Surplus-sharing practices of Takaful operators in Malaysia

الملخص EN

In takaful (Islamic insurance), surplus in the takaful 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 takaful fund after taking into account total claims paid, amount payable for retakaful contributions, reserves allocated and investment profits accrued to the fund.

Given the rightful roles of takaful operators as ‘managers’ of the takaful 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 takaful 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 takaful operators.

The paper also sets out to establish the effectiveness of the existing practice in promoting a strong and sustainable takaful fund, upholding participants’ stature as owners of the takaful fund and enticing consumers to participate in takaful, as well as identifying the areas within the practice that can be improved to further enhance the feature and value proposition of surplus in takaful.

The study affirms that, in actual practice, the surplus generated from the takaful fund is distributed between participants and takaful operators, with variation seen from the perspectives of frequency of distribution, method of distribution and specific Shariah contracts used to underlie the distribution.

Several improvements on the disclosures of information on surplus are also suggested in the paper.