Takaful insurance: birth of the concept and the first companies

Takaful is an insurance model based on the precepts of Islamic law (Sharia), mutual aid and voluntary contribution.

This form of insurance emerged in the 1970s as a new alternative to conventional insurance. The first takaful insurance company was established in Sudan in 1979.

Today, this type of insurance is present in over sixty-five countries, with an average annual growth of 20%.

The takaful insurance concept

People have been helping each other since the dawn of time. In the early days of Islam, merchants in Mecca set up an assistance fund to compensate, among other things, victims of natural disasters that struck the caravans carrying goods from one point to another.

It was during the caliphate of Omar Ibn al-khattab ⁽¹⁾ (634-644) that the concept of the Islamic cooperative was born, with the establishment of a fund dedicated primarily to helping the poor, compensating victims of damage and financing part of the State's affairs.

From the beginning of the Abbasid period ⁽²⁾ (750-1258) and later, during the Ottoman Empire ⁽³⁾ (1299-1923), Muslim merchants soon sensed the need for coverage against losses caused to their goods by the hazards of the sea. To meet this need, a mutual aid fund was set up. The contributions collected were used to compensate merchants who had suffered losses.

⁽¹⁾ Omar Ibn al-Khattab (584-644) was the second Rashidun caliph, the name given by Muslims to the first four caliphs after the death of the Prophet Muhammad.
⁽²⁾ An Arab Muslim dynasty that ruled a large part of the Muslim world from 750 to 1258. Baghdad was the capital of the Abbasid caliphate for almost five centuries.
⁽³⁾ The Ottoman Empire was a great power, dominating a vast territory spanning three continents. The Ottoman dynasty was founded in Anatolia. Its capital is Istanbul.

Birth of the takaful insurance concept

In the 19th century, Ibn Abidin, a Syrian jurist, presented the first legal foundations of an Islamic insurance contract in 1836. In 1906, the Egyptian mufti Muhammad Bakhit ⁽⁴⁾ approved Ibn Abidin's definition of this model.

After several years of discussion, Muslim jurists and scholars reached a consensus on the legitimacy of cooperative insurance. Meeting in Damascus in 1964, the members of the Islamic Fiqh Council unanimously approved the concept of takaful insurance, which, in their view, should replace the traditional model deemed not consistent with Islamic law.

In 1968, the University of Al-Azhar (Egypt), the leading center of Islamic studies, issued a resolution prohibiting all forms of commercial insurance. This resolution was confirmed the following year by the Islamic Fiqh Academy of the Muslim World League.

⁽⁴⁾ Muhammad Bakhit al-Muti'i, judge and Grand Mufti of Egypt. He studied at Al-Azhar and taught there for several years.

Takaful insurance: adoption of the Islamic model

The movement to Islamize contemporary insurance began in the mid-1970s. The term takaful was coined. Its origins lie in the Arabic word "kafala", which covers the notions of responsibility, solidarity and mutual aid.

In 1976, Saudi religious authorities issued a legal opinion (fatwa) in favor of an Islamic insurance model.

In 1977, the Saudi Supreme Council of Ulema ⁽⁵⁾ passed a resolution confirming the legality of takaful as a cooperative insurance scheme. The same system was adopted by Dubai Islamic Bank in 1977.

In 1979, it was the turn of the Pakistani banking sector to adopt this model.

⁽⁵⁾ Supreme Council of the Senior Ulama. The word ulama means scholars in Arabic.

Establishment of the first takaful insurance companies

The first takaful company, the Islamic Insurance Company of Sudan, was founded in Sudan in 1979. The same year, the model was replicated in the United Arab Emirates with the Salama company, followed by Malaysia (1984), Saudi Arabia (1986) and other countries in the Middle East and Asia.

Since then, a large number of countries have revised their legislation to make room for islamic insurance and reinsurance companies alongside traditional limited and mutual companies.

Today, takaful is practiced in both insurance and reinsurance. This new form of business is present on every continent, with varying densities in different regions and countries. In Europe and North America, it represents a niche business targeting the Muslim community.

The first takaful insurance companies in the Gulf States

The Gulf Cooperation Council (GCC) is a major player in the global takaful insurance market. The six countries in the region – Saudi Arabia, the United Arab Emirates, Kuwait, Oman, Bahrain and Qatar – have the largest number of Islamic insurance operators. In 2022, they accounted for 55.6% of takaful receipts worldwide.

As mentioned above, Arab Insurance Company (SALAMA), founded in 1979 and based in Dubai (United Arab Emirates), was the first takaful insurer to be established in the Middle East.

Tolerated for a long time but not recognized by the authorities, the insurance business in Saudi Arabia was officially recognized by the authorities in 1986. Today, only a takaful company can carry out insurance business in Saudi Arabia. Tawuniya, founded in 1986, was the first such company to be set up in the kingdom.

In Bahrain, the concept began in 1989, with the launch of Bahrain Islamic Insurance Company (BIIC), renamed Takaful International Company in 2005.

In Qatar, Qatar Islamic Insurance Company (QIIC), founded in 1964, was the first company to distribute takaful products, in 1995.

After 40 years in business, AlKhaleej Takaful Insurance Company, founded in 1979, changed its status in 2010 to become a 100% Islamic insurance company.

In Kuwait, the first entities to devote themselves exclusively to this form of insurance were Wethaq fully-fledged takaful and First Takaful, which entered the market in 2000.

Finally, in the Sultanate of Oman, two companies, Al Madina Takaful and Takaful Oman, were licensed in 2014.

The first takaful insurance companies in other Middle Eastern countries

In the Middle East, outside the GCC zone, islamic insurance appeared several decades after the creation of the first traditional insurance companies.

In Lebanon, Al Aman Trust Insurance, founded in 1988, is considered the first Shariah-compliant insurance structure.

Also in Lebanon, it was only in 2015 that AROPE, a traditional company, opened a “takaful window” to market products that comply with Islamic law.

In Jordan, Islamic Insurance Company was established in 1996.

In Syria, Al-Aqeelah Takaful Insurance began operations in 2007. A year later, in 2008, Syrian Islamic Insurance Company (SIIC was set up.

The first takaful insurance companies in North Africa

North African countries were late in opening up to takaful. It is only in recent years that the various laws have been reorganized to provide a framework for this activity.

In Algeria, the first takaful operations date back to the early 2000s, when Salama Insurance Company (formerly El Baraka OUA Al Aman) was founded.

The first executive decree setting out the terms and conditions for the practice of Islamic insurance was not published until 23 February 2021.

In April 2022, GAM Assurance obtained approval to set up a "General takaful window". In 2022, two new companies were created: "El Djazair Takaful" and "El-Djazair El-Moutahida Family Takaful".

In Egypt, the Egyptian Saudi Insurance House (ESIH), set up in 2002, introduced takaful to the market.

In Libya, Takaful Insurance Company, began operations in 2007.

In Tunisia, it wasn't until 2012 that the market acquired its first Islamic insurance company, Zitouna Takaful. Since then, two new companies have entered the market: Al Amana Takaful (2013) and At-Takafulia (2014).

In Morocco, the first three Islamic insurance licenses were granted to Wafa Takaful, Attakafulia Assurances and Taaouiniyate Taamine Takafuli only after the Supervisory Authority of Insurance and Social Welfare (ACAPS) published a specific circular in 2021.

The first takaful insurance companies in South and Southeast Asia

Takaful insurance is currently marketed in nine Asian countries: Brunei, Malaysia, Bangladesh, Maldives, Sri Lanka, Pakistan, Indonesia, Singapore and Thailand.

India, which has the world's third-largest Muslim population after Indonesia and Pakistan, does not market any Islamic products.

The first Asian takaful company was established in Malaysia. The concept began to develop in the 1980s, accompanying the financial operations of Islamic banking, created in 1983. As early as 1984, a legislative framework was enacted, and in November of the same year, Takaful Malaysia Berhad, the first company to comply with Islamic standards, was born.

The first takaful insurance companies in Europe and North America

In Europe, takaful insurance enjoyed a breakthrough in 2014 and 2015. This concept responded to the needs of a large Muslim community and to the culture of solidarity already developed by mutual insurance companies.

The UK is Europe's cradle of Islamic finance. In 2008, following feasibility studies, the British authorities granted approval to Salaam Halal, making it the first insurance company to market comprehensive general insurance products in keeping with Islamic law. In 2024, no fewer than ten insurers on the market are offering takaful products.

The second European country to take an interest in this type of insurance, France, set up the Independent Committee of Islamic Insurance in Europe (CIFIE) in 2010. The aim of this structure is to ensure that new insurance covers offered to customers comply with Sharia principles.

In 2012, Swiss Life issued the first takaful product Salam Savings and Investment, a multi-support life insurance policy. In 2013, Luxembourg-based Vitis Life developed its own Islamic insurance offering, "Amâne Executive Life", a contract reserved for wealthy customers, with a minimum underwriting amount of 250 000 EUR.

In January 2015, Azurite Courtage, a wholesale broker, marketed a new life product that complies with Islamic requirements, "Ethra'a takaful famille".

In the United States, the first takaful solutions appeared in 1996 through First Takaful USA. More than ten years after, Risk Specialists Companies Inc. launched the first takaful product for homeowners in the United States.

In Canada, home to a large Muslim community, the first takaful products were introduced to the market in 2008. In the same year, Ansar Cooperative Housing Corporation, a mutual insurance company, developed an Islamic product offering in partnership with Cooperators Insurance Group.

In the field of reinsurance, the industry's leaders have followed the upward trend of Islamic finance. These companies were prompted early on to either create takaful reinsurance windows within their traditional reinsurance structures, or to create new structures entirely dedicated to this business. Hannover Re, the world's third-largest reinsurer, advocated the latter solution by setting up Hannover ReTakaful B.S.C. in Bahrain in 2006, a 100% Sharia-compliant company.

• 634-644
  Establishment of a mutual aid fund during the caliphate of Omar Ibn Al-Khattab
• 7^th Century
  Establishment of a mutual aid fund for Muslim merchants
• 1836
  Presentation by Ibn Abidin, a Syrian jurist, of the first legal foundations of an Islamic insurance contract
• 1906
  Validation of Ibn Abidin's approach by Egyptian mufti Muhammad Bakhit
• 1964
  Unanimous approval by the members of the International Academy of Islamic Fiqh, meeting in Damascus, of the concept of Islamic insurance as an alternative to conventional insurance
• 1968
  Publication by Al-Azhar University, Egypt, of a resolution prohibiting all forms of commercial insurance
• 1969
  Prohibition of all forms of commercial insurance and authorization of cooperative insurance by a resolution of the Islamic Fiqh Academy
• 1972
  Prohibition of insurance in several countries, following a council of jurisprudence held in Jeddah
• 1976
  Publication of a legal opinion (fatwa) in favor of Islamic insurance by Saudi religious authorities
• 1977
  • Adoption by the Saudi Supreme Council of Ulemas of a resolution confirming the legality of takaful
  • Integration of the takaful system into Dubai Islamic Bank
• 1979
  • Creation of the first takaful insurance company in Sudan: Islamic Insurance Company, Sudan
  • Creation of the first takaful company in the United Arab Emirates, Islamic Arab Insurance Company (Salama)
• 1984
  • Promulgation of a law dedicated to takaful insurance in Malaysia
  • Establishment of the first takaful entity in Malaysia, Syarikat Takaful Malaysia Bhd
• 1985
  Adoption by the Islamic Fiqh Academy (Jeddah) of a resolution considering takaful to be a legitimate form of insurance
• 1986
  • Etablissement des fondements du concept takaful, lors de la deuxième session de la Ligue Islamique Mondiale (Muslim World League)
  • Establishment of the first local insurance company in Saudi Arabia: Company for Cooperative Insurance (Tawuniya)
• 1994
  Establishment of the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), a member of the Islamic Development Bank group
• 1997
  Establishment of the first Malaysian-based retakaful operator, «ASEAN ReTakaful International LTD»
• 2000
  Establishment of the first takaful company in Algeria, Salama Insurance Company
• 2003
  Adoption of a new law in Saudi Arabia governing the insurance sector, based on the concept of cooperative insurance. The Saudi Arabian Monetary Agency (SAMA) becomes the market's supervisory authority
• 2004
  Establishment of new takaful companies in Saudi Arabia, the United Arab Emirates, Malaysia, Kuwait and South Africa
• 2006-2009
  Munich Re and Swiss Re obtain approvals to market retakaful products in Malaysia
• 2008
  • Introduction of the first Islamic microinsurance product, developed by Allianz Takaful in Indonesia
  • Establishment of the first takaful company in the UK: Salaam Halal Insurance
• 2009
  Publication by Malaysian-based Islamic Financial Services Board (IFSB) of takaful insurance governance principles
• 2012
  Establishment of the first takaful company in Tunisia, Zitouna Takaful
• 2015
  Promulgation of the legal framework for takaful activity in Tunisia
• 2021
  • Promulgation of the first takaful insurance law in Algeria
  • Promulgation of the regulatory framework for takaful insurance in Morocco and establishment of the first three Islamic companies: Wafa Takaful, Takafulia Assurances and Taaouiniyate Taamine Takafuli