Is Hajiyat Still the Basis for Takaful Operators to Resort to Conventional Re-insurance? An Appraisal on Malaysian Takaful Industry

Abstract

This paper aims at exploring the concept of hajiyat in re-takaful or Islamic re-insurance in Malaysia pertaining to the dynamic development of the Takaful and re-takaful industry which is gaining its momentum all around the world. The shariah-compliant insurance embedded with shariah principles emerged as the solution for the Muslims who have been avoiding conventional insurance as it is haram (unlawful). In view of the technical similarities of Takaful and conventional insurance, Takaful operators need re-insurance facilities. The Takaful operators in Malaysia need to depend on re-takaful operators to ensure the continuity of the Takaful operators in the long term by sharing the risk with re-takaful operators. The lack of re-takaful operators in the market left Takaful operators with the dilemma of having reinsuring with conventional re-insurance in order to meet the market demands. The shariah supervisory council (SAC) of Bank Negara Malaysia, the Central Bank of Malaysia has given a temporary dispensation to Takaful operators to reinsure with conventional re-insurance. However, it is a question that whether after more than 20 years of establishment the temporary dispensation is still applicable. The arrangement of Takaful operators with the conventional re-insurance is based on the principle of hajiyat. It needs to revisit whether temporary dispensation is still applicable to the increasing number of licenses issued by the Central Bank of Malaysia to companies to operate re-takaful business. Therefore, the objective of the paper is analysing whether hajiyat still holds some ground in re-takaful