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Islamization of Insurance in Pakistan

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Islamization of Insurance in Pakistan ISLAMIZATION OF INSURANCE IN PAKISTAN Atiquzzafar Khan ABSTRACT Insurance performs an important role in smooth functioning of every economy today. Muslim scholars contributed lot of efforts to decide the Shari'ah position of this business since its start in the Muslim societies. After long debates and discussions a majority view about insurance is that although the concept and objectives of insurance is not in contradiction with Shari'ah but its present prac- tice involves many prohibited elements like Riba, Gharar and Qi- mar. Some scholars come up with alternative schemes to run insu- rance business according to Islamic principles and one prominent scholar among them is late Mufti Muhammad Shafi. The council of Islamic Ideology Pakistan compiled a report for Islamization of insurance business in Pakistan and submitted it to the government in 1992. In Pakistan some steps were taken to Islamize the banking sector but no attention was given for Islamization of insurance sec- tor. Around 50 Islamic insurance companies are working in various Muslim countries under the name of Takaful companies. Unfortu- nately insurance sector in Pakistan is still being managed accord- ing to the Insurance Act 1938. Many sections of this act are in con- tradiction to Islamic principles and bring.element of interest in the Assistant Professor, IIIE, International Islamic University Islamabad contract. There is a need to either promulgate a new act to organize the insurance business in line with Shari'ah or make the suitable amendments in the existing Act by removing all the sections con- tradictory with Shari'ah. The insurance companies should arrange their business on the basis of Mudarabah and Tabarru (Gili). The larger portion of the premium should be invested by the company in the capacity of Mudarib and the profits be distributed among the policy holder and the company according to some agreed upon proportion. At the maturity of the policy the individual should receive his contribu- tion along with his share of profit. A relatively small component of premium should be deposited in a cotnnlon fund hy all the policy holders with the understanding that if any of the group member face a specific loss he will be helpcd from this fund. If some poli- cies are short-term policies, mostly in general insurance, then it will not be possible for the company to make investment or the premium money. Therefore all the contribution will bc received as Tabanu. If any group member will face a specific loss he will be compensated from the common rund other wise he will not receive any thing back. INTRODUCTION: Pakistan is an ideological country, got independence with the ob- jective to be a homeland for the Muslims where they could live ac- cording to their religion. Muslims of India sacrificed their lives for this Nobel cause and ultimately succeeded in achieving Pakistan. Unfortunately this objective is never fulfilled after independence. After the death of Muhammad Ah Jinnah, the leader of this move- ment and first governor general of Pakistan, no government paid serious attention towards Islamization. In late seventies the gov- , ernment showed some interest and announced many steps. Estab- lishment of the system of Zakat and Salat and Islamization of bank- ing system are important steps which need to be mentioned. No r' attention was given to the insurance sector even in that era. Insu- rance sector performs very important role in the smooth function- ing and development of any economy in today world. Insurance business is an important contemporary issue of Islamic jurisprudence which has attracted so many debates and discussions. Since the introduction of this business in Islamic societies, Muslim scholars are writing on this issue. Their opinion is sharply divided on the issue. A considerable number of religious scholars is op- posed to the principle of insurance and the form of its organization. The most objectionable form of insurance, to these scholars, is the insurance against the loss of life, since it involves gambling and un- certainty, and is opposed to the ccmcept of predestination (Taq- deer). Other scholars while appreciating the philosophy and rationale of insurance disapprove most of the forms of insurance contracts un- dertaken by commercial insurance companies. They see in them ' elements of risk, uncertainty, ignorance, usury which are inaliena- bly associated with insurance. A large number of scholars has re- jected the prevalent practices of insurance on the aforesaid grounds. Among the prominent scholars of this group are Mufti Muhammad Shafil, Maulana Maududi (2), Sheikh Ahmad brah him(^), Mustafa aid(^), Sheikh Moharnrnad ~akheet(~),Sheikh Abu ~ahra(~),Issa ~bduho(~),Ahmad ah mi(^), Dr. Hussain amid('), ~r.~uslehuddin('~),Dr. Jalal Mustafa sayyad(ll) and inany other distinguished scholars. Commercial insurance has been a target of grave criticism and ob- jection in a number of conferences and seminars.' The Assembly of Islamic Jurisprudence in its meeting on Sha'ban 10, 1398 A.H. ' unanimously held that all types of commercial insurance whether it relates to life or commercial goods and wares or other article are unlawful in Islam. The same view has been upheld in the resolu- tions passed at the Islamic Research Congress in 1965, and First In- ternational Conference on Islamic Economics of 1976, and Su- preme Council of Ulama at Riyadh on 4-4-1397 A.H. The Council 4 of Islrunic Ideology in its meeting held 011 April 29, 1992 declared corn~nercialinsurance undertaken by insurance companies contra- dictory to the injunctions of Shari'ah owing to the involvement of elements of uncertainty, gan~blirigand interest. There is yet another group of Musliil~scholars which maintains that insurance is permissible since it is bascd upon the principles of mu- tual assistance and reciprocal responsibility which lslanl wants lo promote among the Muslims. Further, the uncertainty involved in illsurance is uot of a sufficiently high degree to warrant its prohibi- tion. This viewpoint is held by Mustafa ~ar~a('~),Sheikh Ali a1 ~hafifi'~),Dr. ~ousufMuss("), Mollaminad Ali ~ahi('",Dr. Nija- lullah siddiqui(I6), Ahmad Talia AI-~anuusi("), Gharib ~a~nal('~) Abdul Mannan(lY)and many other scholars. Insurance, according to these scholars is a cooperative effort for help and security. Tky also do not see any attribute of gambling in any fonn of insurance. They differentiale between the risk taken up by the gambler and ' those involved in the ordinary business of life that insurers tiy to meet. But the majority opinion is that in its present form insurance con- tract is in contradiction with many important Shari'ah principles, hence it is unlawful and prohibited. 'She major objeclions found in this contract are involvement of Kiba, Gharar, Gambling, violation of law of inheritance, and Akl-e-Amwal bil Batil. The Council of Islamic Ideology Pakistan on its own initiative re- viewed the insurance laws and proposed some changes, but no practical step was taken in this respect. The council also prepared a report " Islamization of Insurance" for the government in 1992 but the government did not consider implementing it practically. The present government has shown interest in Islamization and consii- tuted a commission for preparing a report on Islamization of the fi- 1 nancial system. The commission has already submitted a report on Islamization of banking and is presently working on Islanization of insurance. This papa presents a proposal for-Islaniizatim of irlsurance in Ya- kistan. Establishing i~lsuraricebusiness on Islunic. principles is im- portant not only on the religious gmunds but also for the growth of this business itself. Because llre majorily of Muslim try Lo avoid purchasing a11 insurance policy, considering it un-Islamic, unless they feel bound by law or expect an unbearable loss. The first section of this paper will describe the existing structure of insurance sector in Pakistan. in the second section a brief history of cfforts for lslalnization of insurance in Pakistan will be given.. In the last section we will discuss the required changes in thc Insu- rance Act 1938 to niake the 1sltlmii.ation possible and a scheme for running this business according to Islamic principles. Section I STRUCTURE OF INSURANCE SECTOR IN PAKISTAN The insurance industry falls within the ambit of the Ministry of Commerce which, through the Controller of insurance, exercises control to implement government directives, laws and regulations. The i~lsurancebusiness in Pakistan is governed by the Insurance Act of 1938 as adopted by Pakistan since 1947. This sector com- prises of four major regulatory co~porationslorgmisations, state owned life ilisurance corporation. ad66 private i~~surancecompa- nies both local as well as foreign. The four major regulatory organi- sations are: Department of Insurance This department was set-up in April 1948, as part of the Ministry of Commncrce. The head of this department is the Controller of insu- rance working under the Insurance Act 1938 and enjoys the neces- sary powers to regulate the general and life insurance business in the country. Its statutory functions include registration of new insu- I r rance conlpanies, renewal and cancellation, examination of annual account, control over commission paid to the ageuts and grant and renewal of licenses to insurance agents, employers of agents and in- @ surance surveyors. The non-statutory functions include complaints from policy-holders and insurance agents against insurance compa- nies, amendments in the insurance act and rules. Insurance Association of Pakistan (I.A.P.) By and large, the general insurance market in Pakistan is guided by tariff structure provided by the Insurance Association of Pakistan formed as far back as 1948. It is a voluntary organization represent- ing all the private insurance companies working in Pakistan. Its ma- jor functions are, * to develop tariff rates for all major classes of insurance on the basis of statistics collected from member companies.
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