Is takaful better?
Another issue which has come up is how successful takaful will be in health insurance. In conventional health insurance it is common for policyholders to try to exploit the insurance. Would this happen under takaful? Would it not happen for all takaful, or would it depend on how takaful was perceived, i.e. as a name change or as a real difference? If you thought of the takaful as a grouping of like minded people, sharing experience and good fortunes, then would you be less likely to file a questionable claim or trick the company?
What about risky health insurance? Some types of health insurance will be necessary long term, such as long term care. Long term care is insurance where we save up money for a long time, and use it for the last few years of life when the costs of caring for us are very expensive. These costs are not expensive yet here in the developing world, as we have people to care for us. If we had to hire full time nurses though, or live in a nursing home, this could be expensive, especially as costs rise for this type of service. This insurance is risky as we need to predict costs of health care and investment returns for many many years. It is even longer term than an annuity in some cases. In takaful we could charge expensive rates and then give surplus completely back to the participants. Wouldn’t this allow such an expensive plan to be sold? The takaful operator would be paid for work performed, and the regulatory requirements for things like risk based capital should be low as the operator is not taking on the risks of the fund, the risks are being shared. This same concept could be expanded to things like long term care as well.
Wouldn’t it be beautiful to see large takaful funds set up, either by reinsurers, by governments, or by insurers to pool large health risks which are in the best interests of the public but difficult for a particular insurer to take on. Takaful would be taking the torch and running forward, in front of conventional insurance, showing the way to satisfy the needs of the ummah, insha Allah.
On a few other notes, the entries I had put together on surplus sharing is being published in the December issue of Middle East Insurance Review. Just let me know if you would like a copy of the final article. Also, a book I edited and partially wrote is being launched next week. Exciting times. With all the craziness going on in the financial world takaful needs to take the lead and show the way forward, with fairness and transparency as its pillars.