No, that isn’t a typo. In a search for evidence to counteract a fatwa an acquaintance interpreted as permission to commit insurance fraud (more on that in a future post, I promise!), I found this.
These people aren’t big on paragraphs – in fact, they love impossible-to-read walls of text – so I’ve removed a lot of their trademark redundancy, as well as most of the passive-aggressive insults towards anyone who disagrees. I’ve also taken the liberty of bolding the most relevant words and phrases.
The majority of contemporary scholars are of the view that commercial insurance is haraam and cooperative insurance is permissible. This view was adopted by most of the fatwa-issuing councils, such as the Council of Senior Scholars in Saudi, the Standing Committee for Issuing Fatwas, the Islamic Fiqh Council of the Muslim World League in Makkah al-Mukarramah, the International Islamic Fiqh Council of the Organization of the Islamic Conference in Jeddah, and others. That is because commercial insurance involves elements of ambiguity, gambling and consuming wealth unlawfully, unlike cooperative insurance which is based on takaaful and tadaamun (mutual support and solidarity).
I’ve never agreed with the view that insurance is gambling, mainly because I see nothing at all ambiguous about an agreement to pay X amount per month in exchange for Y benefit in the event of Z. It may be a good investment, or it may be a bad one, but that’s not how permissibility is determined in Islam. You can argue that it’s gambling based on the fact that its profitability (which depends on when and if Z occurs) hinges on acts of God, but that’s true of any number of other transactions – in fact, with regard to the Muslim belief that everything that has ever happened and will ever happen is God’s will, it’s true of every transaction imaginable.
In the case of commercial insurance, the administration of the insurance is carried out by a company which has an identity separate from that of those who are insured by it. This company is entitled to all the instalments paid in return for its commitment to pay out insurance money when it is due (i.e., when an accident or whatever happens). What is left of these instalments is not paid back to those who are insured by the company, because it is considered to be a payment in return for the company’s commitment to pay the compensation as agreed. If all the instalments collected by the company are not enough to pay all the compensation, then the company has no right to go back to the customers and ask them to pay more. This is the essence of the kind of ambiguous transaction that is forbidden in Islam, and is consuming wealth unlawfully.
An agreement to pay X amount per month, in exchange for receiving Y benefit if Z event occurs is gambling, and thus haram, because it’s impossible to know when or if Z event will take place. Well, ok; I disagree, for reasons I’ve already mentioned, but I can see how a reasonable person might reach that conclusion. Then they continue with this:
In the case of cooperative insurance, a number of people who are exposed to the same type of danger get together and each of them pays a specific contribution. These contributions are for the purpose of paying compensation to anyone who becomes entitled to it as the result of some harm that befell him. If the sum of contributions is greater than the sum paid out in compensation, the members of the scheme are entitled to take back the difference. If there is a shortfall, then the members are asked to make additional contributions to cover the deficit, or else the compensation paid is reduced in accordance with that deficit.
Instead of paying X amount per month in exchange for the guarantee of Y benefit in the event of Z, you’re now paying a completely random amount that can’t be predicted or controlled (because it depends on how many other people Z has already happened to that year), in exchange for (drumroll, please!)… a completely random benefit whose amount also can’t be predicted or controlled, because it depends not only on how many times Z has happened that year, but on how much everyone else is willing to pay!
If you’re the first person Z happens to that year, you’re probably ok – you’ll get the full benefit you paid for, because they budgeted for that. If you’re the 317th person Z happens to, though, you’re likely to be SOL – there’s a good chance you’ll get a smaller benefit than the one everyone else got (and that you paid for!), because the company is out of money. This is somehow, magically, supposed to be less ambiguous – and less like gambling – than the commercial insurance plan they deemed ‘haram’.
They go on to talk about why it’s forbidden to invest in a particular company that purports to sell cooperative insurance, but actually (according to their defintion) sells commercial insurance. That’s all well and good (though I think the whole thing is ridiculous), but what really got me was the list of names at the end:
1- Dr. Muhammad ibn Sa’ood al-‘Usaymi, General Director of the Shar’i Council of the National Bank
2- Dr. Yoosuf ‘Abd-Allaah al-Shubayli, Member of Faculty, Higher Institute of Judicial Matters in Imam Muhammad ibn Sa’ood Islamic University
3- Prof. Dr. Sulaymaan ibn Fahd al-‘Eesa, Professor of Graduate Studies in Imam Muhammad ibn Sa’ood Islamic University
4- Prof. Dr. Saalih ibn Muhammad al-Sattaan, Professor of Fiqh at the University of al-Qaseem
5- Dr. ‘Abd al-‘Azeez ibn Fawzaan al-Fawzaan, Assistant Professor at Imam Muhammad ibn Sa’ood Islamic University
6- Dr. ‘Abd-Allaah ibn Moosa al-‘Ammaar, Assistant Professor at Imam Muhammad ibn Sa’ood Islamic University.
I guess Saudi universities must pay pretty well, if so many professors have no understanding of what ‘budgeting’ is! Do they honestly think ‘asking people to pay more’ if there have been too many claims that year is a reasonable solution for normal households? Do they really believe that changing the benefit someone is entitled to after they’ve already paid for it is acceptable in Islam? And do you really need a Ph.D. to see the obvious problem with that logic?
We’ve already seen what happens when people who don’t understand basic biology write fatwas on medical issues. Now, we’ve also seen what happens when people with no understanding of basic economics write fatwas on business transactions!