Islamic finance accelerates into motor policies
First it was Islamic
current accounts, then mortgages and investment funds, and now we have
a motor insurance product that conforms to Islamic law, or sharia.
move will be welcomed by many of the two million British Muslims
looking to buy insurance cover aligned with their faith. But it could
also prove popular for non-Muslims who find the notion of an ethical or
co-operative insurance product appealing.
insurance, where risk is transferred from the policyholder to the
insurance company, halal [permissable] insurance, or takaful
(“guaranteeing each other”), requires all participants to share risk
equally. Instead of premiums, participants pay contributions which, as
with ordinary insurance, are calculated on the presumed risk of the
individual and how likely they are to claim. These contributions are
then pooled in a takaful fund which is invested in strictly halal
activities. There is also a Shariah Supervisory Committee, made up of
sharia scholars, to oversee all activities and to ensure that the whole
process is consistent with Islamic principles.
Interestingly, once the fund has been used to pay for any valid
claims, any surplus money is redistributed to participants at the end
of the year in the form of discounted premiums, which come in addition
to any no-claims bonuses.
“What is unique is the ethical nature
of what we do,” says Bradley Brandon-Cross, the chief executive of
Salaam Halal Insurance. “It’s a transparent process and the opportunity
to get something back is attractive to customers, both Muslims and
But there is no guarantee that there will
be any surplus money to share out. Motor insurance firms have been
making underwriting losses in recent years: there was a recorded
deficit of £267m in 2007 and £204m in 2006.
At Salaam Halal, if
claims outweigh contributions, shareholders advance the money to pay
for any excess claims. Shareholders then recover that cash in times of
profit. This could mean that even in years in which there are surplus
funds, there will be little or no money left to share out among
participants after the retrieval of shareholders’ contributions.
prohibits usury – the receiving of interest – as well as the
undertaking of haram activities (those that are forbidden to Muslims,
such as gambling and dealing in alcohol or arms). This leaves many
financial products, including conventional insurance, in opposition to
sharia, and so many Muslims have few options when shopping for products
that conform to their faith. Standard insurance falls down because it
involves the taking of a financial risk that the policyholder will make
a loss if a claim does not occur, which to many Muslim scholars
constitutes a gamble.
Insurance is just the latest of Islamic
financial products to become available in the UK. In comparison with
mortgages, the insurance sector has been slow on the uptake. Islamic
mortgages have grown from having a 0.3 per cent market share in 2003,
to 0.8 per cent in 2009 with a value of £429m, according to the
research company Datamonitor.
Salaam Halal’s motor insurance
has just become available through price- comparison site
Moneysupermarket. com and the indications are that it’s both popular
and competitive. “There has been a lot of interest,” says Kaye
Pimblett, motor insurance manager at the site. “During its first seven
days on Moneysupermarket.com, Salaam Hall returned more than 37,000
quotes. And when they returned a quote, they appeared in the top three
positions on over a third of occasions,” she adds. Already, the insurer
has plans to take its co-operative model of doing business into the
home insurance sector.
Lloyds Banking, which has pioneered
Islamic finance products in the UK, is not surprised at the popularity
of any sharia-compliant launch. “Although as a market, UK Islamic
finance is in its infancy, it’s still set to become big business,” says
Emile Abu-Shakra, a spokesman for the bank. “We offer Islamic current
and business accounts, mortgages and investment funds.”
Mr Abu-Shakra adds: “We piloted these in just five branches in 2005 but that quickly expanded to all 2,000 the following year.”