Dr. Mohd. Ma’sum Billah
Insurable Interest: Can the Modern Law be Adopted in Takaful Operations? An Analysis
Journal of Islamic Banking and Finance, volume: 7, issue: 2, year: April-June 2000, pages:60-63
- By Dr. Mohd. Ma’sum Billah
The idea of insurable interest is one of the key issues that being dealt in insurance industry ever since the notion of insurance had been adopted in the sound society, Although the doctrine of takaful is able to prove its existence as an alternative scheme to that of Insurance practices in the late 20th century, but the issue of insurable interest in takafulpractices, has not been resolved yet. It is perhaps due to the diversified confusions that haunt equally among the scholars and also practitioners in the field of takaful. This paper however, attempts an analysis on the existing provision laid down under Malaysia Insurance Act, 1996, whether it can be possibly adopted in the contemporarytakaful practices, and if not, what could be the Shariah alternative solution to the issue of insurable interest, which may suit the takaful operations in reality.
Existing Provision Laid Down under Section 152 of the Insurance Act 1996
" (1) A life policy insuring the life of any one other than the person effecting the insurance, or the life of a person mentioned in subsection (2), shall be void unless the person effecting the insurance has an insurable interest in that life effecting at the time the insurance is effected and the policy moneys payable or where the policy moneys are payable in instalments the discounted value of all future; instalments under the life policy, shall not exceed the amount of that insurable interest at the time the event resulting in payment of policy moneys occurs,
(2) A person shall be deemed to have insurable interest in relation to another person if that other person is -
(i) his spouse, child or ward being under the age majority at that time the insurance is effected,
(ii) his employee; or
(iii) notwithstanding paragraph (a), a person, whom he is at time the insurance is effected, wholly or partly, dependent".
Can the above Provision be Applied in Takaful Operation? An Analysis
The provision provided under section 152 of the Insurance Act 1996 on the issue of insurable interest may not be applicable in takaful practices due to the following reasons:
(i) Less security for the life of insured (spouse, child, ward, employee, etc, as this may give an opportunity to the participant to gain something, through using the life of others.
(ii) Contravening the provision relating to hibah (gift) and wasiyah (will),
(iii) The ownership of the benefit over the policy is uncertain (gharar). A transaction which involves the element of gharar is unlawful in Islamic law as ruled out in the Prophetic sanction:
"Reported by Said Ibn al-Musayyib (r. a): Verily the Holy Prophet (s. a. w) forbade from an uncertain transaction" (Muwatta al-Malik).
Proposed Alternative for Takaful Operation: A Procedural Highlight
(1) A takaful certificate insuring the property or life of any one other than the property or person effecting the takaful,shall be void unless the property or the person effecting the takaful has an insurable interest legally, morally or spiritually in that property or life effecting at the time the takaful is effected.
(ii) If a person holds a takaful certificate on his own legitimate property, the certificate holder shall have an insurable interest on his property should the defined risk occur on the property, and the certificate benefit shall be payable to the certificate holder.
(iii)If a person holds a takaful certificate on his own life, he himself shall have an insurable interest on his own life should the defined risk occur on him and the certificate benefit shall be distributed, in case of his death, according to the principles of faraid, but in case if he still alive, the benefit of the certificate shall be payable to him.
(iv) If a person holds a takaful certificate on a life other than himself or on public property which is used for the noble causes (i.e. mosque, madrabah, rehabilitation centers, orphans’ house, old folk centers, refugees’ center, animal welfare centers, etc.), the takaful certificate holder shall have no insurable interest in the above circumstances despite the payment of contribution has been made by himself. The expected benefit over the payment of contribution in this situation shall be treated as either hibah, wasiyah, waqf or sadaqah, in which the insurable interest shall remain with the person or the property on whom the certificate was bought.
(i) If a person wishes to insure his own life or property by a takaful certificate against a defined risk it is his legitimate right. In the Islamic Shari’ah, if any one takes an initiative to protect himself or his property from being effected by an unpredicted but defined risk, it is by all means encouraged as enshrined in the following Hadith:
Narrated by Anas bin Malik (r. a), the Holy Prophet (s. a. w.) told a Bedouin Arab who left his camel untied trusting to the will of Allah (s. w. t). - Tie the camel first and then leave it to Allah (s. w. t)...” (Al- Tirmizi)
From this Hadith, it is concluded that, it is better to take an initiative for protection before a risk occurs.
(ii) But if a person holds a takaful certificate on a person other than himself or a property with the intention to exercise right of insurable interest on the life of others or on his disowned property, it is like gaining, something upon using the life of others or property. This is again intolerable in the teaching of the Shari’ah. It may be justified by the Qur’anic sanction where Allah (s. w. t) warned mankind not to gain wealth in vanities. Allah (s. w. t) said to the effect:
“O you who believe, eat not up your property among yourself in vanities, but let there be amongst you traffic and trade by mutual good will “(Surah an-Nisa, 4-29).
(iv) If however, a person wishes to hold a takaful certificate on the life of others or on public property used for the noble causes, the contributions paid by the participant holder shall be treated as a sadaqah or hibah or wasiyah or waqf in favour of the person or the property on whom the certificate has been bought. In other words, the participant holder shall not have any insurable interest in the above situation but the only person or property on whom the certificate has been bought, shall have an insurable interest over the certificate against the defined risk. In the above situation, the contribution paid is on the basis of moral or spiritual obligation, whereby the payer can expect only benefit rewarded by Allah (s. w. t) for his contribution to noble causes. This may be justified by the Ahadith of the Rasulullah (s.a.w) which provide that the donor should not take back his donation nor should take any benefit over the donation. The Holy Prophet (s. a. w) said to the effect:
“lbn Abbas (r.a) reported that the Messenger of Allah (s. w. t) said: He who takes his gift donation back is like a dog which takes back its vomitings. There is no evil smile for us’ (Mishkatul Masabih).
“Ibn Umar (r.a.) and Ibn Abbas (r.a) reported that the Messenger of Allah (s. w. t) said: It is not lawful for a man to give gift and afterwards to take it back... The parable of one who gives a gift and then takes it back is like the parable of a dog which eats till when it is satisfied, it vomits and then takes his vomiting back “. (Mishkatul Masabih).
It is indeed submitted here that, although the modern existing provisions affecting insurable interest may not be justified for takaful market, but it does not mean that the entire idea of insurable interest should be rejected. As it is understood that the issue of insurable interest is essential to sustain the consequential benefits over the scheme therefore, the Shari’ah justified insurable interest should be designed so to ensure, that the takaful operations function with meaningful spirit.
* The author is the Assistant Professor of Law, Department Business Administration, IIU Malaysia.