Compiled By: Mufti Umar Anwar Badakhshani
INTRODUCTION: This short essay by the Grand Mufti of Pakistan, Hazrat Maulana Mufti Wali Hassan Tonki (R.A) is a prelude to an answer regarding insurance taken from his fatwa “Life Insurance”.
THE BEGINNING AND THE END OF INSURANCE
It is said that insurance was started by the Italian merchants dealing in armaments. Realizing that some businessman lose their merchandise during transportation by sea, as a result of which they run into dire financial difficulties, they came up with the solution that the person whose merchandise is destroyed or lost during the sea voyage, would become entitled to receive financial support from merchants in the same business, in monthly installments. This scheme then developed into marine insurance whereby every member was required to pay a certain amount so that the risks could be mitigated and, in the case of any accidents, losses could be made-up for.
It is also said that, to begin with, during the Islamic rule on Andalusia, Muslims who engaged in sea-trade, introduced the concept of insurance on a commercial basis. In the beginning, it was a simple scheme. Later on, new features were introduced and the initial scheme was experimented with the new concepts. Today, the most popular form of insurance is based on fixed payments at fixed intervals, known as the “capitalistic form of insurance”. Governments have now made insurance compulsory in what is known as “State insurance”. It is said that insurance began in 1400 AD and became popular in a short span of time. Such a large number of legal suits started to be filed in the courts of law that special courts were set up in 1435 AD, which decided suits relating to insurance only. Insurance of goods transported through roads, rails began quite sometime after marine insurance.
The introduction of insurance in Islamic countries and the beginning of the jurisprudential debate
During the Ottoman Empire when Turkey’s trade and commerce with the European countries developed, insurance was introduced in the Islamic countries through European traders and people started to make inquiries from the scholars about its permissibility. Allama lbn Abidin a famous scholar of 13th century AD has noted in his works titled “Raddul Mukhtar”:
وبما قررنا يظهر جواب ما كثر السؤال عنه في زمننا ، وهو أنه جرت العادة أن التجار إذا استجأورا مركباً من حربي يدفعون له أجرته ، ويدفعون أيضاً مالاً معلوماً لرجل حربي مقيم في بلاده ، ويسمى ذلك المال سوكرة على أنه مهما هلك من المال الذي في المركب بحرق أو غرق أو نهب او غيره فذلك الرجل ضامن له بمقابلة ما يأخذه منهم ، وله وكيل عنه مستأمن في في دار يقيم في بلاد السواحل الإسلامية بإذن السلطان يقبض من التجار مال السوكرة ، وإذا هلك من مالهم في البحر شيء يؤدى ذلك المستأمن للتجار بدله تماماً (باب المستأمن ، 345/3)۔
“And from our noting, the question about which a large number of inquiries are being made is also answered and it is that when merchants charter ship owned by the subject (s) of a belligerent state, then, together with the charges for the ship, another amount is separately paid to the same or another subject of the belligerent state. This payment is known as “Sokra” or insurance premium and its payment means that in case of goods on the particular ship catch fire, or if the ship capsizes or if the merchandise is looted by pirates, the person who received insurance premium, is responsible to indemnify the merchant (s) who incurred the loss. An agent of the person who receives the insurance premium, resides in the coastal cities of our country as a protectorate, after obtaining permission from the government. He receives the premium amount on behalf of his principals and, in the case of destruction of goods, indemnifies the insured for the entire loss”.
While the ruling by Allama Ibn Abidin shall be discussed later in this book, the foregoing text reveals that marine insurance had considerably developed in those days. Ships that were chartered from the European countries were always insured. Insurance companies were operating under the auspices of the Turkish government. Agents of insurance companies were residing in Turkey in the coastal cities after obtaining permission from the rulers and had established their offices in Turkey. Rulings about this matter were frequently sought from the scholars in those days. Among the books on religious rulings (fatwas), Raddul Mukhtar is probably the first book that has discussed in detail the issue of insurance.
The spirit with which the concept of insurance was introduced and the way it evolved through the various stages of development is quite clear. Its end, however, in the words of the renowned scholar, Abu Zuhra is as follows:
“Even though the underlying motive was mutual cooperation but it ultimately met the same fate as did every other institution which came under the control of Jews. A system based on the spirit of cooperation in what was good and pious was mutilated by the Jews to a system that contains the elements of speculation and interest (Riba) typical of Jewish mentality”.
Jurisprudential discussions and perspective on insurance
In the matter of insurance, the attempt by the committee for research in matters of Shariah, Nadvat-ul-Ulema, Lucknow, appears to be the first such attempt in the Indo-Pak subcontinent. In Egypt and Syria, the matter is being debated for a long time. Several books have been written to explain the business of insurance and how does it operate.
Three or four years ago, a committee was formed in Egypt to deliberate upon the present-day problems which included Ustad Abu Zahra, Ustad Hallaf, and other scholars. In its first session, held under the chairmanship of the grand mufti of Palestine Syed Amin Al Hussaini, the issue of insurance was debated. Complete details of the proceedings of this session were published in the magazine “Lawa-ul-Islam” which is published from Cairo. The famous Syrian scholar Mustafa Al-Zarqa, started writing articles titled, “The contract of insurance and the point of view of Shariah” in the magazine “Hazrat-ul-Islam” which is published from Damascus. He invited other scholars to write on this matter. Ustad Abu Zahra wrote a very well-reasoned article in reply to the points raised by Ustad Al Zarqa. From the articles written by Ustad Al Zarqa, it was revealed that the scholars in Egypt and Syria are divided in their opinions in the matter of insurance. The majority of them do not consider it legitimate and think that it will not be acceptable to Muslims until such time that the present system is changed. The opinion of different scholars holding different viewpoints and the reasons given by them are given below in a summarized form.
Those who say it is absolutely permissible:
A small number of scholars consider all kinds of insurance is legitimate. These people are satisfied with the present system and consider it acceptable. A summary of their arguments is as follows:
- a) Insurance is a form of mutual help. Co-operation and mutual help have been required in Islam.
- b) Insurance may be accepted in the same manner as has been sale with buy back.
- c) Advances made by the insurance companies to people in need of finance and the interest charged thereon or the amount of premium repaid to the policyholder together with bonus (profit) is not Riba from the point of view of Shariah.
Those who say it is conditionally permissible:
The other group which is lead by Ustad Al Zarqa believes that insurance without any element of interest is acceptable the principal snag in insurance is the element of interest. If this is removed then all forms of insurance are legitimate. Their arguments can be summarized as follows:
- a) It can be considered like a contract for friendship or guardianship were two persons, not otherwise related, assume responsibility for each other’s liabilities, and become entitled to receive a share of inheritance from each other.
- b) It can also be considered as a payment for the safe custody of goods or for assuring a traveler to travel on a certain route and if the traveler incurs a loss, compensating him for those, losses.
- c) In the opinion of Malikiya, if a promise is made without a contract, then the promise ought to be fulfilled. If the promise is to indemnify a loss, then the loss, if any, ought to be compensated for.
Those who say it is absolutely wrong:
The third group which is led by Ustad Abu Zuhra believes that insurance of any kind is prohibited under all circumstances. A summary of their arguments is as follows:
- 1) Insurance in its true form is either speculation in that the policyholder may pass away before the maturity of the policy, or it is an interest-based transaction in that after making payment of all the installments the policyholder receives the amount back with profit (interest). Both speculation and Ribaare prohibited.
- 2) The system of insurance is such that a new element is introduced in it before the maturity of the original contract. This is clearly prohibited based on the authentic traditions of the prophet (PBUH). There is a consensus among the four major schools of thought about its prohibition.
- 3) Insurance disturbs the scheme of inheritance because the amount of the policy is paid to a nominee while every legal heir has is a claim in the property, whether movable or immovable, leftover by the deceased.
- 4) It involves the sale/purchase of money with money and it is essential that the transaction must be completed before the parties part with each other. This condition is not fulfilled in insurance.
- 5) Belief in destiny is a requirement and part of belief in God. Faith should be put in Him in respect of adverse events that may occur in the future. Persons who take out insurance appear to run away from that belief because they are making preparations to cover such events in advance.
Ruling by Allama Ibn Abidin Shami in respect of Insurance
Now we return to the ruling by Allama Ibn-e-Abidin of Syria and would present the gist of it. This issue has been discussed by him in the chapter titled “Mustaman” (non-Muslims living in Muslim territories under protection arrangements).
“The answer to this question is that it is not legitimate for these businessmen to receive compensation (from the agents). This is because the agent or his principal takes upon himself a responsibility which he is not legally bound to. If it is said that the person keeping something in safe custody and charging for his services is responsible for indemnifying any loss of such goods or damage thereto, the answer is that insurance is not similar to this arrangement. This is because in the case of insurance, the goods are not in the custody of the insurance company. They are in the custody of the shipping company or its agents. Even if it was that the insurance company owned the ship or the shipping company, it takes the responsibility for both the safe custody and transportation of goods, i.e., it is also sharing in the labor involved in the transportation of goods, In its capacity as such, it cannot be liable for any loss of or damage to the goods due to an event of which it does not have any prior knowledge.
If it is said that in the matter of guaranties, it has been stated that if A tells B to take a certain route for the transportation of goods, which B does and the goods are lost or stolen then A who persuaded B to take that route and assured him of its safety, will not be responsible. On the other hand, if A assured B by way of guarantee by assuring B that he will be responsible for any loss or damage, then A will be responsible should the goods be lost or stolen or damaged. The author of Durr-e-Mukhtar has distinguished between the two and points out that in the second situation A ha explicitly guaranteed the indemnification of any loss or damage. In the first situation, there is no explicit guarantee. Jame Al Fusooleen has made a distinction in the following manner:
The principle is that if A suffers a loss due to deception by B then A can claim damages from B only if there was a transaction between them for which B was to be compensated for his services or the person who has been deceived has obtained an indemnity from the other person for the making good of any loss. For example, A went to a flour mill with some wheat for milling. The owner of the flour mill directed him to dump the grain into a container. The container had a hole in it of which the owner was aware, which resulted in the grain being lost. In this situation, the owner is liable for the loss, because, in a transaction which involved payment for his services, he resorted to deception while the deal required that the safety of goods must be ensured.
Preconditions for holding the guarantor liable for damages
In my opinion such a situation it is necessary that the person who is deceiving the other party must be aware of the defect and the other party should be not. It is obvious that the insurance company does neither wish to deceive the merchants in any way nor is it aware of the fact that the ship will catch fire or capsize. As far as the generality of the risk goes, it is in the knowledge of both the insurer and the insured. The merchants take out insurance only when they are afraid of the danger and are avaricious of receiving compensation if goods are destroyed. Therefore insurance cannot be equated to the principle enunciated above. However if a Muslim trader has a partner who is a subject of the belligerent state and he enters into a contract with the insurance company in his state and then if he receives a compensation out of which he apportions something to his Muslim partner, such money is legitimate for the Muslim trader to receive. This is because the contract, even though it was void abinitio from the point of view of Shariah, was made between two subjects of a belligerent state and one of them willingly offered the Muslim trader a portion of the compensation received. This is legitimate for the Muslim trader to receive. At times it happens that the Muslim trader is visiting the belligerent state and the contract for insurance is made in front of him. In the case of a loss, the Muslimtrader receives his portion of the compensation in his own country. Another time, the situation is that the contract is made in the territory of the Muslim state but the compensation is received in the territory of the belligerent state. In the first situation, it will be legitimate for the Muslim trader to receive compensation. The contract made in the territory of the belligerent state will be considered null and void but it will be said that a subject of a belligerent state has willingly offered a portion of the money belonging to him to a Muslim trader. In the second situation, however, it will not be legitimate to receive the compensation because the contract, having been made in the territory of the Muslim state, is null and void.