A Comparative Analysis of Takaful and Conventional Insurance, with a Special Reference to the Saudi Insurance Law

Conventional insurance is considered unlawful under Islamic law, as it involves at least three forbidden elements, gharar (uncertainty), maisir (speculation) and riba (interest). In order to align insurance with Islamic principles, takaful (Islamic insurance) was introduced. Takaful is based on the concepts of mutual assistance and tabarru' (voluntary contribution). In a typical takaful undertaking, the risk funds of the participants (policyholders) operate on a mutual basis, but are managed by the takaful operator, which is a company with shareholders. This study intends to make a comparative analysis between takaful and conventional insurance in general, and to present a literary appraisal of the regulations related to Saudi insurance law in particular. The study explores the evolution of insurance and examines the legitimacy of the subject under Islamic law.This study is a qualitative one that focuses on exploring, describing and explaining new insights about the issues under investigation using a doctrinal research technique. Doctrinal legal research is concerned with the examination of the law by analysing legal rules, principles and doctrines and how they have been developed and applied to a given issue. Legal rules are laid down in statutes and cases. Publications, such as law textbooks and journal articles, examine and describe the development of the legal doctrines.The findings show that, as Saudi Arabia is a Muslim country, it should put in place a reliable takaful framework to cater to the needs of its citizens. This study demonstrates that the current laws governing cooperative insurance do not comply with the tenets of Shar?'ah law, as the concept of insurance contains a number of articles that run against the principles of Islam.The study concludes that the development of a takaful framework for Saudi Arabia should include the enactment of a reliable law that forms an appropriate takaful framework. It is essential that an Islamic insurance act much like the one currently in use in Malaysia be established in Saudi Arabia. Furthermore, it is vital that this act consider the number and dynamic nature of the Islamic schools of thought. The thesis also advocates for a law of supervision over cooperative insurance companies and for the revision of their implementation regulations. This would entail adaptations suggested by expert Shar?'ah authorities and Islamic economists, thus ensuring consistency with the tenets of Shar?'ah principles