Surplus-Sharing Practices of Takāful Operators in Malaysia

Abstract

In takāful (Islamic insurance), surplus in the takāful fund will emerge when the overall operations of the fund perform better than expected, i.e. when the underwriting, investment and expense management yield favourable results. Surplus, in general, refers to the excess amount of contributions available in the takāful fund after taking into account total claims paid, amount payable for retakāful contributions, reserves allocated and investment profits accrued to the fund. Given the rightful roles of takāful operators as ‘managers’ of the takāful fund and participants as owners of the fund, this paper discusses the current practice of surplus management and distribution, including the application of the surplus-sharing concept, among takāful operators in Malaysia. The study combines both qualitative and quantitative research methods and relies greatly upon availability of disclosures on the surplus distribution practice by takāful operators. The paper also sets out to establish the effectiveness of the existing practice in promoting a strong and sustainable takāful fund, upholding participants’ stature as owners of the takāful fund and enticing consumers to participate in takāful, as well as identifying the areas within the practice that can be improved to further enhance the feature and value proposition of surplus in takāful. The study affirms that, in actual practice, the surplus generated from the takāful fund is distributed between participants and takāful operators, with variation seen from the perspectives of frequency of distribution, method of distribution and specific Sharīʿah contracts used to underlie the distribution. Several improvements on the disclosures of information on surplus are also suggested in the paper.