UNIVERSITI TEKNOLOGI MARA (UiTM) CAMPUS PUNCAK ALAM, SELANGOR

FACULTY OF BUSINESS AND MANAGEMENT

BACHELOR OF BUSINESS ADMINISTRATION (HONS) ISLAMIC BANKING

(BA249)

ADVANCE FIQH MUAMALAT (ISB548)

TAKAFUL

PREPARED BY:

NAME MATRIC NO

EZZAH FARWIZAH LEE BINTI ELIAS 2021478214

NORSHADZIDAH BINTI AKSAD 2021627468

PUTERI SHABILA HUDA BINTI SAIFULLIZAN 2021627112

FATIN NABILA BINTI ZAINAL ABIDIN 2021858124

PREPARED FOR:
DR. NORZITAH ABDUL KARIM

SUBMISSION DATE:
24TH JANUARY 2023
 TABLE OF CONTENTS

1.0 INTRODUCTION……………………………………………………………….1-2

2.0 THE EFFECT OF COVID-19 ON TAKAFUL………………………………..3-4

3.0 SUGGESTION AND SOLUTION……………………………………………..5-6

4.0 CONCLUSION…………………………………………………………………..7

5.0 REFERENCES…………………………………………………………………..8
1.0 INTRODUCTION

The World Health Organization (WHO) identified COVID-19 as a major threat to public health
and social protection. The epidemic was first detected in Wuhan City, China, in December 2019.
It then spread to other countries and affected a large number of people. Pandemics are defined as
diseases that occur worldwide and are usually affecting a large population. Even though the
pandemic has caused immense fatalities all around the world, it also affected individuals,
businesses, and industries that have changed the way people live and work. Pandemic in early
Islamic history is reported by Aishah (mother of believers), the prophet revealed that pandemics
are punishments that are sent upon everyone. People who are still living in areas a ffected by the
epidemic and are still waiting for Allah's reward will be rewarded as martyrs. They believe that
nothing will fall upon them except for what Allah has already ordered them to do.

Due to the outbreak of the pandemic, many countries have imposed country-wide lockdowns. In
March 2020, the Malaysian Government enacted a restricted movement order to control the spread
of the disease. This order was implemented under the PCID Act and the Police Act 1967. This
outbreak, recognized as a pandemic by the WHO on 12 March 2020, many governments around
the world off guard, with more than thirty million confirmed cases. The confirmed and nearly a
million deaths. It is an infectious disease caused by a new strain of virus that causes respiratory
infections in humans and was discovered in late 2019 when an outbreak of pneumonia of unknown
origin emerged in China and spread as fast as wildfire in most parts of the world and affecting 215
countries worldwide.

First case in Malaysia was detected on 24 January, 2020 and was caused by 3 Chinese nationals
who had close contact with the infected person in Singapore, the country managed to keep both
the number of cases and mortality relatively low. The Ministry of Hea lth (MOH) has rapidly
developed standard guidelines for handling the pandemic and a number of hospitals and testing
centers have been specifically designated in each Malaysian state. Although cases in Malaysia
among ASEAN countries were the highest in the early stages, the subsequent blockade involving
WHO has resulted in a relatively low number of cases and deaths in the country. At the time of
writing, the number of cases is only one fifth that of Singapore, but in the week starting September

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13, 2020, Malaysia had 518 new cases, an increase of 722% from the previous week. Meanwhile,
the death toll in Malaysia is five times higher than in Singapore.

Incorporating Islamic teachings in disaster risk management, there are many verses in the Quran
and Sunnah describing disaster and preparation for disaster. This study highlights issues affecting
the takaful industry during the Covid-19 endemic that policymakers and regulators should keep in
mind when formulating a COVID-19 policy response to strengthen their strategy and framework
with Maqasid al-Shariah. In response to daruriyyat (necessity), it is an inevitable factor for
humanity. Lack of these elements can cause harm, damage and destruction (mafsadah) to mankind.
Takaful protects the life and wealth of policyholders against any natural disaster, disaster or
unexpected disaster.

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2.0 THE EFFECT OF COVID-19 ON TAKAFUL

The increasing number of Covid-19 cases has impacted the Takaful market in different types of
form such as liquidity impact, financial market volatality and solvency capital. The Covid -19 virus
that impacted the economy on the Takaful industry is considered severe but temporary and the
Islamic insurance market would continuously recover. In the severe economic situation, the
productivity and efficiency of the takaful company in general are expected to be strained, since the
industry has faced narrow net supporting limits, especially in Malaysia.

Covid-19, which began as a health issue, has evolved into a full-fledged worldwide economic and
financial disaster. Covid-19 will likely have a huge social and economic impact. The government's
commitment, which acts as automatic stabilizers during a crisis and requires significant capacity,
political will, and coordination at all levels to deliver a positive impact, was a key factor in
establishing a sturdy public healthcare system and social protection that could withstand immense
shocks. When the Takaful in Malaysia are faced with the Covid-19 crisis, numerous International
organizations have established a position to give loans and other financial aid to nations in need to
help lessen the shock caused by the new virus pandemic.

The International Monetary Fund (IMF) forecasted that government expenditures and earnings
will maintain economic interest during Covid-19 implementation until mid-April 2020. The total
amount of support was $3.3 trillion, with loans, stock injections, and guarantees totaling $4.5
trillion. As a result, the IMF estimates that the increase in appropriation by governments worldwide
would rise from almost 4% of global GDP in 2019 to over 10% in 2020. The economic balance to
GDP ratio in established markets is predicted to rise from 3.0% in 2019 to over 11% in 2020. The
percentage of economic balance to GDP in developing nations such as Malaysia is expected to rise
from approximately 5% to 9.8%.

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The Takaful industry in the post-Covid-19 is experiencing a decline of 16.7% in the first half of
2020 by comparison with the first half of 2019. Other than that, in the new business family Takaful
contributions to investment link plans and conventional plans reduced by 30.6% and 10%,
correspondingly. In terms of premiums, its counterparts, investment link plans and conventional
plans, have declined by 24.5% and 18.4% respectively. The drop in family Takaful contributions
and premiums life insurance for the investment link plans is likely to be greater than that for
conventional plans.

Meanwhile, the general Takaful contribution such as motor, fire and property, workers and
employees compensation) increased by 0.6% over the same time in 2019. This is attributed to an
increase in premium, with the Contractor's All Risk & Engineering of 85.1%, Liability of 30.8%,
Fire of 0.4%, and Miscellaneous 0.3% of Takaful contribution respectively. Meanwhile, the
Marine of 31.7%, Aviation & Transit of 17.9%, Workmen's Compensation & Employers' Liability
of 5.7%, Medical Expenses & Personal Accident of 0.6%, sectors had a reduction in Takaful
contribution

In conclusion, the pandemic outbreak's effects on the Takaful sector have taken several forms.
From a Takaful loss perspective, the liquidity will be impacted due to d eferred life insurance
premiums and family Takaful contributions. This delay or extension of the grace period for
payment of contributions will lead to liquidity impact which is volatility of financial market due
to low investment return. As a result, the Takaful firm has a poor cash flow to pay variable costs,
fixed costs, salary, management, and operations. A prolonged period of this results in loss and may
have a long-term impact on solvency. As a result, in order to thrive in a post-coronavirus future,
they must adapt their cost structures and operational methods.

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3.0 RECOMMENDATION AND SOLUTION

Flexibilities to meet payments for insurance premiums and takaful contributions

Life insurers and family takaful operators jointly decided to provide COVID -19-affected
individuals and SMEs the option of delaying payment of their life insurance premiums and family
takaful payments for a period of three months. Policyholders and takaful participants may also
make advantage of different sorts of assistance offered by life insurers and family takaful operators
depending on their needs for protection and financial capability. These included extending the
revival and reinstatement period for policies and certificates that have expired, providing altered
policies and certificates without any fees or charges, waiving penalties or late payment charges
when policyholders and takaful participants were unable to access electronic payment channels
during the MCO, and more.
General insurers and takaful operators similarly extended assistance by allowing impacted clients
and takaful participants the chance to alter their insurance contracts and takaful certificates and by
offering flexibility on payment terms for premiums and contributions. A total of roughly RM71
million in premiums and takaful payments from more than 57,000 family takaful participants and
owners of life insurance policies were deferred until September 2020. General insurers and takaful
operators enabled payment delays while restructuring 6,500 insurance polic ies and takaful
certificates totaling RM104 million in insurance premiums and takaful payments.

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Other relief measures to alleviate the financial burden of affected policyholders and takaful
participants
ITOs also eliminated waiting periods, co-payments, and exclusions and expedited the processing
of COVID-19-related insurance and takaful claims. Claims for the cost of COVID-19 testing and
personal protective equipment were also included, along with medical treatments covered by
insurance policies and takaf ul certifications. A number of ITOs delayed the repricing of their
medical and health insurance policies and takaful certificates until 2021 in order to ease the
financial burden on policyholders and takaful participants.
In an attempt to enhance COVID-19 testing and reduce the risk of infection in the community, the
insurance and takaful sectors have contributed an extra RM8 million to pay for COVID-19 testing
for qualifying individuals who hold health insurance policies and takaful certificates.

Regulatory and supervisory measures to facilitate premium/contribution deferment

Financial institutions were also given access to regulatory and supervisory measures to help ITOs
manage and address the effects of COVID-19. One of them was pushing forward with the
anticipated enhancements to the risk collection and overall coherence of the risk -based capital
frameworks for ITOs (RBC Frameworks). Additional details on the measures are provided

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4.0 CONCLUSION

In summary, additional support for infected contract or certificate holders has many forms of
financial assistance including one-time death benefits, hospitalization allowances and matching
cash benefits are aligned with humanitarian (al-insaniyyah) principles and closely related to
Maqasid al-Shariah. The urgent need to protect and save life (al-nasf), children (al-nasl) and wealth
(al-mal) can be met by making plans takaful to prepare the insured or certificate for future
dangerous diseases, epidemics and pandemics, so that they can withstand unprecedented shocks.
Despite Malaysia's insurance and takaful industry's positive response throughout the pandemic,
the study provides an important suggestion that Malaysian takaful operators should reserve for
catastrophic risks higher than reserve for Incurred But Not Reported (IBNR); or use a separate
disaster reserve instead of incorporating it into the IBNR reserves, as discussed earlier. Relevant
knowledge, appropriate attitude and environmental awareness are key to promoting sustainability
in our ecosystem, especially in the takaful industry.

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6.0 REFERENCES

Eldaia, M., Hanefah, M. M., Marzuki, A. B., & Shatnawi, S. A. (2021). Impact of COVID-

19 on Malaysian Takaful Business. The Importance of New Technologies and

Entrepreneurship in Business Development: In the Context of Economic Diversity in

Developing Countries, 304–316. https://doi.org/10.1007/978-3-030-69221-6_22

Mahadi, N. F., & Ismail, A. (2021). Pandemic Crisis: Malaysian Takāful Market. Turkish

Journal of Islamic Economics, 8(Special Issue), 387–400. https://doi.org/10.26414/a2378