Jakarta, Armfalcon.com – The concept of risk management carried out by conventional insurance is by way of risk transfer from the policyholder to the insurance company. Buying and selling risk itself is not permissible in Islam.
Scholars say insurance is actually still permissible as long as the principle does not violate Islamic law.
In Indonesia, sharia insurance activities are supervised by the Financial Services Authority (OJK) and supervision from the Sharia Supervisory Board (DPS).
The way Islamic insurance works is no different from conventional insurance. However, the term used in Islamic insurance is risk sharing or take risks.
The position of the sharia insurance company in this business is that of a trustee who is given the mandate to manage funds deposited by customers in the form of contributions.
The insurance company will also pay the sum insured to customers who experience a disaster. For more details, here are things about sharia insurance that you should know.
The principle of helping
Sharia insurance companies will also provide protection for guaranteed health care costs, death benefits, and compensation but according to sharia principles, namely helping each other (Tabbaru).
The law governing this principle is the DSN MUI Fatwa Number 21/DSN-MUI/X/2001 concerning General Guidelines for Sharia Insurance.
Contracts in conventional insurance are not much different from buying and selling transactions. However, Sharia does not expect that.
There are three contracts in sharia insurance. Contract on the basis of helping and protecting (Tabbaru), risk management (Wakalah bil Ujrah), and cooperation profit sharing (Mudharabah).
In sharia insurance, every contract is also of course not allowed to contain gharar (uncertainty), maisi (gambling), usury (interest), as well as other things that are not in accordance with Islamic law.
Management of customer fees
In conventional insurance, contributions are referred to as premiums. But Islamic insurance calls it a contribution.
Islamic insurance companies do not have the right to own contributions from customers, they are only given the mandate as managers by customers. The funds will also be processed for the benefit of customers in a transparent manner.
How is it different from conventional insurance?
Premium funds deposited will belong to conventional insurance companies. This is because the concept of conventional insurance is the same as the concept of buying and selling, insurance companies are also given the freedom to use these funds in any instrument, including those deemed non-halal as long as it complies with the provisions of the agreement.
In conventional insurance, the potential for forfeited funds can occur if the policyholder is still alive when the coverage period is over. But not so in Islamic insurance.
Funds deposited in the form of premiums can still be withdrawn when the policyholder is suddenly no longer able to pay premiums.
There is an obligation to pay zakat
In sharia insurance, there is an obligation to pay zakat, the amount of which is determined by the amount of profit that the company gets.
It should also be noted that in conventional insurance, there will be no provisions regarding this one.
Every insurance company certainly invests the funds they collect in a number of instruments.
Financial instruments in sharia insurance investments certainly cannot conflict with Islamic law. For example, such as a business whose activities are considered to have an element of gambling, fake offers/requests, trading without the delivery of goods or services, ribawi financial services, or buying and selling with an element of uncertainty.
Some of the instruments referred to are Islamic bank deposits, Islamic stocks, Islamic State Securities, corporate sukuk, Islamic mutual funds, and other Islamic securities.
Unlike conventional insurance, conventional insurance can have a portfolio of investment securities in any instrument. Companies have full authority over the funds they collect from policyholders.
There is a surplus of tabarru funds
In sharia insurance, there will be an operational surplus (tabarru fund) whose proceeds will be distributed to policyholders according to the percentage ratio between the company and the policyholder.
This surplus value is obtained from the difference in total contributions paid by customers into the tabarru’ fund after deducting claim payments, reinsurance contributions and technical reserves.
Unlike conventional insurance. The surplus in conventional insurance will certainly be the right of the insurance company.
Those are some of the differences that you should know about conventional and sharia insurance. In essence, the way Islamic insurance works is similar to conventional insurance in helping us mitigate financial risks.