Islamic insurance (known as Takaful insurance) has been introduced as an alternative to conventional commercial insurance which is seen as violating Islamic restrictions on riba (interest), al-maisir (gambling), and al-gharar (uncertainty) all of which are in contravention of Shariah principles.

Generally a special wording is unnecessary but to demonstrate that it is Shariah compliant the wording should contain an Insurer Protocol which will demonstrate to the policyholder how the insurer complies with Shariah principals and also how it will discharge its obligations under the contract. This Protocol will usually take the form of an endorsement to the policy wording.

Policyholders agree to guarantee each other and make contributions to a mutual fund, or pool, instead of paying premiums. The pool of collected contributions creates the takaful fund. A takaful contract, like a conventional insurance, specifies the nature of the risk and period of insurance.

The fund is managed and administered on behalf of the participants by a takaful operator, who charges an agreed-upon fee to cover costs. Much like a conventional insurance company, costs include sales and marketing, underwriting, and claims management.

Any claims made by participants are paid out of the fund and any remaining surpluses, after making provisions for the likely cost of future claims and other reserves, belong to the participants in the fund and not the takaful operator. Those funds may be distributed to the participants in the form of cash dividends or distributions or via a reduction in future contributions.

Recently AXA Insurance have teamed up with Cobalt Underwriting to create a new Shariah-compliant insurance product for the real estate sector. The new product, which is available now, is an add-on to AXA’s existing real estate product. They have devised new premium payment and claims processes to ensure the product adheres to the key principles of Islamic insurance.  To see more details on the AXA product please click here.

At Arlington we specialise in Real Estate insurance and we have a team of friendly people who are immensely experienced at providing specialised risk solutions.

If you wish to know more about our Real Estate propositions, including Takaful insurance, our contact details can be found here.