An assessment of customer`s preferences on the selection of Takaful over conventional insurance : a case of Saudi Arabia

Abstract

The risks and disasters are the possibilities that can happen to any individual. Among the likely ways of warding them off, especially properties or financial losses, is the risk management service through the purchase of an insurance cover in the form of Takaful or Islamic insurance. This research paper aims at examining the differences between Takaful and conventional insurance, identifying the customers’ information about the Takaful products and services as well as assessing the motivational factors that influence the customer’s preferences of Takaful over conventional insurance. To maintain a thorough analysis of the data collected, the research makes use of a mixed method of data collection. This comprises of questionnaires answered by one hundred and fifty respondents and in-depth interviews with four respondents drawn from the four selected Takaful industries in Saudi Arabia. Their answers were coded into the themes centred on the objectives of the research. Based on Takaful insurance, donations are established at the pooling system in line with the Shariah and they are formed on the bases of Tabarru’ and escaping from Gharar, Maysir and Riba. However, on the conventional insurance, risks are transferred from the insured to the insurer; there are elements of uncertainty, gambling and interest generated. The customers obtain information about Takaful product and services through newspapers, internet, friends and promotion. The result discovers the motivational factors in the selection of Takaful over conventional insurance such as Takaful product is protected by Shariah, there is a brighter future of Takaful in Saudi Arabia, no risk incurred or transferred, funds are contributed in the spirit of brotherhood, contributions are invested in non-interest based capitalization, profits are shared according to individual donations and also uncertainty is reduced in Takaful. The findings of this research identify the importance of Takaful product over conventional insurance.