Asim Rabbani 10668

Majid Mehmood10659
M. Zulqarnain Saeed 10657
Noman Ilyas 10677
 Synopsis

• Introduction of Project
• What is Insurance?
• What is conventional insurance?
• Modern Insurance Model
• How insurance is against the principles of Shariah?
• Takaful (Islamic insurance)
• Takaful Models
• Market Analysis
• Pak Kuwait Takaful and EFU General Insurance
• Products offered by both companies
• Observations
 Project Introduction
• Purpose:
To highlight Difference b/w Conventional insurance and Islamic Insurance according to:

– Procedures;
– Products;
– Growth;
– Revenues;

• Consultation:
– Annual reports of Pak Kuwait Takaful Co. Ltd.
– Annual reports of EFU General Ltd.
– Reports and Articles published by SECP
– Reports and Articles published by State Bank of Pakistan
 Insurance Meaning

• Insurance is a risk transfer mechanism.

• Shift some of uncertainties of life to others shoulders.
• Insurance is used as the back of all innovators.
• Developments were only possible through Insurance.
• Insurance plays an important role in economic, social and
technological progress of a man.
• Two parties involve( insurer and policy holders)
 Conventional insurance

• Equitable transfer of the risk of a loss from one

entity to another.
• Provide premium and secure large losses.
• People contribute to a general sum that could be
used for emergencies.
• Firstly practiced in 1750 B.C. by Mediterranean
Sailing Merchants
• The Greeks and Romans introduced the origins of
health and life insurance c. 600 AD
 Conventional insurance cont’d...

• In 17th century, London's growing importance as a centre

for trade increased demand for marine insurance.
• In 1732 the first insurance company was formed in the
South Carolina, USA.
• Two types of economies
– Natural economies (without money, markets, financial
instruments)
Only people use to help each other
– Money economies (markets, money, financial instruments)
Modern sense helped businesses through use of insurance
Modern insurance model
 How insurance is against the principles of
Shariah?
• Al-Gharar:
Refers to ‘unknown’ or ‘uncertain’ factors in a conventional insurance
contract.
– Al-Jahalah
– Gambling

• Al-Maisir:
This the ‘gambling’ element and is said to derive from the ‘Gharar’ element.

• Riba:
Refers to the interest factor present in the investment activities of
conventional insurance companies.
– Riba AL-Nasiya
– Riba Al-Fazl
 Takaful (Islamic Insurance)
 The word “Takaful” derived from “Kafala” which means “to guarantee”

 Takaful means “guaranteeing each other” or “joint guarantee”

 Takaful System is derived from Tabarru' system

 means "donation; gift; contribution”

 It’s a mutual fund where all participant contributes to support one another in difficulties

 Takaful was practiced in form of “Aqilah” before the era of Prophet Mohammad (PBUH)

 Aqilah means compensation by killer for the heir of victims

 Ibu Abidin was the first Islamic Scholar to come up with the meaning, concept and legal
basis of an Islamic insurance contract
 Takaful Models
 Wakalah (agency) Model:
– Wakalah fee is charged by the takaful company to meet
operational expenses
– Charged annually per policy
 Mudarabah Model:
– Policyholders get profit on their part of funds only if Takaful
Company earns profit
– Sharing of profit & loss b/w takaful operator & policyholder
 Wakalah plus Waqf model:
– In Pakistan, mostly “Wakal + Waqf Model” is in practice;
– Operators and participants maintain a Waqf fund;
– The company pay losses from this fund.
Takaful Models
Pak Kuwait Takaful Company (Model)
 Market Analysis
Market Share of Companies Before Market Share after Takaful
Takaful

ADAM JEE 7%
21% 24% EFU
Takaful
2% NICL
Convention
3% NJI
al Insurance
4% HAMSHIRE

7% 24% Askari Insurance 93%

Asia Insurance
15%
OTHERS

Note: Above data has been obtained from SECP

• Came into existance in 2004 and started operations in 2005
• Honoured to be the first Islamic insurance company in Pakistan
• Initial paid up capital of Rs. 250 million and an authorized
capital of Rs. 500 million
• PKTCL has been incorporated as a Joint Venture amongst:
 Product and Services offered

• Motor Takaful

• Marine Takaful

• Property Takaful

• Engineering Takaful
• The Company was incorporated as a Public Limited Company
on September 2, 1932
• The shares of the company are quoted on Karachi and Lahore
Stock Exchanges of Pakistan;

• Principal place of business is located at EFU House, M.A.

Jinnah Road, Karachi, Pakistan;

• Network of 60 branches throughout the country.

 Products and Services

 Marine Insurance

 Fire Insurance

 Motor Insurance

 Engineering Insurance
 Growth Ratio
Premium of Insurance
Income Figures (inBusiness Before
million) as per
Returns Received before Takaful
Takaful
7,000
Growth Ratio
40%
6,035
6,000
35% 35%
5,168
5,00030%

25% 4,248 4,159

Growth ratio

4,000
20% 3,497
21%
3,381 Fire Business
3,204 Marine Business
3,030 2,941 Accident Business
3,00015% 2,783 2,816
13%
10% 2,074
2,000 1,819 1,794 8%
1,548
5% 4%

1,000
0%
2000 2001 2002 2003 2004
Years
-
2000 2001 2002 2003 2004

Source: Security and Exchange Commission of Pakistan (SECP)

 Revenues
EFU General Insurance Pak Kuwait Takaful
7,000 900
812
6,111 6,137 800
6,000
5,570
5,418
700
5,000
600

4,000 3,860 485

500

3,000 400 362

2,536
300
2,000
200
1,000 117
100
6
- -
2004 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
 Net Profit
EFU General Insurance Pak Kuwait Takaful
20000 160

14536
140
15000
120
10000
100
Profit

5000 80

Profit
322 506 762 732
60
0
2004 2005 2006 2007 2008 2009
40
-5000
-5471 20

-10000 -
2005 2006 2007 2008 2009
Years
(20)
 Revenues: Motor Insurance
(In millions)

EFU Motor Insurance Pak Kuwait Motor Takaful

5,000 600

4,500 4364 528.03

4151
4032.83 4042 500
4,000
3574
3,500
400

3,000
314.95
2,500 300

235.29
2,000

200
1,500

1,000
100 76.13
500

4.14
- 0
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
 Net Profit: Motor Insurance/Takaful
EFU General Insurance Pak Kuwait Takaful
120
30

100 95.58
20 186,691

80

10 87,745
60
785 1,352
0
40

-10 20 15.15
6.01
-5.18 -0.69
-20 0
2005 2006 2007 2008 2009

(252,922) -20
-30
Pak Kuwait Takaful and EFU General Insurance

Comparison of Net Profit

20,000

15,000

Pak
10,000 Kuwait
EFU
Linear
5,000 (EFU)

-
2005 2006 2007 2008 2009

(5,000)

(10,000)
 Advantages of Takaful over the
conventional insurance

 Full return if unwilling to continue premium

 Investment without interest

 Insured get profits not the bonus

 Agent’s commission paid by insurer – not by insured

 Premium returned in General insurance

 Advertising costs

 Distribution of Zakat
 Observations

Issue Conventional Insurance Takaful

Organization Principle Profit for shareholders Mutual for participants

Value Proposition Profit maximization Affordability & spiritual satisfaction

Laws Secular/Regulations Shariah plus regulations

Ownership Shareholders Participants

Management Status Company management Operator

Form of Contract Contract of Sale Cooperative, Islamic contracts of

Wakala of Mudarbah with Tabar’ru
(contribution)
Investments Interest based Shariah compliant, Riba-free

Surplus Shareholder’s account Participants’ account

 Suggestions
• Marketing approaches for Growth
• Education sessions for General public
• Increase operating Branches
• Should hire experienced & qualified
Workforce
• Focus on Import & Export businesses
Thanks for your
precious time