model is the default standard for takaful. Operators charge and carry out
takaful operations. For takaful operators, he makes a profit if wakala fee
is actually the excess premium paid by the participants, so the surplus refund can
be explained as a experience refund. Once this is accepted, then the surplus is
belongs of the participants.
several takaful companies provide shareholders to share in experience refund.
Given that the participants are responsible for the deficit in the risk pool,
it may seem odd that participants should share any excessive contribution to
the shareholders. Many see this as an incentive compensation to the operator to
manage the portfolio well, as evidenced by the surplus. However, whether incentives
this incentives is necessary given since the operators have already received a
fee for underwriting services. As practised in Malaysia, wakala models is a
model where operators only impose their management and distribution costs
through wakala fees, while the profits are from the sharing of any underwriting
surplus. There is also a wakala model where even management expenses and
distribution costs are met from underwriting surpluses and zero fees are charged.
This last extreme wakala model is similar to the mudarabah model. Even some
Shari’ah scholors will also describe mudarabah model as a wakala model with
We can explain
this wakala model from the perspective of both participants and operators. From
a participant’s perspective, the decision on the use of a wakala model whether operators
share in excessive premiums or not will depend on how much higher is the wakala
fee he has to pay. It is not always clear that having a share of the operator in
the the underwriting surplus gives the participants the best value proposition.
operator’s perpective, the wakala fee is determined as the sum of:
Distribution costs include commissions; and
to the operator
Given a scenario
where the surplus and deficit are in the participant’s account and where the operator’s
solvency requirements, hence the capital requirements are not excessive. It is
possible to impose a low wakala fee, thereby benefiting the participants. If
the operator’s profit depends solely on the underwriting surplus, then such as
the mudarabah model, this wakala model will not be commercially sustainable in
the long run.