الهيئة العامة للرقابة المالية

Takaful Insurance

Compliant with Islamic Sharia Principles

Insurance is considered a vital necessity that protects individuals and institutions from financial losses arising from the occurrence of unforeseen events. It provides a sense of security when facing specific risks, helping to avoid their adverse consequences or at least limit them to the narrowest possible scope.

Insurance is also regarded as one of the most important strategic services within a national economy and a fundamental pillar supporting economic and social life in advanced societies. Economically, it plays a vital role by collecting insurance premiums and investing them in various sectors, while socially it contributes to ensuring stability and welfare. Over time, insurance has evolved into a profession governed by precise scientific principles and regulatory frameworks.

The concept of insurance originated from the principle of cooperation and solidarity in bearing risks that may affect individuals or groups, through the distribution and sharing of losses among members of a community.

Historically, references to early forms of risk-sharing can be found in the Code of Hammurabi (2250 BC), where Babylonian merchants agreed that if one of them lost a ship, another would be constructed for him. This concept later spread to England through Italian merchants in the fourteenth century, who established commercial arrangements that strengthened their financial influence. The Marine Insurance Act of 1745 granted legal recognition to such arrangements, increasing their importance.

Among the most prominent insurance institutions that emerged was the Lloyd’s of London, a global insurance marketplace based in the United Kingdom. Its structure resembles an association that organizes members into small groups known as syndicates, typically consisting of 10 to 20 or more members who collectively underwrite specific risks. A governing council manages its operations. Over time, this institution has developed into one of the largest insurance markets in the world.

Land insurance appeared during the seventeenth century, most notably in the form of fire insurance, which gained prominence following the Great Fire of London, an event that destroyed approximately 85% of the city’s buildings. In response, marine insurance companies expanded their activities to include land insurance and coverage against various risks. At the same time, several fire insurance companies were established in France, England, and other European countries.

During the nineteenth century, new types of insurance emerged, including liability insurance, workers’ compensation, coverage for damages caused by horses, and automobile insurance. These developments were driven by the rapid progress of the Industrial Revolution, the spread of mechanical machinery, and the growing risks faced by workers.

In the modern era, insurance has expanded significantly due to the complexities of contemporary life and the resulting increase in risks. Insurance products now cover natural disasters, aviation transport risks, machinery breakdown, credit risks, and civil liability, among many other areas.

The concept of Takaful insurance emerged in the late 1970s as a complementary component of the broader development of Islamic banking. The first Takaful insurance company was established in Sudan in 1977 by Faisal Islamic Bank.

This was followed in 1979 by the establishment of the Islamic Arab Insurance Company (Salama) in the United Arab Emirates, initiated by Dubai Islamic Bank. Subsequently, Takaful insurance evolved independently from Islamic banking, leading to the establishment of numerous standalone Takaful companies worldwide.

Several key milestones have contributed to the global development of Takaful insurance, most notably:

• The issuance of the Takaful Act of 1984 in Malaysia, the first law dedicated to regulating Takaful insurance.
• The establishment of the Accounting and Auditing Organization for Islamic Financial Institutions in 1990, headquartered in the Bahrain, responsible for setting Sharia and accounting standards for Islamic financial activities, including Takaful insurance.

The Arabic term “Takaful” refers to mutual guarantee or shared responsibility among members of a community. Takaful insurance operates on the principle of donation (Tabarru’), ensuring that the system remains free from excessive uncertainty or gambling.

Participants who seek protection under the Takaful system contribute with the sincere intention of assisting other participants in the event that they face covered risks.

Thus, Takaful insurance can be described as a cooperative arrangement whereby a group of individuals agree to participate in a fund established to compensate members who suffer losses as a result of specified risks covered under Takaful contracts.

Takaful insurance is defined as an insurance system in which all contractual and investment activities comply with Islamic Sharia principles. The core concept is based on the participation of stakeholders—namely policyholders and insured participants—who cooperate in facing potential risks and compensating financial losses resulting from such risks.

Losses incurred by an affected participant are compensated through the collective contributions of all participants, rather than being borne solely by the affected individual.

The Takaful insurance contract is an agreement whereby the insurer (the insurance company), acting as the manager of the Takaful scheme on behalf of participants, undertakes to pay the insured or beneficiary a specified sum or compensation upon the occurrence of the insured event or risk defined in the contract.

This is done in exchange for a contribution paid by the participant (policyholder) to the insurer in the form of a donation intended to meet the collective obligations of the Takaful fund.

Because Takaful companies operate in accordance with Islamic Sharia principles, they rely on qualified Sharia scholars to ensure compliance. A permanent Sharia Supervisory Board oversees all operations to ensure that they do not conflict with Sharia principles, and its decisions are binding.

• Donation: A fundamental component of Takaful operations. Each participant contributes an amount intended to support mutual assistance and to pay claims submitted by participants.
• Cooperation: A core principle whereby participants agree to compensate one another for certain losses through collective solidarity.
• Participation: Each Takaful policyholder contributes to the fund in order to assist other participants who may experience losses.
• The primary goal of Takaful insurance is mutual solidarity and assistance, rather than profit generation.
• Investment is a key activity of insurance companies; however, Takaful companies must ensure that their investments avoid interest-based transactions and comply with Sharia principles.
• The most commonly used Islamic management models in Takaful insurance companies include: Mudaraba, Wakala, and the Hybrid Model (Wakala–Mudaraba)
• As of the end of 2023, the number of Takaful insurance companies operating in Egypt reached 10 companies, with total investments amounting to EGP 11.6 billion. In 2024, the Unified Insurance Law No. 155 of 2024 was issued, with Articles 192–197 regulating the operations of Takaful insurance and Takaful reinsurance companies.(click her)