The Holy Quran and the Sunnah do not consist of a specific verdict on commercial insurance contracts. Therefore, the decision lies solely with Muslim scholars.
Much less numerous are those who unconditionally acquire conventional insurance as compliant with the principles of Islamic law. On the other hand, the majority of scholars believe that Shariah prohibits any type of commercial insurance. The resolution on insurance and re-insurance of the Islamic Fiqh Academy, which appear as the entire Muslim world, summarized these views. (Islamic Fiqh Academy, 1985)
Lately, more and numerous else are those Muslim scholars who advocate an insurance system that serves as an alternative to the one used in most western countries. This system is called
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Next, Malaysian scholar Ahmad Ibrahim wrote about commercial insurance as a whole:
Insurance in its current structure does not comply with Islam. The practices of the insurance business come from the Western style of management and are contrary to the Islamic faith in a number of ways:
(1) Numerous insurance contracts contain usury, as they promise to pay a higher compensation than the amount of the premium paid by the insured to the insurer.
(2) Insurance companies invest the installments they have collected into projects comprising the payment of interest.
(3) The Western method of insurance is akin to gambling, as the insured ‘loses’ the installments he has paid to the insurance company if the peril does not appear.
(4) The Western insurance model contains the element of gharar, which bring out uncertainty into the subject matter of the contract.
(5) Western insurance companies may earn profits or losses as an outcome of death or accident or risk to
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Uncertainty as to whether, when peril occurs, the insurer will possess the sum recommended paying out the compensation.
Often, the insured does not know whether the insurer in reality has the money necessary to pay out the compensation, since the payment only takes place after the peril occurs, which may or may not occur.
3. Uncertainty in regard to the term of the contract.
Due to the principles of civil transactions in Islamic law, the term of a contract must be known by the parties thereto.
If any of the above types of gharar is exist, the insurance contract will be considered void. This list coincides with the specification of Islamic law regarding the subject matter of a contract:
1. The subject matter of the contract must be definitely specified.
2. The quantitative characteristics of the subject matter of the contract must be stated.
3. The place of transfer of the subject matter of the contract has to clearly stated.
4. The subject matter of the contract must exclude any items prohibited (barred from trade) by Shariah.
With some reservations, many scholars admit that it is unreasonable to completely avoid uncertainty in a contract. Therefore, it is vital to agree on the degree and extent of acceptable gharar. Likely, experts will be guided in their decisions by different and mainly subjective factors for example, their understanding of public benefit and of the interests of