No Bumpy Ride, but just One Big Hole in between the RETAKAFUL CLAUSE

Just One Big Hole in front.... Worth the time to reexamining it!

It is not uncommon nowadays for the conventional Non-Life insurers to trade facultatively (reinsurance) with our brother in trade, the (Re)Takaful Operators. It is also not uncommon either to see our brethen inserting subjectivity in the guise of RETAKAFUL CLAUSE when accepting a share of our facultative reinsurance placement.

An oppressive wordings?

The (Re)Takaful boys usually cite that this clause is very common lah! Merely highlighting their practices that are in line with either or both the operating concepts of Wakalah and/or Mudharabah. So this is no big deal…. but is it? I have enclosed the .PDF file (Retakaful Clause) with comments made in respect of clause wordings that would one day pose real problem to the non-life insurance players.

“What was issued to the policyholder does not contain those disclaimers as spell out in the Retakaful Clause… However, this is not a problem for the Takaful operators – all their policy contain similar elements of disclaimer”

Without breaking into details, (you can get them from the attached .PDF file), the following are the salient pointers:

Some issues to ponder over……
  1. The Retakaful Operators promise Hibbah (or Gift) or whatever you called it, but were there any actually given out to the Conventional insurers (or participants)… I doubted!
  2. If indeed those Hibbah promises were delivered, then the said clause is more palatable….
  3. If the Retakaful fund is depleted, the Retakaful Participants would be billed for a Qard Hasan (or loan), and more should follow if things deteriorate.
  4. What would happen to our claims recovery after more Qard Hasan are billed? If the retakaful fund continues to deplete, and despite all the Qard Hasan and whatnots, still is unable to arrest the situation, how the heck is our claims recovery be paid?
  5. The clause certainly states, “You can’t go after the Retakaful Operators despite the management losing a big portion of the fund which they placed out as investment – fraudulent, cheated, mismanagement and so on. Of course, if you can gather enough information and sue them for willful negligent or infidelity…. but it is easier say than done.
  6. Always remember what we offered to our Insured does not contain those disclaimers as set forth in the Retakaful Clause, unlike what our Takaful brethens have issued for their Takaful Customers…. Thus the GAP and therefore a possible BIG HOLE in front!

The real issue is really about a GAP somewhere between what’s being offered to the conventional markets and those reinsurance placed facultative outward to the Retakaful operators. Over a period of time, pretending everything is in order (in reality is NOT)……it only takes one failed (Re)Takaful operators to trigger some financial shocker of a different kind to the Conventional market-place.

I shall leave the conclusion to you….. And Happy & Prosperous Chinese New Year! It’s good to know Chinese New Year is celebrated for 15 days……

Happy Tiger Year

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10 comments for “No Bumpy Ride, but just One Big Hole in between the RETAKAFUL CLAUSE

  1. Anonymous II
    July 12, 2010 at 13:26

    One point that needs to be corrected (as writer has got it wrong) is that Qard Hasan will not be billed to the Retakaful Participant.

    When there is a deficit to the Retakaful Fund (for whatever reason), it is the duty of the Retakaful Operator to pump in money to make good of the deficit. Now again, the amount pumped in by the Retakaful Operator can never be charged to the Retakaful Participants (due to contractual obligation on the part of the Retakaful Operator). How then would the Retakaful Operator recovers for the additional cash that they had to come up with? In most cases, Qard Hasan can only be recovered through future underwriting surplus; if total claims for the year is less than total retakaful contributions received by the Retakaful Operators. Can you now imagine how long the payback period for the Retakaful Operator would be? This is totally different than a conventional reinsurance/insurance set-up, whereby the cost of losses or deficit to their reinsurance/insurance fund can be transfered to the reinsured/insured by way of no or reduced policy bonus/dividend payable.

    • July 15, 2010 at 23:17

      In as far as Qard Hassan clause and its application are concerned, I would love to think as you’ve inclined to, but the meaning of the clause wordings certainly does not sounds like what was outlined by you. Do click on the pdf file on the top of the posting or the relevant icon within the post, there, you should get the clear picture. This is a piece of facultative-typed retakaful, so it is not about some treaty like transaction – you can’t get to the future underwriting surplus.

    • July 15, 2010 at 23:19

      Anyway, care to post us a write up of what Qard Hassan clause is all about and how / why / mechanism behind the clause wordings that is attached to this posting?

  2. March 15, 2010 at 05:15

    Great posting, thanks for very useful information.please keep posting

  3. Anonymous
    February 22, 2010 at 09:09

    There is always a difference between the Conventional and the Islamic practices. The former is always backed by the insurers’ asset base, while the latter operates on a risk & profit sharing basis. Therefore, both participants and takaful operators are engaged in both risk and profit sharing in respect of the takaful fund – if there is no gross negligence committed by the Takaful operators in respect of the dwindling fund, there is actually no real recourse against them by the participants – they would have to share both the good and the bad.

    This simple principle is also used in the Retakaful markets, of course there will be disparity in cover; what was provided by the Conventional markets to their client and what was contracted in the Retakaful markets. This is a risk that the non-takaful players need to be cautious of, therefore appropriate management of it is necessary.

    • February 23, 2010 at 23:58

      I hope our brother and sisters in trade would not overly insist on such clause bearing in mind our policy is issued with 100% backed by our company’s asset. The Takaful’s policies are only backed by what’s left within the takaful fund – their assets will always be intact despite the dwindling fund!

      • Anonymous
        March 6, 2010 at 08:33

        The clause is more a disclaimer as far as the conventional players are concerned.

        • March 19, 2010 at 08:49

          Don’t think this clause is rampantly used. Perhaps MNRB Retakaful, but I not sure whether this is their usual practice

          • March 20, 2010 at 12:38

            Not rampant now but it should be in the next couple of months. This is because inserting the clause is a must otherwise the CO- or fac RI share contracts may work contrary to the Shariah principles….

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