Sharia Insurance: Origins, Pillars, and Differences from Conventional Insurance

Sharia insurance has the same roots as conventional insurance, but is based on sharia principles based on Islamic law. Sharia insurance originated from the practice of qard hasan, an interest-free loan, carried out by the Muslim community since the time of the Prophet Muhammad SAW.

The sharia principles used in sharia insurance include musyarakah (cooperation), mudharabah (profit sharing), tabarru (donation), and takaful (mutual cooperation). In sharia insurance, the premium paid by the participant is considered as a contribution or donation managed by the insurance company to provide protection to the participants.

Sharia Insurance: Origins, Pillars, and Differences from Conventional Insurance

Modern Islamic insurance was first established in Sudan in 1979 under the name Islamic Insurance Company of Sudan . Later, Islamic insurance companies began to emerge in various countries in the Middle East and Asia, such as Bahrain, Malaysia, and Indonesia.

In 2013, the Organization of Islamic Cooperation (OIC) established the International Islamic Financial Institution (IFSB) which aims to promote the development and harmonization of Islamic insurance standards worldwide. Currently, Islamic insurance is growing and is considered an attractive alternative for those who want to get insurance protection with Islamic principles.

Sharia insurance has different principles from conventional insurance, so sharia insurance practices are also different from conventional insurance practices. Some common sharia insurance practices include:

Mudharabah: The practice of mudharabah is a profit-sharing principle used in Islamic insurance. In mudharabah, the customer and the Islamic insurance company act as partners who share risks and profits. The Islamic insurance company acts as an investor or capital owner, while the customer acts as a manager or worker in the investment asset.
Wakalah: The practice of wakalah is a principle where the customer entrusts the sharia insurance company to manage the invested assets. In this case, the sharia insurance company acts as a representative or agent responsible for the investments made.
Takaful: Takaful practice is a principle used in Islamic insurance to share risk among participants. In takaful, participants help each other and share risks, so that the premium paid by a participant is used to pay claims filed by other participants.
Tabarru: The practice of tabarru is a voluntary contribution made by sharia insurance participants to help other participants who experience losses due to certain disasters or risks.
Contract: The contract practice is an agreement between a sharia insurance company and a customer that regulates the rights and obligations of each party in a sharia insurance transaction.
Supervision: Supervision practices are carried out by the Sharia Supervisory Board (SSB) to ensure that sharia insurance practices are in accordance with established sharia principles. The SSB is also responsible for providing fatwas and advice on matters relating to sharia insurance.

It should be noted that sharia insurance practices must be in accordance with established sharia principles. Therefore, sharia insurance companies usually have a Sharia Board that is responsible for ensuring that sharia insurance practices are carried out in accordance with sharia principles.