220 AN INTRODUCTION TO ISLAMIC FINANCE
■ (^) The operator puts up equity capital and undertakes responsibility to
manage the investment fund consisting of policyholders’ premiums in
accordance with Shari’ah principles. The operator also agrees to run
the insurance operations of the takaful business on behalf of the poli-
cyholders.
■ (^) The shareholders (the operator) are paid a pre - agreed proportion of any
surplus generated by the policyholders’ funds. If the fund makes a loss
(the claims exceed the premiums), the operator may provide an interest-
free loan to cover losses.
■ (^) The takaful company accepts premiums from the insured. As in conven-
tional insurance, the insured pays premiums to the operator based on
the probability of losses and, in exchange, receives the defi ned protec-
tion against future losses.
In the wikala model, the policyholders and the takaful operator enter
into a principal (policyholder) and agent (operator) agreement whereby the
operator becomes the representative (wakil) of the policyholders. The oper-
ator is paid an agreed fee to operate and manage the policyholders’ assets.
Technically, there is not much difference between the mudarabah - based
or wikala - based models except that the underwriting surplus goes back to
the policyholders’ funds, rather than being shared with the shareholders or
operator.
In the third, hybrid, model the wikala agreement is utilized for under-
writing activities and to run the operation, while the mudarbah contract is
Policyholders
(Participants) Contributions
Qard
AI-Hasan
Management
Fee
Fee is a percentage share of the
underwriting result—a combination of the
underwriting surplus and investment profits
An interest-free loan provided to the
policyholders’ fund on event of deficit
Shareholders’ Fund
(Takaful Operator)
Re-Takaful
Operator
Underwriting Surplus
&
Investment Income
Policyholders’
Fund
FIGURE 10.3 Mudarabah - based takaful model
Source: E&Y (2009)