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Measures for Insurance Reform

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Q 1: If not quite sure about the permissibility or otherwise of the insurance business according to the Shari’ah. If the existing insurance business is not permitted, what measures can be taken for this in accord with the Islamic Shari’ah? If it is banned, millions of people will lose the benefits they now get through this worldwide business that every nation has reorganized on an extensive level and is getting dividends from. It is unfortunate that we are not yet quite clear about this. What is the right course?

A: There are three major objections due to which the insurance business cannot be termed lawful according to the Shari’ah. The first objection is that a major portion of the amount the premium insurance companies receive is reinvested by them in interest-based businesses. Secondly, the handsome amount that life insurance companies promise to pay to their policyholders in the case of certain eventualities, has an element of gambling in it. Thirdly, the amount paid following the demise of the policyholder ought to be distributed among his heirs, according to the Islamic Law of Inheritance, but this is not the case.

As for the question regarding measures that can make the insurance business Islamic, it needs a committee of experts who are also well-versed in Islamic law, while being fully aware of insurance matters, to review the whole issue and recommend viable reforms. The insurance industry is, without doubt, of great importance today around the world. However, this plea cannot make a Harȃm thing Halȃl, nor can it serve as an argument for justifying the continuation of anything in a state that claims to be Islamic.

Q 2: Correct in saying that the insurance business needs basic changes to make it Islamic. But this needs a long and time-consuming process. So far avoided the life insurance business in our insurance company. But on careful study, came to the conclusion that the existing drawbacks of life insurance can be removed by the following measures.

(a) While depositing security money with the government, the company can advise it against investing this amount in any interest-based venture, but in a state enterprise or in purchasing shares of public sector organizations.

(b) The company under the law can cancel the insurance policy of a policy-holder, or even refuse to accept it at the very outset. We can provide in the rules that a person desirous of getting his policy money distributed to his heirs, according to the law of inheritance, can do so and the company will facilitate the process. The company may refuse to accept an insurance policy of those declining to agree to this term.

(c) As a safeguard against the possibility of gambling, those getting insured may be advised and inspired to agree to receive themselves or through their legal heirs the actual policy money they contributed, and not the additional amount which the insurance companies generally promise to pay. Some time back, I decided to sell my insurance company.

A: The measures proposed may help in reforming the insurance business and removing the causes of its impermissibility.

The least that can be done to Islamize the insurance company may be summed up as follows.

(a) The government should be agreeable to the provision of investing an insurance company’s security deposit in a state enterprise or semi-governmental industrial or commercial venture on the principle of partnership, and the company should not be given a fixed amount of dividend but only that which is due on a proportionate basis.

(b) The company may also invest its capital in profitable, non-interest-bearing ventures, which may bring it dividends on a proportionate basis, but without any interest.

(c) Insurance policies should be approved for those clients who agree.

  • To the provision that, after their death, their heirs will receive in claim, only the actual amount they contributed.
  • That the said amount will be distributed among their legal heirs according to the Islamic Law of Inheritance.

(d) Policyholders keen to receive dividends on their policy money may be required to agree to the investment of their amount in non-interest-bearing ventures on a profit and loss sharing basis, as mentioned above.

Take Home Note: If succeeded in introducing these four terms and conditions in reforming business, it may help to make insurance companies not only Islamically oriented but may also serve as a trendsetter and a guide for others who wish to follow a lead.

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