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Islamic finance accelerates into motor policies

February 15, 2009 at 5:42 am · Filed under BIIH, Islamic Insurance, Principle Insurance, Takaful, UK ·Tagged ,

Islamic finance accelerates into motor policies

Muslim insurance could prove popular with other drivers too, says Chiara Cavaglieri

Sunday, 15 February 2009

First it was Islamic current accounts, then mortgages and investment funds, and now we have a motor insurance product that conforms to Islamic law, or sharia.

This move will be welcomed by many of the two million British Muslims looking to buy insurance cover aligned with their faith. But it could also prove popular for non-Muslims who find the notion of an ethical or co-operative insurance product appealing.

Unlike conventional insurance, where risk is transferred from the policyholder to the insurance company, halal [permissable] insurance, or takaful (“guaranteeing each other”), requires all participants to share risk equally. Instead of premiums, participants pay contributions which, as with ordinary insurance, are calculated on the presumed risk of the individual and how likely they are to claim. These contributions are then pooled in a takaful fund which is invested in strictly halal activities. There is also a Shariah Supervisory Committee, made up of sharia scholars, to oversee all activities and to ensure that the whole process is consistent with Islamic principles.

Interestingly, once the fund has been used to pay for any valid claims, any surplus money is redistributed to participants at the end of the year in the form of discounted premiums, which come in addition to any no-claims bonuses.

“What is unique is the ethical nature of what we do,” says Bradley Brandon-Cross, the chief executive of Salaam Halal Insurance. “It’s a transparent process and the opportunity to get something back is attractive to customers, both Muslims and non-Muslims alike.”

But there is no guarantee that there will be any surplus money to share out. Motor insurance firms have been making underwriting losses in recent years: there was a recorded deficit of £267m in 2007 and £204m in 2006.

At Salaam Halal, if claims outweigh contributions, shareholders advance the money to pay for any excess claims. Shareholders then recover that cash in times of profit. This could mean that even in years in which there are surplus funds, there will be little or no money left to share out among participants after the retrieval of shareholders’ contributions.

Sharia prohibits usury – the receiving of interest – as well as the undertaking of haram activities (those that are forbidden to Muslims, such as gambling and dealing in alcohol or arms). This leaves many financial products, including conventional insurance, in opposition to sharia, and so many Muslims have few options when shopping for products that conform to their faith. Standard insurance falls down because it involves the taking of a financial risk that the policyholder will make a loss if a claim does not occur, which to many Muslim scholars constitutes a gamble.

Insurance is just the latest of Islamic financial products to become available in the UK. In comparison with mortgages, the insurance sector has been slow on the uptake. Islamic mortgages have grown from having a 0.3 per cent market share in 2003, to 0.8 per cent in 2009 with a value of £429m, according to the research company Datamonitor.

Salaam Halal’s motor insurance has just become available through price- comparison site Moneysupermarket. com and the indications are that it’s both popular and competitive. “There has been a lot of interest,” says Kaye Pimblett, motor insurance manager at the site. “During its first seven days on Moneysupermarket.com, Salaam Hall returned more than 37,000 quotes. And when they returned a quote, they appeared in the top three positions on over a third of occasions,” she adds. Already, the insurer has plans to take its co-operative model of doing business into the home insurance sector.

Lloyds Banking, which has pioneered Islamic finance products in the UK, is not surprised at the popularity of any sharia-compliant launch. “Although as a market, UK Islamic finance is in its infancy, it’s still set to become big business,” says Emile Abu-Shakra, a spokesman for the bank. “We offer Islamic current and business accounts, mortgages and investment funds.”

Mr Abu-Shakra adds: “We piloted these in just five branches in 2005 but that quickly expanded to all 2,000 the following year.”

Source: http://www.independent.co.uk/money/insurance/islamic-finance-accelerates-into-motor-policies-1622160.html

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Capita to support Sharia-compliant insurance

April 16, 2008 at 12:25 am · Filed under BIIH, Islamic Insurance, News, Takaful, United Kingdom ·Tagged , , ,

Capita to support Sharia-compliant insurance
February 29, 2008

” Sharia policies will comply with strict Islamic beliefs, which are in conflict with conventional insurance products.” by Angela Jameson

Outsourcing giant Capita, best known for running London’s congestion charge, is providing backoffice functions for a new insurance business tailored to comply with Islamic beliefs.

The initiative, due to launch in April, will see Capita initially sell car and home insurance by working with British Islamic Insurance Holdings. Life insurance, investments, savings and ethical financial products are to be launched later this year.

Capita, also known for collecting the BBC licence fee, will sell the policies as well as process claims and run the company’s back office. The deal should be worth £87 million to Capita over eight years.

Conventional UK insurance products are in conflict with Islamic beliefs as the Koran prohibits “riba”, loosely translated as interest but interpreted by many progressive Muslims as usury or extortionate interest. Insurance also contains elements of uncertainty and gambling that make it unsuitable for devout Muslims.

Bradley Brandon-Cross, chief executive of British Islamic Insurance Holdings, said: “The Muslim faith states that, because of various product features, conventional UK insurance options are in conflict with Islam and this creates a dilemma for British Muslims. We are planning to create a British insurer that operates in a way that removes this dilemma and creates an exciting new sector in the British insurance market.”

The insurance product will comply with “Takaful” principles. Takaful is an Islamic insurance concept which has been practised in various forms for more than 1400 years. It originates from the Arabic word Kafalah, which means guaranteeing each other or joint guarantee. The Takaful system is a form of mutual insurance based on co-operation and responsibility. The principles of Takaful are that policyholders co-operate among themselves for their common good; each pays a subscription, which eliminates uncertainty and losses are divided and liabilities spread across a community pool. No individual should derive advantage at the expense.

Capita has been operating in the financial services market since 2000, first in the general insurance market and latterly in the life and pensions arena. The insurance sector has provided some of its biggest contract wins in the past year, when it began a £722 million contract with Prudential to administer 7 million mature life and pensions policies. The contract win has seen 1,750 Prudential UK staff transfer to Capita and a further 1,250 staff in Bombay have also joined Capita.

Since the turn of the year it has been taken on to run back office in Norwich of Marsh, the US-based insurance broker, in deal which is expected to be worth £200 million over 10 years.

Capita said yesterday that pre-tax profits had risen in the year to December 31 by 19 per cent to £238.4 million on turnover up 19 per cent to £2.07 billion. The company has all of its 2008 revenue of £2.3 billion in the bag and said that it has very good visibility on 2009 and 2010 earnings.

Paul Pindar, chief executive, said that any economic downturn was likely to be good for Capita as other companies looked to outsource their back offices.

Increasingly, Capita is also running other companies’ front office and sales operations. For instance, it runs customer contact centres for DSG, formerly Dixons, and eircom, the Irish telecoms operator.

Capita has said that it will increase its dividend by 33 per cent, in line with a five-year average of 32 per cent increases. It has also proposed to return 25p a share through a special dividend.

Source: http://business.timesonline.co.uk/tol/business/industry_sectors/support_services/article3458486.ece

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