The issue of unearned wakālah fees (UWF) arises due to the statutory requirements in the Islamic Financial Services Act (IFSA 2013) that mandate takāful operators to refund any undue contribution with the corresponding wakālah fee in the event of surrender or termination of a takāful certificate. The relevant statutory provisions and Bank Negara Malaysia (BNM) guidelines on the valuation basis for liabilities of family and general takāful are open to more than one interpretation, and the exact definition and components of money not due are not clear. The implementation of the statutory provisions and regulatory guidelines on the refund of UWF has raised the following issues for the Malaysian takāful industry:
Accordingly, this paper delineates the concept and components of the wakālah contract, its salient features, contractual relationship, subject matter, including the wakālah fee, and juristic deliberations regarding it. It also examines the background and means of identifying UWF by explaining its subject and components, differences between earned and unearned wakālah fee, and the treatment of UWF. Further, it studies Sharīʿah and technical issues related to recognition, calculation and refund of UWF and other surrender values.
This research finds that UWF relates to the unexpired portion of the up-front wakālah fee, which is a liability upon the takāful operator and a cash asset to the takāful participant. The determinant factor of UWF treatment is the payment frequency, which could be monthly, quarterly, semiannual or annual. Although the frequencies are not applicable to single contribution takāful and renewable takāful products because the payments are scheduled as one-off, they too are subject to the issue of UWF. The research explains the huge gaps in using the four payment frequencies and the variances in the treatment of UWF. It finds that from the Sharīʿah perspective, a fee-based wakālah contract is a binding contract and takes the rules of an ijārah contract. In the event of termination, the wakīl is entitled to an amount commensurate with the portion of service done. This is because the written or agreed up-front wakālah fees cease to exist and the contracting parties should resolve any outstanding obligations by reference to the service fees commensurate with services performed. Accounting principles and actuarial calculation play key roles in determining the service fees commensurate with the services. Therefore, the research elaborates those technical issues related to UWF which are based on accounting and actuarial principles. From the accounting side, this entails how to account for the wakālah fee under MFRS 17 and what is the exact time to recognise the wakālah fee as income in the income statement. As for the actuarial side, the notable issue is the determination and estimation of management expenses and related expenses such as commissions that translate to earned and unearned wakālah fee, which are based on actuarial principles.
The paper recommends the following:
Keywords: unearned wakālah fee, surrender value, takāful contribution, payment frequency, up-front wakālah fee
user_id not set
Unfortunately your account does not have the necessary access level to continue.
We would like to suggest that you upgrade account to enjoy more benefits on this website.