UK: Board Resolution No.4 of 2010 Concerning Takaful Insurance – UAE

Last Updated: 20 September 2010
Article by Peter Hodgins

The UAE Insurance Authority Board recently promulgated Resolution No. 4 of 2010 concerning Takaful Insurance (the Takaful Regulations) which, for the first time in the UAE, provides regulations for Islamic Insurers (Takaful operators) distinct from the regulations governing conventional insurers.

The Takaful Regulations are broad ranging; providing details both as to structure and powers of the UAE Insurance Authority, and the day-to-day operations of Takaful operators. The Takaful Regulations provide guidance as to the structure of the Takaful policies to be issued and expressly prohibit conventional insurers from offering Takaful products via an Islamic window. There are also significant corporate governance requirements imposed upon Takaful operators in relation to ensuring the Shari'a compliance of their operations.

It is important to be aware that Takaful operators are still required to comply with the provisions of Federal No. 6 of 2007 on the Establishment of the Insurance Authority (the Insurance Law) and the implementing regulations issued pursuant to it. As such, the Takaful Regulations must be read in conjunction with the Insurance Law.

The key features of the Takaful Regulations include:

The National Shari'a Supervisory Board

Arguably, the most fundamental changes introduced by the Takaful Regulations is the creation of the Supreme Committee for Fatwa and Shari'a Supervision (the Supreme Committee). The Supreme Committee is effectively a national Shari'a board for the Takaful Industry. It will operate in accordance with a bylaw to be issued by the UAE Insurance Authority at a future date.

Membership of the Supreme Committee is to be exclusive, and it is not permitted for a scholar who is a member of the Supreme Committee to also be a member of any Shari'a Committee of any UAE Takaful operator. There are to be between three and five members of the Supreme Committee.

The function of the Supreme Committee is to issue fatwas (legal opinions) on insurance and investment issues for the Takaful industry that will be binding upon the industry, to coordinate the legal opinions issued by the Shari'a Committees of the Takaful operators and to collate, classify and explain fatwas and opinions relating to Takaful issued by the Shari'a supervisory boards of the Takaful operators. The UAE Insurance Authority is also granted powers to investigate the Shari'a compliance of Takaful operators and to require Takaful operators to adjust their operations in the event that issues are identified.

It is to be hoped that the Supreme Committee will ensure consistency and clarity as to the Shari'a requirements of Takaful, which is to the benefit of the industry as a whole.

Takaful Windows and Composite Operators

Article 3 of the Takaful Regulations provides that only Takaful operators may offer Takaful products in the UAE. It is therefore clear that conventional insurers may not offer Takaful products via "Islamic windows."

Article 7 of the Takaful Regulations prohibits Takaful operators from undertaking both "Individual" Takaful business and "Property and Liability Business". For these purposes "Individual" Takaful is defined as including:

(a) Family Solidarity Insurance;
(b) Health Takaful Insurance; and
(c) Personal Accident Takaful Insurance related to Family Solidarity Takaful.

These provisions are consistent with the requirements of Article 25(2) of the Insurance Law, which applies to conventional insurers. Takaful operators are required to satisfy the requirements of Article 7 by September 2012 as provided in Article 25(2) of the Insurance Law (or such later date as the UAE Insurance Authority may specify). In the interim, Article 22 of the Takaful Regulations requires that the technical, financial and administrative aspects of the two types of Takaful business must be segregated, so as to provide for two or more subscriber accounts.

The Takaful Model

The Takaful Regulations recognise the most common forms of Takaful structure, namely, the mudaraba and wakala model. Article 8 of the Takaful Regulations acknowledges that either model may be used, and that a combined model is also acceptable. There is no reference to any other models of Takaful, such as the Waqf model, used elsewhere in the world.

The Takaful Regulations do not provide any details as to how these models should operate beyond the definition of Takaful as being "a collective contractual arrangement that aims at achieving cooperation between the subscribers against certain risks, where each subscriber pays a certain contribution into an account called the "subscriber account" from which compensation is paid to whoever faces a risk". The description of the Takaful operator's role is as being to "manage [the subscriber] account and invest its funds."

Takaful Policies

Article 9 of the Takaful Regulations requires that Takaful operators provide subscribers with separate "Takaful Subscription Policies" and "Takaful Policies". For these purposes a Subscription Policy essentially details the Takaful model used by the Takaful operator, whilst the Takaful Policy is essentially the policy wording outlining the terms and conditions on which a risk will be insured. This represents a significant change to the documentation to be produced by a Takaful operator. Historically, many Takaful operators have issued documentation involving a "Takaful wrapper" effectively having a series of introductory provisions that describe the wakala and/or mudaraba model to be used followed by the terms and conditions of the insurance offered.

Article 9 does not include any details as to what may be included in a Takaful Policy. However, details are provided in the Takaful Regulations as to the required contents of the Subscription Policy.

Article 9(3) also requires the Subscription Policy to be submitted to the UAE Insurance Authority. The UAE Insurance Authority has the opportunity to require amendments to the Subscription Policy if it is determined to be contrary to Shari'a or "if there is an injustice against subscribers". It is not clear what will amount to such an injustice, but it would appear, for example, that the UAE Insurance Authority could require the remuneration provisions in favour of the Takaful operator to be amended if they unfairly prejudice subscribers.

Shari'a Supervision

The Takaful Regulations also introduce requirements in relation to the Shari'a supervision of the Takaful operator through the establishment of Shari'a supervisory boards (the Shari'a Committee), and the appointment of a Shari'a supervisor. These provisions substantially reflect the Shari'a Standards recommended by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), and reflect an additional layer of corporate governance that Takaful operators will need to satisfy.

The Takaful Regulations provide that no scholar may be a member of more than two Shari'a Committees and that a member of the Supreme Committee may not serve on a Takaful operator's Shari'a Committee. It is implicit from the Regulations that this restriction is limited to membership of such bodies for Takaful operators in the UAE (and therefore membership of other committees in other sectors of Islamic finance or elsewhere in the world is permitted). However, presumably one of the considerations that the UAE Insurance Authority will take into account when approving the appointment of a scholar will be the number of other commitments that he has and it is implicit that the UAE Insurance Authority expects Shari'a scholars to commit their time to the Takaful operators who they advise. These restrictions are likely to further highlight the shortage of Shari'a scholars with adequate knowledge of the insurance industry.

Takaful Operations

The Takaful Regulations also impose obligations on Takaful operators to establish bylaws governing various aspects of its operations, including in relation to:

  • The operation of its subscriber accounts – Takaful operators operating on a composite basis must segregate its subscriber accounts for "Individual Takaful" business from "Property and General Liability" business, and for Family Solidarity Insurance it is necessary to establish separate risk and investment accounts.
  • The Zakat account - the Takaful operator is required to establish a Zakat fund into which the Zakat amounts must be deposited. Such a fund is to be segregated from the Shareholder fund and the Subscriber funds.
  • Surplus - a Takaful operator must have a set of rules governing the distribution of surplus, including details as to whether the surplus will be distributed based across all subscriber accounts managed by the Takaful operator or on an individual subscriber account basis.
  • Qard Hasan – it mandatory for the Takaful operator to provide a Qard Hasan (interest free loan) to a subscriber account in the event of a deficit. In the event that the Takaful operator fails to provide such a loan, the Director General of the UAE Insurance Authority may direct the Takaful operator to provide the loan within 15 days, and a failure to comply with such a direction may result in the Takaful operator's activities being suspended
  • Retakaful - Takaful operators must use Retakaful (as opposed to conventional reinsurance). However, Article 29(2) of the Takaful Regulations provides that where there is insufficient capacity in the Retakaful market (either from a single Retakaful operator or from a convenient number of Retakaful companies) the Takaful operator may use a conventional reinsurance. Retakaful protection may be placed outside of the UAE (Article 29(3)).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.