The Essence of Islamic Insurance

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The Essence of Islamic Insurance

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For every true Muslim to live and die only for the Creator Allah alone. In determining contained Consequently, every Muslim must live the teachings of Islam not only in mosques, when praying, fasting, zakat and hajj, but also when he was in the market, banks and offices. When he was transacting, to invest in the capital market, as well as insurance.

The same spirit that should inspire the rise of Islamic life in the world economy. In Indonesia, because the interest-free banking system introduced by Law No. 7/1992 on Banking, which is reinforced by the recognition of the dual banking system, Islamic banking is growing rapidly in the last three years. This data shows the share of total banking assets increased from 0.11 percent in 1999 to 0.33 percent in 2001. Third party funds, rose from 0.07 percent to 0.3 percent over the same period, and the offices are also increasingly growing to reach 29 cities in Java, Sumatra, Sulawesi and Kalimantan.

In the insurance sector, a similar development occurred. Currently, insurance companies are operating really fully sharia there are three, namely General Islamic Insurance, Family Islamic Insurance (life), and Mubarakah. In addition, some conventional insurance companies have opened sharia divisions namely MAA, Great Eastern, Bumiputera (life insurance), and Tripakarta. Ministry of Finance data showed, Islamic insurance market share in 2001 was only 0.3 percent of total national insurance premiums. Future developments expected to be more generally given the conditions the propagation of Islam is increasingly broad in scope, thus increasing public awareness. In addition, some government policies that support the development of Islamic insurance is an insurance determination Hajj is managed by Islamic insurance companies. In the field of the rule of law, currently in Indonesia has formed a special rule regarding Islamic Insurance is expected to make a significant impact as a result of the Banking Act 1998.

Islamic Insurance is a part of life based on the principle of monotheism. Everyone realized that it really did not have any power themselves when disaster comes from Allah, whether it was an accident, death, or the burning of shops that we have.

There are various ways of how people deal with disaster risk. The first way is to bear its own (retention risk), secondly, the risk of transfer to the (risk transfer) to another, and (shared risk) third, jointly managed.

It is interesting to ponder that since the beginning of its existence, the mechanism of Islamic Insurance is always associated with the group. This means that a disaster is not a matter of individuals, but groups. Even if, for example, an accident happened only a specific individual (specific risk). Moreover, if the crash was linked to the wider community (fundamental risk) such as earthquakes and floods. Allah has confirmed this in a few words in the Qur'an, among others, in a letter al again, paragraph 2, and Al Baqarah verse 177. Likewise, God's promise to always "provide food and rescue of fear" (QS Quraishi: 4) we often feel the hand of others were moved by the Lord to help us to fulfill these promises. There also are many hadith that the Prophet ordered the Muslims to protect each other in the face of adversity.

Based on the verses of the Qur'an and the hadith above, the actual accident, or risk disaster losses, should be shared (sharing of risk). So, instead of each individual bear (retention risk) alone, or diverted to the (risk transfer) to another. This is the essence of risk sharing in Islamic insurance, in which applied the principles of cooperation, mutual protection and responsible (Cooperation, protection, shared responsibility), which can be abbreviated with the principle of the CPM.

Clearly different from what happens in conventional insurance. There is a risk transfer occurs. You pay a premium to transfer risk that you can not carry insurance companies. Here are selling ', with commodities is the risk of loss, which has not happened. This is where the 'defects' of conventional insurance agreement, if seen from the perspective of Islam. Islam requires a theory of contract in the commodity (contract object) is sure, whether it be in the form of goods and services. This flaw is compounded by the condition that the premiums would sink if the loss does not occur, the opposite will reach many times when it is paid as compensation in case of risks insured.

Indeed, the insured will not get any benefit out of here because the principle of indemnity insurance has been arranged that no compensation can be given more than the amount of the loss suffered. However, this risk transfer mechanism allows for the imbalance of power in running the insurance agreement as agreed. At the simplest level, for example, when the insurer requires the insured to do their best to prevent the loss of, among others, to conduct rigorous risk management, on the other hand do not need to do that because the insured has transferred the risk to the insurance company. In a more complex level, could be frauds in filing a claim, either in the form of false claims (claims fraud) and the submission of the value of the claim is higher than it actually is.

In a risk sharing recommended in Islam, as a possible moral hazard in conventional insurance. God willing it will not happen because each individual right to insurance for all participants. Funds collected (pool funds) are not only used to sympathize participants who suffered losses, will also be invested (of course in accordance with the rules of Islamic investment), and the results will be distributed back to the participants in accordance with the principles of mudaraba.

The result will be negative if risk is not managed properly collected, so the number of large claims. As a result, participants lost an opportunity to get a result. This mechanism in itself encourages each participant to make risk prevention and risk management of each well. Any claim of fraud is unlikely to occur. Not only because there is a moral and ethical dimension inherent in it, but also because of its own risk sharing mechanisms related to the principle of mudaraba, making people aware prevented bad things.

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