🔖Concept of Islamic alternative to Insurance

Various kinds of alternative insurance schemes existed in the pre-Islamic period in the Arab world, many of which continued into the Islamic era. Under Umar ibn Al Khattab, the second rightly guided caliph, the government encouraged residents to perform “Al Aqilah” which was the practice of sharing blood money, a compensation paid by an offender to the family of the victim, among a specified group of people.

The system of Aqilah was further expanded in the second century of the Islamic era when Muslim Arabs began trading in India and Asia. Groups of traders would enter into a joint guarantee to help one another in times of disaster or misfortune.

In practice, a group of individuals pool funds together with the intention of providing financial assistance to one another as insurance against a defined risk. The intention “Niyah“ is that of mutual aid and stems from the fact that the funds are contributed as donations, partial or full, for the specific purpose of insuring against risks. The funds are used to compensate the Operator (the company that manages the funds on behalf of the participants), to cover membership payouts against adverse events, and invested for returns. In case there is surplus remaining after these activities, they are redistributed back to the original contributors.

The permissibility of applying tabarru` in islamic alternative to insurance is consistent with the resolution of the OIC Fiqh Academy which recommends its application in developing cooperative insurance institutions. Under the concept of tabarru’, the contributors do not expect any return.

In the following narration, an analogy has been made to show how repulsive and disgusting it is that a person takes back the gift he has already given to someone.

Abdullah ibn ‘Abbas reported that the Prophet of Allah said, " The one who takes back the gift he has given to someone is like one who eats his vomit.” In another wording: ¨ The one who takes back the charity that he gave is like a dog that vomits then eats its vomit.¨ [Al bukhari and Muslim].

Islamic alternative to insurance is defined as “a scheme based on brotherhood, solidarity and mutual assistance which provides for mutual financial aid and assistance to the participants in case of need whereby the participants mutually agree to contribute for that purpose.

Islamic alternative to insurance based on tabarru` mutual protection is superior to conventional insurance in several ways:

• More cost effective as underwriting surpluses are redistributed among the participants

• Strong emphasis on transparency due to its collaborative nature

• Supports ethical investments and eschews investments that support undesirable industries

• Shariah-compliant alternative to conventional insurance, one that emphasizes community betterment and mutual assistance

• Free from prohibitive elements

The majority of Muslim scholars agree that most of the injunctions of the Shariah were revealed with certain objectives and reasons called ‘Maqasid Shariah’, also referred to as the five fundamental needs “Al Darurat Al Khamsah” which consist on establishing that which is beneficial and prevent that which is harmful.

One of these five objectives is the protection of wealth.

Acquiring property is a basic human ambition and right. Islam has ordered that no one should transgress and acquire the property of others without legitimate reasons and without a proper contract.

فَقَالَ تَعَالَى: "وَلاَ تَأْكُلُواْ أَمْوَالَكُم بَيْنَكُم بِالْبَاطِلِ وَتُدْلُواْ بِهَا إِلَى الْحُكَّامِ لِتَأْكُلُواْ فَرِيقًا مِّنْ أَمْوَالِ النَّاسِ بِالإِثْمِ وَأَنتُمْ تَعْلَمُون

Allah, exalted be He said (what means):"And do not consume one another's wealth unjustly (in any illegal way e.g. stealing, robbing, deceiving, etc.), or send it [in bribery] to the rulers (judges before presenting your cases) in order that [they might aid] you [to] consume a portion of the wealth of the people in sin, while you know [it is unlawful]."

[Quran 2: 188]

There are several ways of acquiring the property of others illegitimately. The Shariah prohibits all these means.

Prohibition of Riba (Interest)

Tabarru` mutual protection funds are invested in shariah-compliant investment portfolios that are free from riba. Moreover, because contributions are intended as donations for a specific purpose, they are not loans with interest.

Prohibition of Maisir (gambling)

The fundamental principles of tabarru` mutual protection schemes are widely accepted by Islamic scholars worldwide and a majority of them are in agreement that it is free from Maisir. Indeed, it is not based on a contract of exchange, so it eliminates the problem of deliverability.

Prohibition of Gharar (uncertainty)

Gharar means excessive uncertainty and is associated with deception involving uncertainty and risk. It is a broad concept that can be found in conventional insurance when the policyholder enters into a contract where his liability and the right are uncertain. The customer will always lose his money even if no membership payout has been made. To eliminate Gharar, the contract made is based on tabarru’ (donation) which is an unilateral arrangement. According to the Maliki School, Gharar has no impact on donation contracts.

Prohibition of Taghrir (deception)

The concealment of unattractive features under a deceptive attractive appearance is forbidden by the Islamic law. A defrauded party may rescind a contract by exercising the option of fraud ‘Khiyar al-Tadlis’ and seek to repair the damage incurred by deceptive behavior. Tabarru` mutual protection schemes are by essence exempt from deceptive practices that mislead consumers.