'Takaful industry must avoid malpractices to compete with insurance companies'

Takaful (Islamic insurance) faces tough competition from the established conventional insurance companies, and for its survival in such competitive environment professionalism and avoiding malpractices is critical.
A Takaful company must present competitive product services in terms of price, quality of coverage and delivery time, observed the speakers at a seminar on 'Takaful' (Islamic insurance), organised by Professional Accountants Forum (PAFO) here on Tuesday night.
They urged the consumers to support Takaful companies and ensure that they are competitive and operations are Shariah-compliant in all respects. "Only the consumers can ensure that takaful operators operate in the spirit of mutuality, which takaful is all about," they added.
Hassan Kalim, Shariah Advisor, Al-Barakah Islamic Bank and Faculty Member of Jamia Darul-Uloom, Karachi, and Centre of Islamic Economics, and Abdul Rahim Abdul Wahab, an expert on takaful, and fellow member of Society of Actuaries dwelt at length on the various aspects of takaful.
Kalim said that an absolute majority of scholars has the consensus that conventional mode of insurance is wrong due to elements of interest (riba), uncertainty (gharrar) and loss (zarar).
He contended that there is not much harm in financial contract of conventional insurance, from ideological point of view, but the actual fault lies in its commercial aspect, because cash-to-cash exchange takes place between two individuals in which one is gaining immensely while the other is losing. Against this, Hassan said, Takaful is for collective benefits as the money pooled is utilised for collective cause instead of benefiting one or two individuals.
Abdul Rahim proposed that Islamic banks can jointly establish a well-capitalised Takaful company, as long as no legal constraints are there, with the objective of the company to provide takaful services to Islamic banks.
He underlined the need for competition within the Takaful industry for consumers to have a choice.
He suggested that government should encourage setting up of re-takaful pools which could also be marketed in the region as there is lack of capacity in the takaful industry, and the government should also provide incentives for takaful industry.
He said that State Bank of Pakistan (SBP) has given NoC to three more banks to operate by year-end 2005, while two full-fledged Islamic banks are working on Islamic basis.
"Islamic banks have the mandated requirement and moral obligation to insure assets from a takaful company. Once available, it would provide automatic market for takaful business," he added.