the uncertainty with the probable loss of perils. The insurance shifts the risks of this loss on to company’s shoulder as the professional risk bearer .
a. Policy
Policy is a formal document contains the agreements between the insurer and the insured in insurance contract . The policy can be the small sheet of paper contains the concise and simple agreement, or be the long and hard document. All of both documents state dues and obligations of both parties.
The policy plays an important part in the insurance contract, whether in the beginning step, during the contract or in the covering of insurance. For the insured, the policy is the basis evidence to propose the indemnity demand when the insured hazard causes the loss. And for the insurer, the policy is the basis to know the insured’s responsibility toward the hazard .
Except life insurance policy, every policies must contains of eight main points, they are:
1. The day of the insurance covering
2. The name of the insured who agrees the insurance covering
3. The clear explanation about the assured goods
4. The amount of money for how many times the insurance is held
5. The assured perils and hazards
6. The beginning time and the end of the insurance
7. The amount of premium
8. The matters that normally must be well known by insurer, and the certain promises and clauses between the insured and the insurer .
Globally, the eight main points above are divided into four parts, they are :

1. Declaration.
The declaration is a statement made by insurance applicant, who basically furnishes all such information and documentary evidences about his identity, the value of the goods, and everything related to the covering of insurance contract as the insurer may requires. This information must be appropriated with the utmost good faith principle. The insurance applicant gives this information by filling up the application form or questionnaire, and then he signs it up.
2. Insurance clause.
The insurance clause is the main part of the policy. It contains of the provision of whatsoever risks determined in the policy, the requested requirements and the column for the insurer’s liabilities.
3. Exclusions.
In the sections of the exclusions, the policy determines whatever the excluded matters, whether disasters or hazards, subjects or losses. Hence, the insured must know and understand precisely whatever excluded in the recovering of the purposed policy.


4. Conditions.
In this part of the policy, be explained all about dues and duties of the parties, whether insurer or insured. These conditions normally contains of premium payment, risks alteration, insured’s duties toward the incidents, report of losses, indemnity, etc.
Thus, except the application form, the insurer is who makes the standardization policy. Then this policy offered to the insured in order to examine the requirements and clauses carefully. If the insured agrees all terms, the policy will be finished and signed up, and after 24 hours it will be returned back to the insured.
But, practically this short time hardly can be fulfilled, because the insurer must complete the mails and process the received data. So, before the policy can be returned to the insured, temporarily the insured will receive the “cover note” or “bider”, it is a temporary contract of insurance recovering before the policy can be returned .
b. Premium
The premium is the price at which the insurer is prepared to take risks and bear the burden of the probable loss involved in the contract of insurance. The premium is the obligation of the insured against the services of the insurer in an agreed period of time .
On the basis of law of averages, the insurer finds through experience an amount of premium with calculating the details as below:
1. The reasonable amount sufficient to cover the risks,
2. Other charges, including policy and administration expenses,
3. The tip for agents, if the insurance held through the agency,
4. The profits from the investment of accumulated funds .
The contract of insurance becomes effective only when the premium is paid by the insured and received by the insurer. If it is not so, the insurance is unavailable . Thus, the premium must be paid completely during the contract. At the sort-range insurance such as travel insurance, the premium is paid on the beginning of contract. But, at the long-range insurance, the premium can be paid monthly on the previous agreed date, started on the first month periodically. The amount of premium and its payment date are clearly embodied in the policy.
Once the premium is paid by the insured and risk assumed by the insurer, there shall be no apportionment or return of premium afterwards, even though the subject-matter of the risk may vanish before the period of cover has elapsed.