In the Name of Allāh,

the Entirely Merciful, the Especially Merciful

Praise is due to Allāh, Lord of the worlds, may the blessings and peace be upon our master Muḥammad, the last of prophets, on his family, and all his companions.

Resolution No. 215 (11/22)

Continuation of the Research and Study on Cooperative Insurance Issues

Pursuant to the Academy resolution no. 200 (6/21) concerning Rulings and Standards for the Foundations of Cooperative Insurance, issued at its 21st session at Imam Muhammad bin Saud Islamic University in Riyadh, Kingdom of Saudi Arabia on 15–19 Muḥarram 1435h (18–22 November 2013), which requested a special seminar to discuss several issues related to cooperative insurance in preparation for the Council of the Academy to issue appropriate resolutions and recommendations on the subject,

The Council of the International Islamic Fiqh Academy of the Organization of Islamic Cooperation, holding its 22nd session in Kuwait City, State of Kuwait, on 2–5 Jumādā al-Ākhirah 1436h (22–25 March 2015),

Having reviewed the recommendations of the seminar held in Jeddah, Kingdom Saudi Arabia on 15–19 Muḥarram 1435 (18–22 November 2013), which addressed the following questions and issues:

• Establishing Shariah-based conditions and regulations for the activities of a legal person working for the

• Determining the contractual relations governing the cooperative insurance contract in terms of:

  • Adjustment of relations between the policyholders and the fund to determine the beginning of the donation commitment to avoid obscurity of returning donation during the distribution of the surplus.
  • Adjustment of relations between the shareholders and the insured in case of default of the subscription account (qarḍ ḥasan/benevolent free loan).

• Examining the insurance surplus in terms of:

  • The extent to which part of the insurance surplus can be deducted to cover the risk of a deficit in the cooperative insurance fund.
  • The extent to which a specified percentage of the surplus can be deducted to cover the risk of natural disasters.

• The extent to which the indemnity granted to the manager of insurance transactions may constitute a part or a percentage of the insurance surplus for all its activities without deduction of contribution costs.
• The extent to which the possibility of combining a percentage of the amount of contributions with a percentage of the surplus of the remuneration received by the insurance manager in return for managing the insurance operations, would provide an incentive to improve

• Studying the fundamentals of Waqf as a basis for Islamic insurance in all its aspects, explaining the motives behind the experiences implemented by companies concerned; and studying the extent to which this method fulfils Shariah conditions and regulations.
• Reviewing international experiences in cooperative insurance and identify- ing the extent of their compliance to the principles adopted in the resolu- tion of the Academy 200 (6/21) concerning the rulings and regulations of Shariah on the principles of cooperative insurance.

Having examined and discussed the above-mentioned questions and issues,

Resolves

Resolutions shall be divided into three aspects as follows:

Aspect I: Insurance Surplus

• The extent to which a part of the insurance surplus can be deducted to cover the risk of a deficit in the cooperative insurance
• The extent to which a certain percentage of the realized insurance surplus can be deducted to cover the risk of natural disasters.
• The extent to which the remuneration that may be paid to the insurance manager for his management of insurance transactions may constitute a part or a percentage of the insurance surplus for all its activities without deduction of contributions fees.
• The extent of the possibility of combining a percentage of the amount of the contributions with a percentage of the surplus of the remunera- tion received by the insurance manager in exchange for managing the in- surance operations, which may be considered as an incentive to improve

After reviewing its recommendations, the Council of the Academy reaffirms

articles 4 and 6 of resolution no. 200 (6/21), and considers that making aw’adh (compensation) a percentage of the surplus or making a percentage of the sur- plus an intensive for the managing party, should not be taken into consideration as it leads to practical and jurisprudential obscurities.

Aspect II: Study of the Waqf Foundations of Islamic Insurance in all its Aspects

In accordance with article 16 of resolution no. 200 (6/21) concerning Shariah rulings on the principles of cooperative insurance, which states the following: It is possible to establish a financial and charitable Waqf based on the making Waqf of money (Waqf al-nuqūd). The Council of the Academy estimates that it can benefit from the Waqf in the implementation of the previous resolution

through the following procedures:

1. It is permissible to establish Waqf al-takaful fund (cooperative Waqf ) to cover some risks of the proceeds of the funds It is also permissi- ble to accept donations for different types of insurance. There is no estab- lished prohibition in Shariah on expenditures from the profits of awqāf and from the established awqāf and the donations received to cover risks.

In order to cover these risks, the awqāf supervisory authorities of different countries, in coordination with the competent authorities of the cooper- ative insurance sector, should organize this type of activity in accordance with what they consider a factor for realizing the general interest and in compliance with the principles of justice.

2. It is permissible to deduce a portion of the insurance surplus to consti- tute a financial Waqf and strengthen the fund’s solvency and its ability to cover the insured risks.
3. It is permissible for Islamic insurance companies to create a Waqf fund with financial contributions deducted from insurance surplus to use their proceeds in the event of a deficit or default of the companies participat- ing in the fund.

Therefore, the Waqf fund may be used in the field of cooperative insurance, but it cannot replace the formulas that the Academy has clarified in its resolution.

Aspect III: Examination of international experiences in coopera- tive insurance and identifying the extent of their commitment to the principles stated in resolution no. 200 (6/21) on Shariah rulings and regulations regarding the foundations of coopera- tive insurance

In the light of the studies on international experiences, the Council observed that most international experiences in the application of cooperative insurance have been in line with the Academy resolution no. 200 (6/21), but some in- fringements have been noted, in particular:

First: absence of internal Shariah Supervisory Boards in some takaful insur- ance companies.

Second: managing company is required to pay the benevolent loan (qard hasan) or to commit itself in advance to it, as this is in contradiction with arti- cle 9 of the resolution of the Academy issued at its 21st session.

Third: non-disclosure of cooperative insurance mechanisms and procedures to participants at the time of the conclusion of the contract.

Fourth: sharing the insurance surplus between the managing company and subscribers, as the company has already received its lease/payment right or a per- centage of the profits under what was approved for the agency contract (wakāla) or speculation contract (Muḍārabah).

Fifth: the policyholder must waive the benefit of Muḍārabah if the profit falls below a specified amount.

Recommendations

First: the wide dissemination in different languages of the Academy resolu- tion no. 200 (6/21) and its present resolution at the current session, which shall constitute a comprehensive reference for the principles and foundations gov- erning the activities of cooperative insurance from a Shariah perspective. This shall include its distribution among operative cooperative insurance companies and their Shariah Supervisory Boards.

Second: recommending to legislative and fatwa councils working in the field of cooperative insurance in Muslim countries to include the two resolutions of the Academy in their legislation, in addition to mentioning the Academy as an official and leading reference in Shariah.

Third: recommending to include in the legislation governing cooperative insurance the declaration providing insurance pot (policyholder fund – inde- pendent accounts from the company accounts) – a legal personality that must include all the participants in the cooperative insurance accounts while taking note of the resolution of the Academy no. 200 (6/21). Thus, these legislations

identify who should represent this legal personality in a manner that does not lead to conflicts of interest.

Fourth: publishing governance standards for Islamic insurance institu- tions and companies, in order to achieve the high objectives and vision of the Academy in its resolution no. 200 (6/21), which includes preserving the rights of the parties involved, in particular, the managing party and the insurance fund, in order to avoid conflicts of interests and to render justice to both parties.

Indeed, Allāh is All-Knowing.