Comparison Between Motor Takaful And Conventional Motor Insurance Finance Essay
The Takaful Market had significant growing globally, especially for the Malaysia. According to the Malaysian Takaful Associates, Malaysia Takaful Market is forecast to increase the 20% in the market share and raise the revenue in year 2013. (Finance, 2013). Actually, The Malaysia family Takaful and general Takaful is develop globally and increase and stand a long term profitability of competition in the Takaful industry. (Daily, 2012).
2.0 Motor Takaful Certificate
2.1 Definition and Concept
In Malaysia, Motor insurance is one of the minimum requirements for all road vehicles which provide the protection and cover the loss and damage to the owner and third party. (Ahmad & Auzzir, 2013). In additions, it is provide the cover of injury or death to third party. Since Takaful is the sharing-profit and loss concept, the participants of Motor Takaful will contribute the Tabar’ru or fund in term of donation which helps everyone in the fund. It had complied with the Shari’ah law and prohibited all unlawful elements. In the end, the contributor is corporate between each other and share with the pooling system.
2.2 Contribution of fund
Every participant is agreed to contribution an amount of fund or Tabarru’ in the Takaful contract (aqad). When reach the maturity, the participant who does not make a claim is entitles to receive a surplus in the general Takaful Fund according to the portion of pre-agreed ratio. In fact, the surplus will be shared between the Takaful fund and contributor. In addition, there are some incentives for no claims discount during the previous maturity period. The incentives or discount for the contributions is followed a scale once one contributor renew his own Motor Takaful certificate at any Takaful operator.
Among the operators which provide comprehensive motor insurance, most of motor Takaful is provide comprehensive insurance for the private car, include third party property losses and damage which up to 3 million, an unlimited claim for the third party bodily injury and death and loss or damage to own vehicle due to the fire, thief and accidents. However, it’s does not cover for driver injury and death. The indemnity could receive when arising from the conditions. Moreover, the contributor can apply additional coverage for windscreen, accessories, additional authorized driver and motorist personal accident
2.4 Subject Matter
As a contributor, the contributor should determine and confirm that sum of insured is match with the market value of the vehicles. It is because of the amount of claims will change if the amount is unlike. For example, if the sum of the covered is less than the market value, there is a penalty for underinsuring. Consequently, the operator will not bear for total amount of lost.
For the claim matter, there are is differences situations and rules to obey. If one individual involved in accidents, he/she had to report to the nearest police station and operator office within 24 hours. A lot of detail such as detail of driver, passenger and other third party, Takaful certificate number and other should be collect. The participant is required to collect the information along with the claim form, such as police report, driver identifies cards and license, vehicles registration card and road tax. As conclusion, the individuals should contact, notify and corporate with the Takaful operator for the update of the claim matter. In addition, there is the excess of payment and it may due to specific circumstances in the claim process and a fee of RM10 is required when cancelled the certificate.
3.0 The comparison between Motor Takaful and Conventional Motor Insurance.
In fact, Motor Takaful and Conventional Motor Insurance are provided the financial cover against risk for the loss and damage to the vehicle and third party. Also, both of them are the risk transfer mechanism for the private vehicle of individual. However, there is comparison between the concept of Motor Takaful and conventional Motor insurance.
Conventional Motor Insurance provided a contract between insurer and insured and the cover is under the Private car insurance which aim to minimize the risk of the damage or loss of the vehicles. It applied the principles of insurance such as insurable interest, utmost good faith, proximate cause, indemnity, contributions and subrogation. (Shahzad, 2009). Reality, conventional Motor insurance is basely on the commercial factors, does not rely on the Shari’ah law and include the element of interest, gambling and uncertainty.
Motor Takaful is one of the general Takaful and provide by the Takaful operator and governed by the Shari’ah Advisory Council. (Carlist : Motor Takakul , 2012) The basic idea of the motor Takaful is the corporation between the all participants, mutual guarantee, share responsibility, and protects all the participants from the financial loss from the loss and damage of the vehicles or third party. In the contract (aqad) of Takaful, the participant is agreed to Mudarabah, Wakala and Waaf and free from the unlawful element, such as Riba, Maysir and Gharar.
3.2 Fund, Beneficiary and Profit Distribution
Motor Takaful’s participants are contributed their fund in term of donation or known as Tabar’ru. The motor Takaful fund or Tabar’ru is a mutual corporate fund and sharing between each participant. Besides, there is a pre-agreed ratio of 50:50 for the charity fund and profit-loss sharing fund. If a participant does not make a claim at end of maturity, there is a surplus and incentives will return to the participant as profit. In addition, every participant is has a right to recognize the profit or dividend from the investment that are Shari’ah compliant. Thus, the Takaful operators have to disclose or transparency single investment information and detail to avoid unlawful element. (Insurance and Takaful, 2010). In addition, the no claim discount (NCD) is cannot transferable to another owner and no interest will be given since it is restricted by the Shari’ah law.
For conventional motor insurance, the fund is known as premium. The premium is paid individually since the motor insurance is operating individually with the insurance operator. At the end of the maturity, the company management has a right to choose whether to disclose investment information to the policyholders. The surplus and benefit is belongs to the shareholder. However, the policyholder still can transfer the interest of the motor policy to another policy upon requested.
3.3 Cancellation and Refund Matter
When a participant cancels the motor Takaful certificate, RM10 is required to deduct in the refund of the Takaful contributions and notify the operator’s underwriting. The participant is enables to refund the contribution. On the other hand, conventional Motor insurance is not required any refund of premium for any cancellation.
Under the section Endorsement (2f) compulsory excess of Motor Takaful certificate, an excess of RM400 is applicator for the holder of full driving license of less than 2 year. Oppositely, an excess of RM400 is applicator for a holder of P-License. It shows that, Takaful operator had a strict term and conditions in the underwriting of the policy compared to the conventional insurance.
3.5 Investment and Re-insurance
The investment of the Motor Takaful had to comply with the Shari’ah law. Unlawful element is forbidden. The participant cannot receive interest as profit from the operator. Besides, there is no gambling activity and uncertainly in the investment or certificate. Indeed, the operator faced the higher risk. In addition, the participants can re-takaful the certificate. In contrast, the conventional motor insurance cannot re-insurance and the investment activities is based on interest and do not comply with Shari’ah law. The operator is faced a lower risk.
As a conclusion, there is the comparison and differences between Motor Takaful and conventional motor insurance. The basic idea, benefit, principles and investment activities of the Motor Takaful is difference although the cover of the vehicles is same if compared to the conventional motor insurance. One holder has to make the best decision after revised their needs in the certificate.