Insurance companies and Sharia-compliance in the Kingdom of Saudi Arabia

Abstract

This dissertation examines the operation of Islamic insurance (Takaful) in the Kingdom of Saudi Arabia. Its focus is on business and retail insurance. Health and life insurance which involve unique considerations are not considered. Islamic insurance had been debated since 1961 and was accepted only very recently by the International Islamic Fiqh Academy (IIFA) conference held in Saudi Arabia in 1985. The first Takaful insurance company was officially established in Sudan in 1979. Consequently, the principles and standards that govern Takaful are still being established in Islamic scholarship with no uniform or fixed Takaful standards accepted by all Islamic countries at this point in time. A key issue for the thesis is how Takaful can operate under the umbrella of a joint-stock company (required by legislation) whilst simultaneously maintaining Sharia compliance. Takaful principles, unlike conventional (commercial) insurance, do not involve risk transfer, and policyholders share risk under the mutuality principle. Takaful principles set strict rules relating to profit sharing, and give primacy to the interests of policyholders. The modern conventional stock company, in contrast, operates for profit and has a duty to act in the best interests of its shareholders. The main focus of this thesis is whether Takaful insurance as practiced in Saudi Arabia is Sharia-compliant. To answer this question, this thesis critically analyses Saudi insurance laws and regulations, Saudi insurance companies, and Takaful principles based on Sharia (Islamic law). A general finding of this thesis is that Saudi insurance laws and insurance companies do not appear to be in the line with Takaful principles and that the operation of Takaful under joint-stock companies (JSCs) is problematic to the point where it is probably impossible to achieve in practice. There is the added problem that Takaful principles are not enforced or implemented in practice. This poses particular difficulties for the Saudi insurance market, as Saudi insurance laws require insurance companies to operate though JSCs and to comply with Sharia.

Date of Award	2020
Original language	English