The sense of security of one’s life and property is natural to human beings. This sense of security gave rise the idea of insurance. Initially, insurance was a way to protect mutual losses to life, property and trade. It was not itself a business-like activity as it is now. We find the idea of insurance in the Muslim history. When Arabs expanded their trade in Asia they made an agreement with the members of the business expedition to contribute to a mutual fund which was supposed to be used to compensate any possible losses to life or property of the participants. Islamic term used for this kind of concept is Aquila. The traces of insurance can be found in the concept of Aquila. If someone might kill someone, and matter was settled with the payment of ransom money, the whole tribe of the murderer paid the ransom.
There is a Hadith of the Holy prophet, which goes:
Narrated Abu Huraira:
The Prophet said, “If somebody dies (among the Muslims) leaving some property, the property will go to his heirs; and if he leaves a debt or dependents, we will take care of them.”(Volume 8, Book 80, Number 755)
The modern term used for Islamic insurance is Takaful, which means to compensate each other. This Hadith of the prophet clarifies another aspect of Islamic concept of insurance. So the basic concept of Islamic insurance is in fact in complete compliance with Islamic Shariah.
The Government continues to promote takaful as part of its strategy to make Malaysia a global hub for Islamic financial services, including through tax breaks and incentives. There are four joint venture takaful companies, of which foreign investors were permitted to own up to 49%. International takaful operators, both domestic and foreign, may apply for licenses to conduct business in international currencies, either as incorporated entities or as branches. International takaful operators are not subject to foreign equity capitalization requirements. Bank Negara is working with qualified local and foreign insurers to provide “re-takaful” (reinsurance under Islamic principles) services in Malaysia and to make Malaysia their center for re-takaful activities. New re-takaful operators will be given flexibility to conduct business in the country as a subsidiary or branch.