Insurance and Islam

1. Introduction

The validity of the transaction of insurance in Islam has been much talked of from time to time. It is said that it is illegal because the element of “Riba” i.e. interest is mixed in it and some say that the element of “Maiser” i.e., gambling, is the basis of this transaction.

Since these two evils, as assumed, are associated with insurance transactions, “insurance”, it is considered as “haram” or illegal. But this type of transaction was unknown to Islam and also during the pre and post-Islamic Arabian Peninsula, Spain and North, and north-western Africa, where the Muslims ruled for more than 1,000 years.

The approach of this study is to find out how far, from the Islamic point of view, these two evils, are affecting the insurance contract and how far the same can be separated, to make the insurance transaction useful to the present Islamic society since it provides financial support to people in the troublesome time; no doubt, it is the firm belief of Muslims that God will help. But God helps those who help themselves.

The author’s approach in this article is to highlight first what is the insurance transaction and next how far it is useful to the society, particularly in the light of Islam. And also to study the scope of formation of a Mutual Insurance Society in our country where about 20 crores of Muslims are the citizens. So let us sincerely approach to know how far insurance is useful to society from a service point of view and to remove the bad qualities say “interest” and “Gambling” to utilize it in the best interest of this section of citizens, as business point of view.

2. The economic condition of Muslims

In modern times, the economic condition of Muslims, in general, is bad and is deteriorating day by day. The condition of a Muslim, who was giving the “Zakath” regularly and wholeheartedly is now unable to do so since his position, is reducing down to poverty and consequently, he is getting induced to become the “Zakath receiver”. This is due to uncertain business conditions and wide unemployment, unsocial conditions and unhygienic life. Despite various efforts, illiteracy is prevailing widely. At present, the life and property of Muslims are at great risk, since murders, fire, arson, and dacoity have become common in the present generation, whereby their economic condition has come to a standstill. Thus the social security of Muslims in India, at present, is not guaranteed.

On the other hand, they are denied economic security and the youth are denied employment. Such are some of the main causes of social unrest, poverty, and dissatisfaction among the Muslims. When their person and property is in danger, Muslims cannot afford to take insurance because it is considered as “haram” and those who are deprived of compensation have become penniless and paupers, while other communities are forging ahead with the support of the government by way of financial aid, subsidy, personal loans, and reservations, etc.

3. Historical aspects of insurance

Before we go into the details of the subject of insurance, let us succinctly know about the historical aspects of insurance right from the origin of human activity to this day. Although the practice of insurance was unknown to the Arabs in pre and post Islamic culture, insurance was very well done in other parts of the then known world, like, Italy, Germany and finally England, in one form or the other.

1. Primitive Days:- Even people of primitive times “made prayers and offerings of sacrifices” to obtain the blessings of God, “for their welfare and averting the evil.” Thus offerings and sacrifices were taken as “insurance premium” and God’s blessings for welfare and to avert the evil were taken as “insurance policy.” In this way, those people were feeling protected (Spencer L. Kimball).
2. Middle East:- Babylon, some 5,000 years back was the center of culture, which is now known as Bagdad in the Middle East. The insurance activity in those days was prevailing in name of “Bima”, meaning in Persian as “Measures to avert fear”. Hence Bima was derived from the Persian word “BIM” which meant “Fear”. Thus the Babylonians and the Persians of those days, when they were trading by sending their caravans with rich merchandise on camels, horses, etc., to various distant countries. (Persian Dictionary & Encyclopedia Britannica).
3. The Pagan Arabs:- When the practice of “Bima” was well known in Babylon, the pagan Arabs were unaware of this activity, perhaps due to their custom or ignorance. When Islam emerged, the business was done through caravans to Syria, Egypt, and China, but there was no such known practice. Hence the concept of insurance was unknown to Arabs and the then Middle East, where the worship of multi-gods, the offering of sacrifices of animals and human beings to avert evil were in vogue.
4.  Islamic Period:- The continent of Europe except some of the southern countries was in darkness. When Islam emerged, it brought the message of civilization, and refined culture outmoding tyranny and ignorance. When some Caravans of the trader were plundered by dacoits and sometimes animals were looted in the daylight from the grazing fields of Dar-ul-Islam, the Prophet consoled the people with the prediction that a time would come when a lady would travel all alone from Sana to Hijaz without fear of anybody except Allah.

Despite the teachings of Islam and preaching of Prophet Mohamed, the activity of insurance in any shape was unknown. Thus the Islamic society of those days did not need insurance.

4. Insurance activity:

The scheme of insurance and its activity was thus unknown in the Arab culture, then how was the concept of insurance brought in the list of “haram” (the forbidden or illegal)? But the activity of insurance is useful as a measure of receiving compensation of loss in the event of calamity or destruction by fire, riot, and flood, etc.

Of course, the then known world all-around was extensively utilizing this facility. Many gigantic institutions have developed spreading the activity commercially in every nook and corner of the world. But we are only harping on the aspect of insurance.

Therefore, I feel that it will be wiser for our Ulemas and scholars to sit and reconsider the activity of insurance and the working of insurance companies, after knowing the usefulness of the insurance benefits to the Muslim community.

India is a country where about 20 crores of Muslims are the citizens and the government of India is doing insurance business to spread in every nook and corner of the country, effort should be made to convince the government to look to the requirement of protection of this section of people, and constitute an insurance company by removing the aforesaid lacunae or constitute a Mutual Insurance Society, to operate which will not only be a good business for the government but also it will make it easy to protect its citizens who are about 20 crores, which is the population more than any other Islamic country in the world. For this, a joint meeting of the Government officials and the Muslim scholars would be fruitful to reach good results.

5. The emergence of insurance contracts:

Although the activity of insurance was growing in the contemporary world, the concept of insurance was unknown in the pagan Arabs of the post-Islamic era. It was known as a social or co-operative effort to save the unfortunate from the loss or destruction of the person or property. The losses were paid out of the fund raised from the contributors of premium. This activity was carried based on the law of Large Numbers i.e, collecting premiums from the many and paying the losses to the few. On the other hand, if the losses increased more than the premium collected the rate of the premium would be also increased.

6. Indemnity, the actual loss payable:

As a check on this aspect of the insured making an undue profit out of insurance or to make the aspect of gambling is implemented indirectly by insuring the same property twice or thrice to make several claims on the same property or where he is not the owner of the property but insuring the same, in such a case, all the loss that is suffered is not payable.

A condition in the name of “Indemnity” is appearing on the policy which debars the insured from replacing his old property by the new one or the insurance company does not allow the insured to make a profit out of insurance. Hence the insured has to return all damaged parts which are replaced by new ones, should be returned to an insurance company as “salvage”. Further, after payment of compensation, if the owner of the property gets any damages from those responsible (third parties), the same will become the property of the insurance company.

Such a condition, called “Subrogation” is mentioned in the policy. Further, where the owner of property clandestinely insures the same property with more than one insurance company, thinking that it might not be known to the main insurance company, such as owner is only entitled to a rateable proportion of the loss or the loss would be distributed among all the insurers. This aspect is known as “contribution” and the same forms part and parcel of policy conditions.

From the working of insurance if would be known that the insurance transaction is freed from the implication of “Gambling”, as only the owner can ensure his property, whereas a gambler has no interest in the stake except to win or lose. Whatever it is, without any ownership or financial interest in the property one will not be allowed to receive the loss suffered.

7. Method of payment of claims:

There is a concrete system of paying the claims, I remember, a young boy, who was taught insurance in his school, put a question to me, at a dinner party, saying, “Uncle! How is that you receive Rs.10 as premium and pay the claim of Rs.10,000.” Since it was not the occasion to enter into discussion, I simply replied, “It’s magic.”

Now it is worthwhile to state that the insurance company collects the premium from a large number of people who are exposed to the same risk, and pays claims to the few of those who suffer the loss. If the claims have become more than the pool of premium, then the rate of premium is raised to meet future losses. As already stated, this is based on the law of large numbers.

Once a claim is reported, the insurance company appoints a professional surveyor licensed by the government to go and inspect the loss and give his assessment. After verifying that the insured has complied with all the conditions of the policy, the loss is paid according to the assessment of the surveyor. If the insured does not agree with the assessment of loss, he can go in for arbitration or get his claim reviewed. Further, he has a choice of a fast remedy of going to the Insurance Ombudsman or the Grievances disposal mostly designed to help the insured.

Thus the government has left no stone unturned to give every possible relief to the customers. Many of the big companies are government-owned units while some of the renowned foreign companies have stepped in India. Whatever it is, if there is a fraud on the part of insurance companies to dupe the customers, the Insurance Regulatory and Development Authority (IRDA) under the Insurance Act, take care of it seriously.

8. Security and surety for stability

As a measure of security and surety of the insurance company to ensure payment of claims, security deposits are kept with government or with the banks as a requirement of law, to meet the contingency, if any, in the event the insurance company becomes bankrupt. No doubt some interest at the bank rate is payable to the insurance company, this amount is nothing compared to the deposit of premium. The insurance company is supposed to pay the claims from out of the premium account which is kept handy for meeting any contingency or payment of claims immediately.

9. The basis of premium rating:

Even fixing of the premium is determined by the government body based upon the statistics of losses of 3 or 5 years as a minimum share of losses of all property lost among all the owners exposed to similar risks. Now de-tariffed. This rate plus some administrative expenses will become a rate percent which will be charged proportionately to every owner of the property. Thus the insurance company collects the premiums and pays all the losses from out of the premium fund apart from other expenses. The question of Riba or interest, that too, at the bank rate prescribed by the government, is collected on the security deposit, is very negligible for the insurance company. Since it is a principle of insurance to pay claims from the premiums fund, the interest that is accrued on investments, being negligible is being adjusted to other administrative expenses.

10. The purpose of insurance:

However, the purpose of insurance schemes from time immemorial is to help the owners of property from the unforeseen danger of fire, riot, flood, etc. But it is regretted that some persons, who could not grasp the importance and purpose behind insurance have interpreted the activity of insurance as “gambling” or mixed with “interest” and with a contention that insurance is taken by those who have a “weak belief in God”, whereby the members of the Muslim community have discarded it as “haram” or illegal and violation of which is answerable to God.

The contention that the investment of insurance companies is invested in “harams” activities like sale of pigs, speculations in shares, and hoardings of grains, shares in a brewery or stock exchanges is not correct. No investment of insurance company can be placed in any company which is not specified by the Government under the Insurance Act or the IRDA i.e. these are invested in big projects or government schemes etc.

11. The growing demand for insurance:

Even after 1,400 years of the advent of Islam, we are still not sure whether to treat the insurance transaction as “halal or haram” – sometimes Fatwas are issued that insurance is permissible when arson and looting take place and sometimes we have engaged in debates that insurance is not a valid transaction. But the entire world is developing and the insurance schemes are also spreading by leaps and bounds by introducing more varieties of insurance, as the necessity demanded.

Similarly, Life insurance provides compensation to the dependent of those who die a premature or natural death. Accidental damage due to fire, theft, burglary, riot, etc. is available in the General insurance section.

Our government has also provided free insurance for accidental death (PASSS) and damage to the huts if gutted in a fire for the poorest of the poor to a limited extent. Why not we apply the wisdom given by Allah to devise plans for economic and social security for the poor. Simply giving Zakat to them is not the solution. Do not give fish to a person, but teach him fishing.

Also, a delegation of the Ulemas should approach the ‘government for formation of the insurance company through the surplus funds of the Waqf Board and by creating a Government’s Bait-ul-Mal.

However, the insurance policies, rating, and collection of premium and settlement of claims are done systematically based on the concrete procedure, everything is fine, except in so far as the objection of Muslim scholars on various contentions which can be sorted out in the interest and welfare of the Muslim community and also by the government on business considerations.

12. Normal conditions for insurance:

Insurance is done in normal conditions but not when there is a danger of peace or riot or when the property is burning. The activity of insurance should be done in an organized way. Muslim organizations should make a system of compulsory insurance every year and a fund should be made for payment of premium for the insurance of the property of the poor classes.

It should not be that when the month of Ramzan has come and the people started asking for Zakat and Alms. A study should be made to know as to what types of insurance have to be taken as conditions of riot, fire, flood, earthquake, etc., are different from place to place and section of risks should be done with proper forethought.

Recently I came across some news that crores of rupees and jewelry given in the hundi of Ganesh temple in Bombay are planned by the trustees to spend the charity and donations, to pay the premium for the insurance of the poor and the down-trodden against their accidental damage to their essential properties towards accidents and health insurance. Cannot we think of pooling some payments of Zakat given to the poor by placing in a fund for payment of premium for the health insurance and insurance of properties of the poor Muslims, so that in time of distress, this may be useful as support?

13. Possible fraud:

Fraud of people or the insurance companies is also checked up quickly either by the IRDA or by courts, depending on the merits of each case and at a cheaper expense, without court fees and lawyers’ fees, etc. Hence deceiving of insurance companies to the poor public is checked up. What at best the insurance companies do is to take advantage of the small print of the policy by disqualifying from the loss.

But to this various forums available are Arbitration, Ombudsman, Consumer Forum, etc., through whom the remedy is available on a cheaper and quicker basis. Don’t we see fraud owners of properties and brokers in real estate take place? How much fraud creeps in marriage, divorce, and inheritance of property? Do we prohibit such transactions because the public is but to lose? Blaming only the insurance transactions for one reason or the other is just to find fault with a thing which has immense use to the society, has become the fashion to find fault in one way or the other.

14. Picking up the good from the evil:

As for the payment of claims money, according to the principles of insurance, has to be first paid out of premium deposits only. Moreover as stated earlier, there is no possibility of the element of fraud by insurance companies to deceive the poor insuring people, except in so far as the terms of an insurance contract, which is again questionable at law. The element of interest constitutes a small sum out of the large capital and fund.

15. Step-motherly treatment:

Unfortunately, a step-motherly treatment is given to this matter, despite its vital role in society. The elements of risk, gambling and Riba are found in almost many transactions of human life. As already stated the element of Riba is the prediction of Prophet Mohamed that in the present age Riba is inseparable from our transactions [Tariq Tabri]. According to Abu Huraira, Prophet Mohamed said,

“A period will come when nobody will bother to know what is being taken as ‘Halal or Haram’ [Sahih Bukhari]. When such an advance prediction was made by Prophet Mohamed, how the great Companions, Imams, scholars, and ulemas had no time to think of taking some precautionary measures to the people of coming generations.

16. In the search for the substitute for ‘insurance’:

As already stated earlier, insurance activity was not done during the time of Prophet Mohammed, nor was anything done in the past. However, the concept of Khassas or Blood-money (wergild) was in vogue and such payments were made a form out of the Bait-ul-mal. While definite rules of war and distribution of Booty, marriage, divorce, and inheritance were made, but nothing is said or written about “insurance,” which was useful for the protection or safety of the property.

Naturally, how could this aspect become the subject, as already stated that “insurance” was unknown to the Arabs of those days? There was no profession of the pre-Islamic Arabs, excepting Dacoity, looting and theft of property, women, children, and animals and they used to take pride in narrating such events undertaken by them.

17. Insurance in the Islamic world:

Let our scholars and ulemas all over the world come forward and decide whether “Insurance” activity is anywhere prohibited, specifically in Islam, in the light of the Quran, Sunna, and the Hadit or any of the practices of our beloved Prophet. On the assumption that the element of Riba or Gambling is mixed with insurance transactions in it can we say insurance is a bad transaction? We have to consider if the impurities of insurance viz.

Riba and gambling are removed, will it be acceptable? Now an effort is being made to study possibilities to transact insurance on a “cooperative basis” free from Riba in some of the Islamic countries. Whatever it is, at least some sections of our society understand that insurance is a useful transaction to get the compensation when there is a loss, otherwise it will hit badly the affected persons and no one would be able to come to their rescue, except to pity or sympathies.

18. Wagering or gambling contract:

Insurance transaction, long before, was known as the “wagering contract” or gambling, as such illegal and not permissible in Islam. It is because such a person insuring is neither the owner nor has any interest in the property whatsoever. Hence the element of gambling is removed from insurance transactions.

19. Position of Rib:

That is why it has been emphasized that “insurable interest” is required to ascertain that the owner of the property can only get it insured otherwise the insurance transaction becomes “Riba” in Arabic means “increase” or “Excess.” [Tabri Tafseer]. The word “usury” which was referred to as “interest” is not the same, as the modern interest which is at the rate prescribed by the government and the Reserve Bank, and not in multiples of two-fold or four-folds.

“Riba” was undesirable in Islam. The interest prevailing in those days was not simple but usury and its recovery were cruel, compared to the modern way of banking interest which is a nominal rate.

The Quran states that one should not take Riba “in double” or “quadruples” [Q3: 130], the idea of introduction of Riba was to prevent the rich people not to suppress the poor from the tyranny of debt. Adding Riba in doubles and quadruples was to keep the debt ever-increasing so that the slaves do not get emancipation. Thus Allah advises the rich people, in another verse, to save the “necks of such people” by freeing them [Q.2: 177] from the evil of debt.

To this, our Prophet Mohamed had added that credit sale and purchase of gold and silver were also considered as Riba [Sahih Muslim]. Hazrat Shah Valiullah Delhi had opined that “Riba” is not the present banking interest but the Riba of those days that was received to limitless height and its collection was torture on the poor, which Islam would not tolerate to happen at any rate.

This type of “Riba” in the shape of usury is still prevailing in some of the indigenous peoples and tribes, in India, who collect the interest at a very high rate, where the poor face untold misery.

I have a request to our learned Islamic scholars to find out the real interaction of the verse on Riba as mentioned in the Quaran and make a true construction so that the Muslim community at large is benefited in the modern time, since the trade, business, and commerce of Muslims has remained to be stagnant. The Muslims can not take any loan from the bank or government agency at a nominal rate.

Similarly, Muslims are afraid of taking insurance for the protection of their property against, fire, flood, and riot, etc. as it is considered as a forbidden transaction, because of its being mixed up with the Riba. Now it is a high time for the Muslim scholars to find out from the letter and spirit of the Quran what is the translation of “Riba” —- Is it “Usury” or “interest”?

Since this study is confined to the transactions of insurance, and it is stated that insurance companies receive interest in the investments at the rate prescribed by the Government, many of the ulemas observe that the proceeds of claims are paid out of the accumulated “interest.” As already highlighted in this paper that the insurance companies collect the premiums form the people who desire to take insurance and this premium is kept in a fund and from out of this fund, first of all, claims are paid, then the commission, expenses of management are paid.

20. “Over what is paid” meaning:

As regards the owner of property or person who gets the money over what he pays is a condition of transaction or a promise that is materialized. It cannot be termed as “excess” but it is “compensation” as a whole for the event that is insured beyond his control, apart from the strong belief in God and God also tells people to apply wisdom in protecting their property.

21. The Rule of Necessity :

“Hardship begets facility.” Islamic law is considered enough to take notice of peculiar occasions where the severity is to be mitigated to provide facilities to those who are subject to hardship. The holy Quran states that “Allah has not laid upon you in religion any hardship” and “Allah desires for you ease and desire not hardship for you” (Q 22:78 and 2:85). Prophet Mohamed said: “Religion is a facility. The most beloved religion to Allah is tolerant Orthodoxy.”

In light of this, the Rule of necessity emerged as a source of law: “Necessity knows no law” is the common precept applied in the case of urgency. Similarly, a starving Muslim may eat forbidden things to save his life. (Q 16:115) “Thus the necessity renders prohibited things permissible,” said Imam Ghazali. Payment of installment, for instance, is allowed if the debtor is in strained circumstances, then let there be the postponement of the time of ease” says the Quran (Q 2:280).

Unfortunately, insurance, as I emphatically state is a measure to help the distorted ones when their person or property is in the state of incurring loss or destruction by fire, accident, flood, or outburst of a riot. This is a continued necessity or emergency which may be faced at any time. But it may be said that such a permissible thing must be due to some excuse which should disappear from the excuse, but there is no end for this necessity.

22. The Dar-ul-Harab:

India is a Dar-ul-Harab, where, despite a democratic republic and definite rights are guaranteed by the Constitution of India to the citizens, out of whom Muslims unconditionally form part of it, there is no certainty, safety or protection to person or property of the Muslims. Moreover, there are a lot of impediments in the education and employment of Muslim children, the one-sidedness of the police and partiality of the government officials; looting, arson and murders of the innocent has become common.

There is nobody to hear the voice of the distorted and the weak. Is it not the duty of every one of us to think over with an open mind to reconsider and review the matter of insurance transactions as a means of some protection in an emergency? Should we not prevail upon every Muslim to take insurance for his property and person?

23. Frequent Fatwas:

Because of the dictums and fatwas are issued, from time to time, Muslims are confused. During a time of peace, they think insurance transaction is invalid in Islam and when looting, arson and murders occur, our ulemas issue fatwas that insurance is permissible, by which time nobody will insure as the damage or destruction is in operation.

By this Muslims are being reduced to the loss of life of earning members or destruction of business property.

24. Life Insurance vs. General Insurance:

The seriousness of our ulemas has been much on the interpretation of life insurance stating that it is said to contain the element of “Riba and Maiser”. I have already clarified how these two evils are affecting insurance transactions and how the element of gambling is removed from the insurance transactions. As to “interest”, which is at the nominal government rate, does not form part of claims as the claims are paid from the fund of premiums.

But the objection of our ulemas is only on Life Insurance. The Insurance business of modern time is mainly divided into two main categories; one is Life Insurance for the payment of compensation to the insured person on completion of the agreed term, say 20 or 30 years, or on the payment of fixed compensation in the event of death or disablement. Such compensation was payable in the Islamic regime from out of the Bait-ul-mal, since the Muslims were living in the boundaries of the Islamic Empire.

Now the Muslims are scattered throughout the world and the payment of compensation through the Bait-ul-mal does not arise. Under such circumstances, every individual should try to make his arrangements for the days of hardship. Life insurance schemes are available on payment of premium. If Muslim pays the premium from his hard-earned money through “Halal” resources, i.e., without taking the bride, or without giving wrong measurements, without making an unreasonable gain, there is nothing wrong in taking life insurance on his life, disability and health, otherwise, in the event of a bad time, the dependents of his family would suffer.

Insurance is a peculiar transaction that has developed some 400 years back, and it has transformed many changes like the removal of gambling element and the element of fraud, etc. Now the question of Riba is remaining to be solved. It is no concern of a Muslim how the money is paid to him, but it is sufficient if he pays the premiums from his hard-earned monies.

25. Mutual Insurance :

“Mutual Insurance” and “Insurance” are tow similar transactions, one is primitive and limited in its nature and the other is given a modern business concept being run at a large scale and is available to anybody at any time and any place. Because of the size of the operation, its working has become different. But their object is to give protection against loss or damage. Mutual insurance is meant for the members of the association or group only, who contribute losses.

Insurance companies have shareholders and hence large capital is contributed to which dividend (share of profit) is payable. The mutual insurance members can avail of this facility in a limited manner because they do not have share capital available to pay losses to any number of insured persons or any amount of properties insured, for example, in the event of catastrophic losses, satisfy all, as they have reinsurance arrangements as well as contingency funds, securities with the government, etc.

Every activity is watched by the Government through the IRDA (in India), who can take them to the task. In case the individual property owner who suffered the loss under a policy can seek the remedy in a summary court at low cost and in the quickest possible time. Mutual Insurance is the Association of persons of an area agreeing to share losses in the event of the happening of an event. They do not have any ready funds or reinsurance. There is a catastrophic loss where a lot of members are affected by a devastating fire, flood, earthquake, they may not have so many contributions to pay the actual loss to all the people affected, hence their share may fall ratably.

Mutual insurance is not given to everybody except the members only. It is something like a bus owned by the members of a mutual association and only those members can be carried and nobody else. In the case of insurance, it is a stage carriage bus or public transport bus, whosoever pays the fare, he can be carried.

Insurance claims are paid on various techniques of indemnity and systematic rules of the contract approved by the government. Nobody can make a profit out of insurance or take undue advantage of insurance. An old car damaged in an accident can be made new after neither repairs nor can the insured recover the stolen car from the police, once his claim is paid. But there is no such determinant with mutual insurance. They may have to fall back upon the same methods of insurance.

On the whole, Mutual insurance is nothing but a combination of different people in various matters not alone insurance. It can be a contribution of members for giving a presentation or gift, which may vary from person to person. But insurance activity is a well-organized system of rating or premium and payment of losses.

In India, there were as many as 107 insurance companies, which after the Government’s take over were brought into four major unit companies, with the Life Insurance Corporation separately. This means that the government alone had the monopoly to do and control the insurance business. Recently foreign companies in the private sector also joined. All the government and foreign companies are financially sound and there is no scope of defrauding the public and if at all there is a dispute, it can be represented by fast legal action.

Since the insurance activity is well developed and financially sound, it will be worthwhile for us to take up the same and remove the flaws which are not permissible in the eye of Islam and have it adopted as a measure of protection for loss or damages, since the object of insurance and mutual insurance is the same. To me, this appears to be suitable.

However, if our ulemas do not find these flaws cannot be removed, we may have to approach the government with a request to promote Mutual insurance societies that have to be licensed by the government’s authority i.e. IRDA. This may be like removing a healthy tooth and replacing it with another.

Since this is a long legal procedure for the formation of a Company this type, for the time being, the present system of insurance maybe continue.

Zakat Sadqa and loans free of interest to be put in a fund and spend out of it, apart from saving the person and property of the poor from accidents and natural calamities, etc.

26. A respectful submission

With due respect to our ulemas, scholars and revered, I would like to submit that insurance transactions are not gambling contracts, as this lacuna was removed long before. May be claims are paid from funds which may include the amount of interest, but this amount is negligible, as premiums are pooled up to pay the claims. The primary function of insurance is to collect the premiums and pay the claims first, and then to pay the agents’ commission, Administrative expenses and staff salaries, and from the remainder, an amount is deposited towards securities and the balance towards the shareholders’ dividend. If this mixture of interest on the huge amount of premium is taken into consideration, in modern times, we cannot forget the fact that the element of interest is directly or indirectly mixed in everybody’s income.

In so far as insurance is concerned, if the Ulemas should approach the government with a request to make some schemes, for the present, pending a decision about insurance for the suggested insurance organization, based on the existing schemes on the following lines:-

(1) Personal Accident Insurance: There is already a scheme in the name of Personal Accident Social Security Scheme, for the poorest of the poor to the extent of Rs.3,000/- only for death per head, whose income is less than Rs.7,200/- annually. This insurance is done by the government through the erstwhile GIC and the PSUs and is designed for compensation to the poorest of the poor. Since this scheme is existing from the last two decades or so, its limit of compensation has to be enhanced up to Rs.15,000/- per head, for accidental death and disablement. Persons and the dependants whose monthly income is up to Rs.3,000/- should be qualified to get the benefit.

(2) Huts Insurance Scheme: One more scheme devised by the erstwhile GIC is in existence from last 2 decades and more, for the damage to the hut and the contents in the villages due to fire to the extent of Rs.1,500/- to the poorest of the poor whose annual income is not more than Rs.4,700/-. Since this is an old scheme its limit has to be increased up to Rs.15000/- per house and its contents which benefit should be extended to cover the risks of fire, riot, and natural calamities. The benefits of the scheme should go to such families whose monthly income is up to Rs.3,000/- per month.

(3) Health & Hospitalization Scheme: A similar scheme for the poor can be devised for the person or his family members, whose monthly income is not more than Rs.3000/- for hospitalization benefits.

(4) Solatium Fund: To meet the hit and run cases due to persons dying in motor vehicle accidents. Where the motor vehicles are not identified, in England there exists a Solatium fund to pay compensation to people involved in such accidents. A similar facility is available in India also. If our Ulemas suggest the formation of such a fund from the contribution of the Waqf Board and Minorities corporation, the poor Muslims who are involved in accidental death due to fire, flood, riot, etc. compensation can be paid for death and disablement. All these depend on the persuasion of the Ulemas and the good offices of the government and the IRDA.

It all depends on how a request can be made to the Government through the IRDA for a benefit to the poorest of the poor.

27. Application for promotion:

In the matter of insurance, the Government of India has jurisdiction to take action. If all the Ulemas and Scholars, through some Central organization, say, Minority Commission, Waqf Board or Muslim Personal Law Board, plan to give an application for the formation of an insurance company free from the concept of “interest” and “gambling”, or a Mutual Insurance society, there is a possibility that the government may consider such proposal if it is found feasible.

The capital can be raised from the accumulated funds of the Waqf Board and the premiums can be paid from out of the Zakat fund, hand-loans to be collected from those Muslims who voluntarily pay in the interest of the community. Through such an organization, insurance can be given to those individuals who are capable to take insurance and the poor sections of people who are not able to pay the premium, on whose behalf the premium has to be annually paid through the Zakat Fund or Sadqua Fund. For administering this there must be state-wise committees to identify the needy persons or groups who could be given this benefit.

28. Request to government:

This article sounds like propagation of a religious matter, it had to be done so to high light the importance to the ulemas, at the same time, it is also a business matter, because of about 20 crores if not at least 15 crores of Muslims, which means more than the population of a nation in the UNO, who do not take insurance because they feel from a religious point of view that it is not a permissible transaction because the element of “interest” and “gambling” is mixed with the same. It means that premium generating from so much population is not exploited. If multi-nationals think of this they could have resorted to catering to the needs of such population.

I had been pondering over as to how this lacuna affects insurance to suit the requirements of 20 crores of people that could be changed to suit their requirements. Not exploiting such a market what does it mean to businessmen or a business-like country claiming to be a secular country? Let us assume that there is such a big orthodox vegetarian population in an area where only non-vegetarian hotels exist will not a prudent businessman think of opening Vegetarian hotels to cater to the needs of such a big population to make a profit would do the business.

What if, insurance, to cater to the needs of such a big population, which means benefit to the insurer and also benefit to the insured. If per head premium is Rs.100 or 200 and for the industries owned by some rich Muslims the premium will increase in multiples, then what will be annual premium income, it is good as floating an insurance company by removing this lacuna and promote a Mutual Insurance Society, as one of the Public Sector undertaking, for which the capital can be raised through the Muslim Waqf Board and Minorities Finance Corporation. Even interest-free-debentures can be taken from some of the Muslim elite to add more to the working capital.

This will reduce the burden on the ex-chequer be payment of insurance claims rather than making frugal payments by way of aids or grants in the event of calamities and riots, as well as a good deal of insurance business can be done, apart from relief to the people.

For doing this an effort has to be made by high-level government officials to call for the Ulemas and scholars to study their objections, try to overcome the same and convince them to take the business for the betterment of the Muslim community.

At the same time, there should be a persuasion on the part of all the Ulemas, scholars and Muslim leaders, irrespective of sectarian belief, to improve their condition economically and socially on a national basis, and create a healthy atmosphere in helping the Government to promote a Mutual Insurance Society or in making an insurance company without the involvement of “interest”. This will bring out a healthy, religious and business solution.

If the Government through the Ministry of Finance and the Insurance Regulatory & Development Authority can promote an insurance company in the name of Mutual Insurance Corporation as its company or a General Insurance Company free from the involvement of “interest” by raising the capital from the Waqf Boards, Minorities Corporation and also asking the Muslim organizations to contribute monies from the Zakat and Sadqa Fund and also to ask Muslim individuals to give interest-free loans. The modus operandi can be decided later on business considerations, in consultation with a nominated body of Ulemas and Muslim leaders.

29. Conclusion:

a) It is a high time for the Ulemas and Scholars to come forward to think constructively and unanimously to remove poverty from the Muslims and make everyone capable of earning for his livelihood.

b) For removal of poverty, the Waqf Boards from their properties can construct buildings and from out of the rentals small scale industries can be established for their earning livelihood, so that they can stand on their feet.

c) There must be a reawakening of Child education, Adult-education, and women education among the illiterate masses.

d) Health schemes should be made common among men and women.

e) An insurance organization from interest and gambling should be started with the concurrence of the Government, for which an application should be made to the Government and the Insurance Development & Regulatory Authority, for starting assesses organization as stated earlier.

f) From the business angle, there is a good scope for the Central Government to start a Government-owned Mutual insurance Corporation from out of the funds of the Waqf Board, as stated earlier.

g) A pending final decision, the Ulemas can also approach the Government and the IRDA for revising and enhancing the PASSS and Huts Insurance Schemes to extend the benefits to persons whose income is up to Rs.3,000/- per month, in the alternative a scheme similar to Solatium Fund would be ideal.

h) Irrespective of sectarian concepts all the Ulemas and Scholars should come forward and agree for such a proposal and act upon sincerely by co-operating with the Government in all respects.

By Vazir Ahmed Khan, Resident Editor, The Insurance Times, Hyderabad
Published in The Insurance Times, March and April 2008