The concept of risk in takaful (Islamic insurance) is slightly different from the concept of risk in conventional insurance. Some risk in takaful shall be treated as permissible (halal) and some risk shall be treated as impermissible (haram). halal is anything that has been permitted by Allah and haram is anything that has been prohibited by Allah . It is widely accepted and applied in the industry that impermissible (haram) risk such as a liquor factory should not be underwritten by takaful operators. However, the most challenging part in takaful is whether to underwrite risks that contain both permissible and impermissible elements. Thus, the parameters of permissible takaful risk are necessary to guide the takaful industry in general and takaful underwriters in particular in underwriting risk.
This paper proposes two main categories of parameters for permissible takaful risk: (I) parameters for risk related to humans; and (II) parameters for risk not related to humans; in other words, risk to assets.
Based on these two categories, the parameters of permissible takaful risk are as follows:
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