Sharīʿah Framework for Pricing Family Takāful Products

Abstract

This research investigates the Sharīʿah compliance of the pricing
elements used in family takāful products. The reviewed literature has revealed
a great deal of emphasis on the Sharīʿah aspects of the takāful contract,
distribution of surplus, models used, incorporating waqf in takāful, and the
relationship among the parties. Other research has focused on the operational
and technical aspects of takāful such as underwriting, pricing, reserving and
risk management. None of these studies has addressed the Sharīʿah compliance
of the pricing elements of family takāful products. Through qualitative
research using open-ended interviews as well as content analysis, this research
analyses the conformity of family takāful pricing mechanism with the Sharīʿah
principles of price-setting (tasʿīr). The research findings indicate that the
assumptions of mortality and morbidity are Sharīʿah compliant based on
the principles of ibāḥah (permissibility), maṣlaḥah (public interest), istiqrāʾ
(induction) and ʿurf (custom). However, the investment returns assumption is
not quite fair to the shareholders should there be a loss in the investment. The
research also indicates that the concept of time value of money is a Sharīʿahcompliant
element that can be used to price family takāful products. Further,
the findings highlight that the pricing elements such as health condition are
deemed unfair by some practitioners. Similarly, adding an extra loading to the
contribution because of family medical history should not be taken for granted.