Takaful - Scientific Premium Calculation and Information Asymmetry

This statement means that although conventional insurers calculate premiums using statistics, actuarial science, and probability, the use of these methods does not necessarily remove the Shari’ah concern relating to maysir.

• The insurer has access to large amounts of information, such as:
• Historical accident rates
• Claims statistics
• Mortality rates
• Average size of claims
• Risk profiles of customers
• Expected future losses
• An individual policyholder normally does not have the same level of information.
• This difference in knowledge is called information asymmetry.

Example

Suppose an insurer studies 100,000 drivers and discovers that:

• Expected average claims per driver = RM700
• Expected expenses per driver = RM200
• The insurer wants an additional margin for profit and unexpected losses.

The insurer may therefore charge:

Premium = RM1,200

The policyholder, Ahmad, only knows:

• He pays RM1,200.
• He does not know whether he will have an accident.
• He does not know whether he will ever make a claim.

But the insurer has statistical information showing that, across thousands of customers, it expects the premiums collected to exceed the expected claims and expenses.

Why does the statement say the insurer may “disproportionately profit”?

Because the insurer is in a stronger informational position.

For example:

10,000 policyholders × RM1,200 premium = RM12 million collected

Based on its statistical calculations, the insurer may expect:

• Claims = RM7 million
• Expenses = RM2 million
• Remaining expected amount = RM3 million

The insurer cannot predict which particular person will have an accident, but it can estimate quite accurately how many claims will occur across the whole group.

Therefore:

Individual policyholder → faces considerable uncertainty about his own outcome

while

Insurer → uses large-scale data to predict the overall outcome and price premiums accordingly

This is the information asymmetry referred to in the statement.

Connection to Maysir

The argument is that scientific calculation does not completely remove the underlying uncertainty:

Policyholder pays a certain premium

→ Individual claim remains uncertain

→ Insurer uses probability to price the uncertainty

→ Insurer seeks to earn a commercial profit from managing that uncertainty

So the text is essentially saying:

Actuarial science makes the insurer better at predicting and pricing uncertain events, but it does not make those events certain.

Important Point

This does not mean the insurer is guaranteed to make a profit.

A flood, earthquake, unusually high number of accidents, or other unexpected event could cause claims to exceed expectations and result in losses.

Rather, the argument is:

Scientific premium calculation increases the insurer’s probability of making a profit over a large portfolio because the insurer has superior statistical information and risk-pricing capability.

Easy Way to Remember

Information asymmetry = Insurer knows much more about the statistical risk than the individual policyholder.

Scientific pricing = Insurer uses that information to set premiums above its expected claims and costs.

Shari’ah concern in the passage = The insurer commercially profits from an uncertain event that the individual policyholder cannot predict as effectively.