Takaful - Difference Between Saudi and Iranian Islamic Insurance

Both Saudi Arabia and Iran operate Shari’ah-compliant insurance systems, but neither necessarily follows the traditional Takaful risk-sharing model described earlier.

1. Iranian Islamic Insurance

• Iran operates an Islamic insurance model.
• Insurance investments are made in Shari’ah-compliant assets.
• However, the model still involves risk transfer.
• The policyholder transfers the insured risk to the insurance company.
• The insurance company accepts responsibility for covered claims.
• If insurance losses are greater than expected, those losses are ultimately borne by the shareholders.

Simple Process

Policyholder pays premium → Risk transferred to insurer → Insurer pays covered claims → Shareholders bear insurance losses

Main Feature

Iran = Shari’ah-compliant investments + Risk transfer + Shareholders bear losses

2. Saudi Cooperative Insurance

• Saudi Arabia operates a cooperative insurance model.
• The insurance company is generally owned by shareholders.
• Policyholders purchase insurance protection from the company.
• The model also contains an element of risk transfer.
• The insurance company accepts responsibility for covered claims.

Simple Process

Policyholder pays premium → Risk transferred to insurance company → Covered loss occurs → Insurance company pays claim

3. Surplus in Saudi Cooperative Insurance

• A major feature of the Saudi model described in the text is the sharing of insurance surplus.
• If a surplus arises:
• 10% is allocated to policyholders/participants
• 90% is allocated to shareholders

Example

Suppose the insurance operation produces a surplus of:

SAR 10 million

Then:

• SAR 1 million → Policyholders
• SAR 9 million → Shareholders

Main Feature

Saudi = Cooperative insurance + Risk transfer + Surplus shared between policyholders and shareholders

Main Difference Between Iran and Saudi Arabia

Iran

• Uses an Islamic insurance model.
• Investments must be Shari’ah-compliant.
• Risk is transferred to the insurer.
• Shareholders ultimately bear insurance losses.
• The text does not describe a fixed arrangement where policyholders automatically receive part of the insurance surplus.

Easy Idea

Iran → Shareholders bear the risk

Saudi Arabia

• Uses a cooperative insurance model.
• Risk transfer is also present.
• The insurance company is owned by shareholders.
• Policyholders are entitled to a portion of the insurance surplus.
• Under the model described:
• 10% of surplus → Policyholders
• 90% of surplus → Shareholders

Easy Idea

Saudi → Shareholders own company + Policyholders receive part of surplus

Simple Example Comparing Both

Suppose both an Iranian insurer and a Saudi insurer collect premiums and later make a surplus of RM10 million.

Iran

• The insurance company operates using Shari’ah-compliant investments.
• Shareholders bear the insurance risk.
• The financial result ultimately belongs to the shareholder-owned insurance company according to its structure.

Simple Flow

Policyholder → Premium → Insurer → Shareholders ultimately bear risk

Saudi Arabia

• The insurance company accepts the policyholder’s risk.
• A surplus of RM10 million arises.
• According to the model described:

RM1 million → Policyholders

RM9 million → Shareholders

Simple Flow

Policyholder → Premium → Insurance Company → Surplus arises → Part shared with policyholders

Similarities Between Saudi and Iranian Insurance

• Both are regarded as Shari’ah-compliant within their respective jurisdictions.
• Both may involve risk transfer rather than pure mutual risk sharing.
• Both have insurance companies owned by shareholders.
• Both differ from the traditional Takaful model where participants mutually share risk through a common participants’ fund.
• Both must operate according to the Shari’ah framework accepted in their respective countries.

Easy Way to Remember

Iran

Risk Transfer → Insurer → Shareholders bear losses

Saudi Arabia

Risk Transfer → Insurer → Surplus shared 10% policyholders + 90% shareholders

Traditional Takaful

Risk Sharing → Participants → Common Participants’ Risk Fund

Most Important Difference

Iran focuses on Shari’ah-compliant insurance and investments while shareholders ultimately bear the insurance risk.

Saudi Arabia uses a cooperative insurance structure where risk transfer remains present, but policyholders also receive a defined share of the insurance surplus.