AN APPRAISAL OF LAWS REGULATING TAKAFUL INSURANCE IN NIGERIA
Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: Jamilu Samaila
Islamic Insurance otherwise known as Takaful is a major segment of Islamic Finance. The concept was birthed when the requirements of Islamic Law were not met by conventional insurance.
Islamic law has urged the protection of some specific Shariah objectives for the survival of society as a whole, and Islamic law will not disregard anything that will assist in reaching these objectives. Takaful alludes to a covenant of mutual help and solidarity among community members, in the event that one of the members suffers loss or damage. Therefore, Takaful is a mutual assurance/guarantee. Takaful is based on principles of risk sharing between contract parties, materiality, non-exploitation and Prohibition of the financing of Haram/Illegal Actions. Instead of paying premiums, all parties or policyholders in a Takaful arrangement agree to guarantee each other and contribute to a pool or mutual fund. The Takaful fund is formed by a collection of contributions. Each participant’s contribution is determined by the type of coverage they require and their personal circumstances. A Takaful contract, like a conventional insurance policy, specifies the nature of the risk and the length of the coverage[1] [1].
Meaning of Takaful
Takaful is an Arabic terminology which can be translated as “solidarity” or mutual guarantee. It is a cooperative system of reimbursement or repayment in case of loss, organized as an Islamic or sharia-compliant alternative to conventional insurance, which is considered interest-oriented and ultimately led to Riba (Usury) and Gharar (excessive uncertainty).
Under Takaful, individuals and companies who are concerned about hazards make regular contributions (donations) to be reimbursed or repaid to members in the event of loss, and managed on their behalf by a Takaful operator”.[2] [2]
In light of the foregoing, Takaful is a type of Islamic insurance wherein members contribute money into a pool system, to guarantee each other against loss or damage. Takaful-branded insurance is based on Sharia or Islamic religious law, which explains how individuals are responsible to cooperate and protect one another[3] [3].
Regulatory Framework of Takaful (Islamic Insurance) In Nigeria.
Like any other establishment and general insurance industry/business, Takaful (Islamic Insurance) industry is regulated by laws, rules, regulations or guidelines that control its operation. The main laws that guide the operation of Takaful in Nigeria are, the Insurance Act of 2003 and NAICOM TAKAFUL-OPERATION GUIDELINES OF 2013 which shall be overviewed hereunder;
- Insurance Act (2003)
The Insurance Act of 2003 applies to all insurance businesses and insurers. The Act is the primary legislation that regulates insurance Companies in Nigeria, and makes provision for Requirements and Applications for Registration, Modes of Operation of Insurers, Winding Up, Premiums and Commissions, Insurance of Properties, General Insurance, Life Insurance, Offences and so on.The Insurance Act of 1997 established the National Insurance Commission with the responsibility to ensure the effective administration, supervision and regulation of Insurance businesses and by virtue of Section 1 of the Insurance Act 2003, it is conferred the power to Register insurance businesses. In perusing the Act, it is an obvious fact that the Act did not expressly make provisions for Takaful which is a grave flaw.
However, the Act by virtue of its provision granted the NAICOM the power to regulate Insurance Businesses. The implication of this is that they can establish guidelines that will regulate the Operations of any Insurance business. Hence, this resulted in the establishment of the NAICOM TAKAFUL-OPERATIONAL GUIDELINES, 2013.
- National Insurance Commission Takaful-Insurance Operation,2013
The National Insurance Commission (NAICOM) issues the Guidelines for Takaful-Insurance, pursuant to section 7 of the NAICOM Act 1997. According to the guideline, the Takaful-Insurance Guidelines provide guidance on elements unique to the operations of a Takaful-Insurance Operator. These Guidelines must be read in conjunction with all other relevant legislations, guidelines, and circulars that the Commission has determined to apply to Takaful-Insurance Operators. The Guidelines serve as the primary regulatory framework for Takaful-Insurance transactions.Section 1 of the guideline made provisions for the introduction of the guideline, the concept of Takaful, and what the Guideline entails, such as scope, objectives of the guidelines and implementation.
More so, the guidelines viewed Takaful as a form of insurance that is compatible with the principle of the Shari’ah (Islamic Law). A market survey undertaken by the Commission indicated a significant religiously based objection to conventional insurance. A number of financial principles inspired by Shari’ah are shared by other Abrahamic faith.
To this end, Takaful-Insurance aligns with elements of mutual insurance, ethical financial management, and is accountable to all insuring public regardless of faith. Takaful-Insurance is based on two principles viz:
a) Tabarru (Donation/Contribution)
Tabarru is a donation covenant where all participants agree to mutually support each other and is the basis of participants’ contributions to the Takaful Insurance Fund.b) Ta’awun (Co-operation)
Ta’awun is the established Islamic concept of mutual assistance and is the basis on which participants willingly agree for the Takaful-Insurance fund to be used for the mutual benefit of all participants, to meet eligible claims.[4] [1]
The Objectives of Naicom Takaful-Insurance Guidelines
The Guidelines outline and clarify the framework for Takaful-Insurance Operators to conduct Takaful-Insurance business. The Guidelines have the following goals:
- To establish Takaful-Insurance Operators’ and other institutions’ duties and responsibilities.
- Set requirements and minimum standards for operation and disclosure with the goal of protecting consumers’/participants’ interests.
- Provide an efficient framework for the establishment and growth of Takaful-Insurance businesses, resulting in financially sound and sustainable Takaful-Insurance funds.
Further to the above, the Guideline by virtue of Section 2 Categorized Takaful Operations into two (2) classes as follows;
- Family Takaful-Insurance: This is a long-term arrangement between the Takaful-Insurance Operator and Takaful-Insurance participant that provides financial relief to the policyholder. For example, a fund contributor’s death, critical illness, or disabling injury.
- General Takaful-Insurance: This is a short-term agreement between a Takaful-Insurance Operator and a Takaful-Insurance participant that provides financial compensation for specified losses such as theft, or damage, but excludes Family Takaful-Insurance.[5] [2]
The Guideline further provides for General Requirements, Code of conduct, and Establishment of Advisory Council of Experts (ACE) whose responsibility is to;
i. The review and endorsement of policies and guidelines related to the principles underpinning Takaful-Insurance. Specifically, the ACE is responsible for review and approval of the Takaful-Insurance Operating model, underlying contracts and supporting materials such as product manuals and marketing materials adopted by the Takaful-Insurance Operator, for the conduct of the Takaful-Insurance business.
ii. Formal compliance certification of every product that is to be offered by the Takaful-Insurance Operator.
iii. Reporting all cases of non-compliance to the Board of the Takaful- Insurance Operator with recommended remedial actions.
iv. Reporting to the Commission of all cases where the Takaful-Insurance Operator has failed to adequately address, or take remedial action for non-compliance.
v. Providing a formal annual sign-off and opinion on compliance in a Report of the ACE that is to be included in the Takaful-Insurance Operator’s annual audited financial report. The formal sign-off shall also be made easily available (including online) by the Takaful-Insurance Operators to provide stakeholders, particularly participants, with the assurance that the Takaful-Insurance Operators’ activities and products sold during the specified period have been in compliance. ACE members may place an adverse opinion, or highlight any concerns they have on the activities of the Takaful-Insurance Operator within their formal opinion.
vi. Assist or advise related parties to the Takaful-Insurance Operator, such as its legal counsel, auditors or other consultants on Islamic jurisprudence-related matters upon request.vii. Providing support to the Takaful-Insurance Operator and participants in respect of questions or queries that may be raised regarding the Shari’ah (Islamic Law) compliance of products. Takaful-Insurance Operators and the ACE should ensure that adequate opportunities and suitable public forums are provided to address questions or queries from the general public interested in becoming participants.
viii. Issue recommendations on how the Takaful-Insurance Operator can fulfil its social role and promotion of Takaful-Insurance towards enhancing financial inclusion in Nigeria.
ix. Performance of any other duties assigned to it by the Board of the Takaful Insurance Operator[6] [3].
The operational guidelines also provide a framework for creating a workable and favourable business environment for Takaful operators, resulting in the expansion of economically sound and viable Takaful businesses in Nigeria[7] [4]. The Guidelines apply to full-fledged licensed Takaful operators, carrying out Takaful business in Nigeria under NAICOM.
Conclusion/recommendations
Takaful insurance is based on Islamic principles, and although recognized and in use in Nigeria, the laws need to be reviewed as they did not cover some parts such as the issue of which Court has jurisdiction to hear and determine matters on Takaful disputes. Having perused the provisions of NAICOM Takaful Guidelines and the Insurance Act, there are no Sections of this law that made provisions for the Court’s Jurisdiction. As a result, a specialized Court should be established to hear cases involving Islamic commercial jurisprudence. In the alternative, High Court judges should be trained in Islamic commercial jurisprudence, or the Federal Republic of Nigeria’s 1999 Constitution should be amended to allow the Sharia Court of Appeal to hear the case as a Court of first instance in addition to its appellate jurisdiction.[8] [1]
Also, interest (Riba) is unacceptable and clearly violates the Shari’ah principles. The issue of concern here is that the Insurance Act requires a certain percentage of the paid-up share capital to be deposited in CBN. The challenge is how the CBN can handle deposits, given the fact that it is not a non-interest deposit institution. Thus, the CBN Act should be amended to allow CBN to operate Islamic Law-compliant deposit schemes[9] [1]. Takaful is yet to be recognized by the Insurance Act which is a serious flaw. In addition, the legislation on Takaful should be put in place and the Insurance Act, if possible, amended.
[1] https://www.investopedia.com/terms/t/takaful.asp< [5] accessed on 17th September, 2022>.
[2] http://en.m.wikipedia.org/wiki/Takaful [6]
[3] https://www.investopedia.com/terms/t/takaful.asp< [5]
[4] Section 1, NAICOM Takaful Operational Guidelines (2013)
[5] Section 2, NAICOM Takaful Operational Guidelines (2013)
[6] Section 3, NAICOM Takaful Operational Guidelines (2013)
[7] https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-5-issue-11/216-221.pdf< [7] accessed on 17th September, 2022>
[8] ibid
[9] ibid