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Article
Publication date: 27 August 2024

Md. Habibur Rahman, Md. Faruk Abdullah, Noor Mohammad Osmani and Nur Suhailah Zakiyyah Binti Aziz

This study aims to investigate the possibility of practicing cross-subsidisation of underwriting surplus among different takaful operators. It responds to the recent discussion…

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Abstract

Purpose

This study aims to investigate the possibility of practicing cross-subsidisation of underwriting surplus among different takaful operators. It responds to the recent discussion paper published by Bank Negara Malaysia (BNM) on broader application of tàawun (mutual assistance), which seeks insights into cross-tàawun of underwriting surplus within takaful industry.

Design/methodology/approach

A qualitative, semi-structured interview is used to gather primary data, featuring 13 one-to-one interviews with selected Sharìah and operational experts in takaful. Open-ended questions are drafted according to BNM’s discussion paper to guide the interview. A content analysis method is used to delve into the topic based on scholarly papers, books and regulatory guidelines. A thematic analysis is applied to explore the qualitative data.

Findings

This study establishes the feasibility of cross-subsidisation of underwriting surplus in takaful. Given that participants are the rightful owners of the underwriting surplus, cross-tàawun is deemed permissible with participants’ consent. With the view that underwriting surplus belongs to the fund due to outright transfer of contributions by participants, the regulators have discretion to permit cross-tàawun. The authorities can make any decision if it serves the public interest. Furthermore, the study provides Sharìah and regulatory requirements to govern the practice of cross-tàawun in takaful. Respondents of the study advocate for policy reviews and regulatory adjustments to facilitate cross-subsidisation of takaful surplus.

Practical implications

This study significantly contributes to the existing body of knowledge in Islamic insurance studies. It offers valuable insights for the regulators to formulate the required policies and guides takaful operators to develop products accordingly. Moreover, the study supports Sharìah scholars in making informed decisions about cross-tàawun practices.

Originality/value

This study fills a critical gap in the existing literature by being the first to examine cross-subsidisation of underwriting surplus in takaful. The proposed cross-subsidisation of underwriting surplus will enhance sustainability of takaful funds and contribute to stability of takaful industry. As a foundation, this study encourages future research to explore other relevant aspects of cross-subsidisation of underwriting surplus in takaful operation.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 17 no. 6
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 12 February 2025

Md. Habibur Rahman and Nur Suhailah Zakiyyah Binti Aziz

Takaful has substantial prospects to obtain mutual protection, financial inclusion and sustainability of life and wealth. Structuring takaful with tabarrù triggers controversies…

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Abstract

Purpose

Takaful has substantial prospects to obtain mutual protection, financial inclusion and sustainability of life and wealth. Structuring takaful with tabarrù triggers controversies and impedes achieving desired takaful outcomes. This study aims to investigate tabarrù-based takaful models and determine tàawun as the underlying notion of takaful.

Design/methodology/approach

The study employs a qualitative approach using semi-structured interviews to obtain primary data. Nineteen one-to-one interviews have been conducted with Sharìah and operational experts in the takaful industry. A thematic analysis method is utilised to investigate qualitative data.

Findings

The study finds that tabarrù contradicts the spirit of takaful. Donations cannot be subject to any form of refund, and receiving benefits from donations turns the arrangement into an exchange contract. Takaful participants never intend to make a pure donation while paying contributions. Moreover, tabarrù is not feasible for practicing any form of surplus sharing with participants. The study identifies that tàawun helps to overcome these issues and attain the potential of takaful. Tàawun facilitates benefit and surplus sharing with participants and others, eventually contributing to financial inclusion, solidarity and sustainability of the financial system.

Practical implications

Reflecting tàawun as the underlying notion, benefits of takaful can be shared with participants. Also, as a broader application of tàawun, subsidising different takaful operators by underwriting surplus can be practiced. Besides, tàawun allows surplus sharing with any charitable purpose, contributing to financial inclusion and public welfare.

Originality/value

The study contributes to Islamic insurance knowledge. It helps formulate policies and develop takaful products by integrating tàawun into takaful. Additionally, the study supports the idea of cross-subsidisation of underwriting surplus among diverse takaful operators.

Details

Journal of Islamic Accounting and Business Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0817

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