The weaknesses of conventional non-Life Insurance
What are the weaknesses of conventional non-Life Insurance?
One can not deny the fact that insurance system has certain inherent weaknesses. For example, the benefits of insurance are achieved only at the expense of certain social costs. Therefore, we may look into those cost elements so that a comparative analysis can be made in order that one can have an impartial view as to whether Islamic insurance system can eliminate those costs to a great extent if not totally.
It has been estimated that annual overhead costs of property insurers account for about 30% to 50% of their earned premium. This means a major portion of the premiums paid by the policy holders would be used for doing the business and earning profit for the share holders. Therefore, it is obvious that the insured and the society obtain the benefits of insurance jointly against the cost of obtaining this service. However, it can be seen that the cost of operating the insurance business will be comparatively lower under the Islamic system of insurance. It is well understood that when the surplus (profit) is shared by the policy holder, the cost of obtaining the service would be lower in the Islamic Insurance (Takaful) system at least to the extent of surplus fund being returned to the policy holders.
Secondly, the insured in the conventional companies are to bear the costs for losses which are intentionally caused and or exaggerated. Although, there are no reliable estimates as to the extent of losses that are intentionally caused it is obvious and insurers are well aware that good amount of claims are being paid against losses which are intentionally caused by some unscrupulous insured in order to collect on their policies.
Thirdly, there is the tendency to exaggerate the extent of damage and losses that result from purely unintentional loss occurrences. There are lot of examples. When it is known that an insurance company is involved, there seems to be an unmistakable tendency to exaggerate the extent of loss by surveyors, repairers, medical practitioners, solicitors as the case may be. This is done in collusion with the dishonest insured.