Page 43 - CFPA-SCR-Award in General Insurance W01_2018-19_Neat

Chapter 2 The insurance market 2/5

B2 Types of insurer – defined by function
Having classified companies according to their form of ownership we can now classify them by function:
Composite companies accept several types of business (called classes of business) and they represent Chapter
the major part of the market. The types of business usually accepted are fire, motor, accident, life and
marine. 2

Specialist insurers tend to issue policies for only one class of business. Their expertise is in that
particular niche area and so they form a valuable addition to the market but in a narrow area.

B3 Takaful insurance companies
Takaful is a type of insurance that has its roots in the Islamic financial services industry. The model has
been developed over a period of time and is based on the rulings of Sharia law on financial and
commercial transactions. It works on the principle that in any transaction risk and profit (and loss
bearing) should be shared between the participants.
The reason for this business development is to meet a specific customer group, namely insurers and
intermediaries with a need for products to meet their particular religious principles.
Under Islamic (Sharia) law, traditional insurance policies are seen by Muslims to be contrary to some of
the fundamental principles of Islam. This is because they involve:
• Gharar (uncertainty) – Islamic law forbids sales where there is risk to the buyer, unless the risk is of a
normal or reasonable proportion. Some believe that traditional insurance policies do not remove
uncertainty because how much and when, if at all, a policy will pay out remains uncertain.
• Maisir (gambling) – traditional insurance policies are seen to be a sort of gambling because some
policyholders receive payouts while others do not. Gambling is forbidden under Islamic law.
• Riba (interest) – Islamic rules also forbid making money from money, such as through interest. Wealth
can only be made through the trade of assets and investments.
Takaful is an Arabic word meaning ‘guaranteeing each other’. Takaful insurances embrace the Islamic
Takaful means
principles of: ‘guaranteeing
each other’
• mutuality and cooperation;
• shared responsibility;
• joint indemnity;
• common interest; and
• solidarity.

Takaful ‘insurance’ products need to be approved by Islamic scholars to ensure they are compliant, and
many providers consult special Sharia advisory committees during the development process.
While Takaful insurance has been in existence for over 20 years, it was only in 2005 that a major retail
bank became the first to offer Islamic insurance policies for buildings and contents. The sector has seen
steady growth since then.

C Protection and indemnity (P&I) clubs

These clubs are marine associations that insure cargo, crew, passengers and other third parties,
providing cover that traditional insurers are often reluctant to insure. Early organisations have now
developed into 13 Mutual Insurance Associations (P&I Clubs) which between them insure the liabilities
of around 95% of the world’s ocean-going tonnage.
In the UK, P&I Clubs are subject to the Marine Insurance Act 1906.

Sample examination question 1

Which type of insurance company does not provide insurance to members of the general public?
a. Captive. F
b. Composite. F
c. Mutual. F
d. Proprietary. F