Asim Rabbani 10668Majid Mehmood10659M. Zulqarnain Saeed 10657Noman 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

24%

24%

15%

7%4%

3%

2%

21%

Market Share of Companies Be-fore Takaful

ADAM JEE

EFU

NICL

NJI

HAMSHIRE

Askari Insurance

Asia Insurance

OTHERS

Note: Above data has been obtained from SECP

7%

93%

Market Share after Taka-ful

TakafulCon-ven-tional Insur-ance

• 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

2000 2001 2002 2003 2004 -

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2,783

3,204 3,497

4,248

5,168

1,548 1,819 1,794

2,074

2,941 2,816 3,030

3,381

4,159

6,035

Fire BusinessMarine BusinessAccident Business

Source: Security and Exchange Commission of Pakistan (SECP)

2000 2001 2002 2003 20040%

5%

10%

15%

20%

25%

30%

35%

40%

4%

13%

8%

21%

35%

Growth Ratio

Years

Grow

th ra

tioGrowth Ratio of Insurance Business Before

TakafulPremium Income Figures (in million) as per

Returns Received before Takaful

2004 2005 2006 2007 2008 2009 -

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2,536

3,860

5,418

6,111 6,137

5,570

EFU General Insurance

Revenues

2005 2006 2007 2008 2009 -

100

200

300

400

500

600

700

800

900

6

117

362

485

812

Pak Kuwait Takaful

Net Profit

2005 2006 2007 2008 2009

(20)

-

20

40

60

80

100

120

140

160

Pak Kuwait Takaful

Profi

t2004 2005 2006 2007 2008 2009

-10000

-5000

0

5000

10000

15000

20000

322 506 762

14536

-5471

732

EFU General Insurance

Years

Profi

t

Revenues: Motor Insurance(In millions)

2005 2006 2007 2008 20090

100

200

300

400

500

600

4.13595

76.13255

235.2935

314.94905

528.034

Pak Kuwait Motor Takaful

2005 2006 2007 2008 2009 -

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

4032.83 4042

43644151

3574

EFU Motor Insurance

Net Profit: Motor Insurance/Takaful

2005 2006 2007 2008 2009

-20

0

20

40

60

80

100

120

-5.17725

-0.687056.00795

15.1489

95.576

Pak Kuwait Takaful

2005 2006 2007 2008 2009

-300000

-200000

-100000

0

100000

200000

300000

785 1,352

(252,922)

87,745

186,691

EFU General Insurance

Pak Kuwait Takaful and EFU General Insurance

2005 2006 2007 2008 2009

(10,000)

(5,000)

-

5,000

10,000

15,000

20,000

Comparison of Net Profit

Pak KuwaitEFULinear (EFU)

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