380 chapter nine
Insurance
Insurance has been of interest to Islamic economists and Sharì"ah
scholars for two main reasons: its novelty and its role as a tool of
risk management in modern history. First, insurance is one of the
most obvious examples of activities that were not known in its mod-
ern form or dimension in the early centuries of Islam and as such
it requires analysis to reach a ruling on its Islamic permissibility.
Second, insurance is particularly important in modern society as a
loss financing technique in the process of risk management, at both
the individual and business levels. With an overlapped area between
acceptance and rejection, insurance is not entirely accepted or rejected
in Islamic economics; some scholars permit all types of insurance
and others permit only some types. But they all agree in principle
on the importance of insurance in modern society and its necessity
for businesses and individuals.
The disagreement seems to concentrate on the methodology of
implementing insurance more than on insurance per se. For example,
having classified insurance horizontally into mutual, cooperative and
profitable, and vertically into property, liability, and life, al-Zarqa
(senior) allows all forms of insurance, and sees no clearly decisive
rule in the Sharì"ah not to legitimise it (Zarqa, 1980). He argues
that mutual insurance, which was known prior to and during the
early period of Islam, cannot be prohibited in modern Muslim soci-
ety, and similarly cooperative insurance, which is similar to mutual
insurance, cannot be denied Sharì"ah acceptance. These are types of
insurance where insurance is not meant to be for profit, but for allo-
cating the losses, when it occurs, to the contributors to the insur-
ance fund. If no loss or damage is incurred the fund, unless the
participants agree to continue keeping it, can be dissolved and the
money paid back to the contributors. The same would be the case
if the loss or the damage turned out to be less than anticipated; the
balance of the insurance fund could be paid back to the contribu-
tors (ibid.). There is no disagreement among Sharì"ah scholars on
that, but the disagreement is on the form of insurance that aims at
seeking profit by the insurer. In modern times this would be insur-
ance through specialised insurance companies. The companies in this
case, through the actuary analysis of potential payments of com-
pensation or the value of damage when the insured event incurs,
can calculate the insurance premium so as to give the insuring com-
pany an acceptable profit.