Critical Analysis of Family Takaful Operational Models in Malaysia

Abstract

Takaful and insurance have been compared long ago by many scholars around the world. Prior literatures of Takaful are mainly focusing on the concept and theoretical nature of takaful and its differences from insurance. Malaysian Takaful industry has been given flexibility in terms of the operational models adopted and to the researchers` knowledge; no research has been conducted in Malaysia regarding the choice ofTakaful operational models by Takaful operators. It is important to study the motives behind choosing among different Takaful models since different models have different impacts on the Takaful funds, especially for Family Takaful funds. Therefore, this research is conducted to examine on reasons behind choosing Takaful operation models and to propose the most suitable model to be adopted by Takaful operators to be fair and equitable for both Takaful operators and participants. The representatives from Takaful operators are interviewed and it has been found out that most of Takaful operators prefer the Hybrid wakE!ahMulErabah or Modified wakE!ah (principal-agent) model. The main reason is that Central Bank of Malaysia clearly sets the rule that in the wakElah contract, Takaful operators can charge wakElah fess (agent fees and administrative expenses) upfront to the participants (certificate holders). Moreover, an upper limit wakE!ah fees is 40% and hence, it is favourable to Takaful operators. The Muli:rabah (profit and loss sharing) model is not much favoured in the Malaysian Takaful industry. Interview results further find out that most of the practitioners also think that the wakE!ah fees imposed on the participants are too much and the Hybrid wakE!ah/MulErabah Modified wakE!ah model has too many layers of charging profits from the funds and consequently, the currently adopted models are at the disadvantages of participants. Since this research provides a clear picture of the current practice of the Family Takaful operating models adopted by the Malaysian Takaful operators, these findings will be useful for regulators and SharENah advisors to look into this issue again to be fair and justice to involved parties