Islamic insurance or Takaful is a large industry operating in various parts of the world, including Middle East, Asia and Europe. Globally, despite COVID-19 impacts, the industry was valued at US$27.6 billion in 2021 and is expected to grow to US$49.8 billion by 2027. Australia is a fertile land for Islamic insurance business. Muslim Australians alone are capable of generating high demand for various types of Islamic insurance products such as vehicle, property, health and family/life.

Takaful is an Islamic insurance system through which participating members (policyholders) mutually contribute a sum of money (premium) in order to support each other (for settling insurance claims) in case of a loss, damage or theft. In other words, Takaful is a system whereby participants contribute regularly to a common fund with an intention to jointly guarantee each other in an spirit of humanity, solidarity and mutual assistance.

The conventional insurance operates with a contract which is constructed between two parties, namely the insured and insurance company as insurer. The insured pays a regular premium to the insurer in return for the guarantee to receive a settlement amount as compensation. The Islamic insurance or Takaful contract is different wherein the Takaful operator (or Islamic insurance company) is not the insurer insuring the participants (or insured/policyholders). In fact, the participants (or insured) mutually insure one another. The Takaful operator manages the business, settles claims and invest funds for agreed upon management fees or other remuneration schemes.

Islamic insurance or Takaful is a risk management strategy. Mitigating risk in life is not repugnant to Islam. Human beings are exposed to all sorts of hazards. Typical perils in human life include accident, sickness, theft, fire and natural disasters like flood. Islamic insurance alleviates the risks related to these perils and resulting financial losses.

In 1965, the Congress of Islamic Research in Cairo, Egypt and the First International Conference on Islamic Economics held at Makkah, Saudi Arabia in 1976, both deliberated the issue of Islamic insurance for Muslim markets in the world.

The first co-operative Takaful was established at Khartoum, Sudan in 1979. Islamic insurance services were then developed in the Middle East and Malaysia in 1984. The year 1996 witnessed the commencement of Takaful business in South Africa. The Takaful Act 1984 was the first legislation in the world enacted by the Malaysian parliament.

In the global Takaful industry, there are four operating models for Islamic insurance which apply to several forms of contracts governing the relationship between the participants and Takaful operators:

(1) Mudarabah Model (Takaful operator will receive premiums from participants to carry out the enterprise and the profits are distributed between them on an agreed upon percentage),

(2) Wakalah Model (participants are owners of the premiums and Takaful operator acts as an agent who manages the business for a defined fee),

(3) Hybrid of Wakalah and Mudarabah Models (it combines various features of these two models) and

(4) Hybrid of Wakalah and Waqf Models (apart from Wakalah principles, this model establishes a Waqf fund initiated/donated by the shareholders of the Takaful operator and the returns are be used for the benefit of the participants).

Islamic insurance offers two broad types of products: general insurance and family insurance which is comparable to life insurance. The general insurance products are offered to retail and corporate clients to underwrite risks in various portfolios such as vehicle, health, worker’s compensation, professional indemnity, public liability, home & contents, travel and so on. Typical products under family insurance would include children’s education, income protection, total & permanent disability and trauma.

There is a large and growing market for Islamic financial services including Islamic insurance in Australia. Although Takaful products would be open to all Australians, only the vehicles and properties owned by Muslim community would form a commercially viable base for a highly profitable Islamic insurance business in this country. All we need is an Islamic insurance provider and some products in this greatly stable and competitive Australian economy with a good regulatory framework which protects the rights of businesses and consumers.