The principal idea of an insurance contract is that it is a financial transaction of a

mutual co-operation between two paries to protect one of them from unexpected

future material risk. In an insurance transaction the part called the insured or

assured pays a particular amount of money (known as the premium) to the other

known as the insurer) with a mutual agreement that the insurer is under a legal

responsibility to provide for the insured a financial protection against any

unexpected loss which should happen within the agreed period, However, where

the loss does not occur to the insured within this specified period, the insured is

entitled to the whole amnount of paid premiums, together with the share of profits

made out of the cumulated paid premiums based on the principle of al-

Mudharabah! financing technique. In such a transaction, both the insurer and

the insured mutually. help cachother for financial protection.

Such

mutual co-operation between both parties is in line with the Quranic

doctrine of mutual co-operation as Allah (SWI) commanded to the effect:

And co-operate ye one another in righteousness and piety ...? Under the Islamic

teachings, the commandment to practise mutual c0-operation is not absolute.

There is, in other words, a limit to it, as Allah (SW) has further prohibited

mankind from cO-operating among themselves in any manner which involves

sinful clements. Allah (SWT) says to the effect: And do not co-operate in sin

and rancour 93

Based on the above verse of the Holy Quran, we could reach the conchusion that

the practice of insurance contracts and business will only be in harmony with the

Islamic concept of mutual c0-operation if the transaction is operated based an the

principle of mudharabah which is permissible in the eyes of Allah (SWT), nd

carricd Out with the sincere intention of protectingg the insured from unexpected

future financial risk. Hence, in order for the insurance transacion to become valid

and enforceable, it should be free from umlawful elements such as, inter aia, usury,

fraud and so on.

This article however, seeks to elaborate on the outline of Islamic insurance,

encompassing the aspects of its growth and development, nature, elements,

rationale, sources and diversification of views among Muslim jurists on the validity

of insurance, together with offering possible suggested solutions.

THE HISTORICAL ASPECT

Even though it is not paricularly clear when insurance practices began in Islam it

may be concluded, based on the nature of the insurance contract today, that

insurance transsctions by their very nature had been practised since before the

time of the Holy Prophet Mohammad (SAW), and have since been gradually

developed until the beginning of the nineteenth century when a Hanafi lawyer Tbn

Abidin (1784-1836) became the first Islamic scholar who came up with the

meaning, concept and legal entity of the insurance contract. As a result, we can see

in the world today a number of insurance companies who are operating based on

the divine principles.

Such a growth of Islamic insurance could mainly be classified into six stages:

(1) The practice of the doctrine of Aqila among the ancient Arab tribes as a

tribal Custom;

(2) The practices of the Holy Prophet (SAW);

(3) The practices of the Companions;

(4)
Development in the fourteenth to the seventeenth centuries;

(5) Development in the nineteenth century; and

(6) Development in the twentieth century.