Role of Actuaries in Pricing of Takaful Products

By:
Prof. Dr. Mohd. Ma’sum Billah
masum@applied-islamicfinance.com
masum2001@yahoo.com
+6019-3699542

INTRODUCTION

Takaful Insurance is an Islamic transacting and is a policy of mutual cooperation, solidarity and brotherhood against unpredicted risk or catastrophes, in which the parties involved, are expected to contribute genuinely. The nature of the principles of Takaful is fundamentally different from the principle of conventional insurance. Takaful insurance provides Islamic insurance to society, which practices based on the Islamic principles. In Malaysia, there are two companies which is conducting Takaful operation and they are Syarikat Takaful Malaysia Berhad (STMB) and MNI Takaful Sdn Bhd (MINT).

Actuary is an expert who calculates insurance risks and payments by studying the mobility rates. However, pricing is referring to the value of the policy and the amount of premium rates that need to be contributed by the participant as a result of calculating the insurance risk by the actuaries’ people. Therefore, there is a department called actuary and pricing department in Takaful Company, which, specialized on this particular field.

The objective of this department is to provide quality products with good pricing rates. Therefore, the product and the pricing need to fill some criteria before it can be considered as quality product:

There is a mutual cooperation exist between participant and the operator in managing the fund.

The sentence means that Allah has encouraged and permitted in trade and commence and prohibited ‘riba’ in practices. This verse is related with the concept of the pricing in Takaful, which is the responsibility of the actuary and pricing department in preparing the costing for the Takaful product that not contain any elements of ‘riba’ or ‘gharar’.

Takaful also emphasizes regarding the cooperation in helping each other between participant and operator. The participant is contributes of certain amounts in the Takaful plan, as a result the operator will provide the coverage accordingly. Similarly happens in the Mudharabah fund whereas the sharing of profit and lost will divides into a portion that agreed by the participant and operator at the beginning of the contract. Therefore, there is no issue on issue on misallocation of fund or breach of trust.

The concept of the cooperation and help each other is determines in Quran as Allah S.W.T has said:

In responding to this verse, the actuary and pricing department has responsible to prepare costing for the new product by looking into mobility rates and morality rates as a consideration. The morality rates and mobility rates should come from the primary sources or originally result from the research which done by the marketing department in Takaful itself. It is due to emphasize of pure and quality product offers to the society. However, the way that the fixed the price must be also influenced by the profit of company as well as the welfare of society.

PRODUCTS

Every product has its own objectives, characteristics of participant, amount of contribution (premium rate), maturity period, benefits and type of payment as well as allocation of the fund and application form.

The actuary and pricing department takes all information that provides by the marketing department to determine the pricing for each Takaful plan. For example, in fixing the rates of claim that can be made by the participant, the department needs to refer from mobility rates and morality rates. The mobility rates is referring to the ability a rate such as average rate of accident in Malaysia and the morality rate is referring to the average people death in certain time. The statistical and data collection also may useful in calculating the cost of the Takaful plan. Therefore, primary sources much more important in able to get an accurate and quality result.

In the family Takaful plan for example, the contribution made is relates to the maturity period that choose by the participants either 10 years or 50 years. The longer maturity period the participant’s takes the more percentage of contribution will be credited into ‘Tabbarru’ fund. The rational is the longer the participant takes the policy, the higher the risk will be faced as well as the coverage.

As we can see, the type of coverage that offers to the participants is depending to the type of policy. For example, ‘Takaful Rawat’ is purposely to help the participants in paying cost of treatment in the hospital; if there is accident of illness occur to the family members. However, ‘Takaful Sihat’ is purposely to provide coverage in term of money if the participant has any critical illness that determines by Takaful. Similarly, in term of claim that the longer the participant contributes in the plan, the higher coverage they will receive from the Takaful Company.

Services offer by Takaful Company

Shariah Rulings

The whole law is permeated by religious and ethical consideration, where each institution, transaction or obligation is measured by the standard of religious and moral rules. For instance the prohibition of interest and uncertainties, the concern for the equality of the two parties and the concern for the just average (mithl).

The basis rule of Shari’ah ruling of Takaful is based on mutual cooperation between two parties as is stated in the Quranic ayah, Al Maidah: 3;

“And co-operate each ye one another in righteousness and piety, and do not co-operate in sin and rancour”

From the above verse, the Takaful relates to the morality risk, which requires appropriate protection from re-takaful. Therefore, it shows the implication of mutual co-operation between both parties.

As an Islamic insurance, all activities in Takaful are prevented from riba’. In other words, it is a prohibition of interest as ‘riba’ in the contractual agreement, as well in determining the pricing of Takaful. Allah had said in surah Al-Baqarah, verse 278;

“Allah had permitted trade, but not allowed riba”

TAKAFUL POLICY

In Takaful policy, the actuary is plays an important role in determining the pricing for the Takaful plan as well as the rate and morality rate in preparing the costing. There is also involves projector investor return or in conventional insurance, it most familiar with the name of investment rate. Actuary department in expecting the return of profit uses this projector investment return. The mobility rate is used for measuring the critical illness and medical expenses. The morality rate is most used in ‘khairat’. Similarly, with other conventional insurance, Takaful also recognizes time value of money in able to measure the expected return for the company. However, the interest a rate in time value of money is considered as profit margin in Takaful practices which is lawful in Islam.

The Bank Negara Malaysia is only provides the guidelines to all insurance company in preparing the cost for new product. Only after the approval from the BNM, the product can be launched. The BNM do only a part of filing the documents.

If the Takaful Company plan to create new Takaful plan, the marketing department will do a research based on the company need which emphasizes customer’s need and preference, request by the society and the competitors challenge. After gathering the data, the marketing will transfer the information to the actuary department. The actuary department will prepare the costing based on the marketing information, morality rate and mobility rate. They need to make comparison regarding the amount with the statistical and existing rate. The proposal is submitting to the management department for the approval. After the approval, the proposal will submit to the accuracy at the consultant company. The Takaful Company hires the consultant company. Finally, after getting approval from Bank Negara, the IT department will prepare system for the new products.

ROLES OF ACTUARIES

The role of actuary in Takaful is recognized under the Islamic Insurance (Takaful) regulation, which contains three main areas:

Appointed Actuary

A Takaful operator must have an appointed actuary who has responsibility to the report to the Bank Negara should he/she fails to take the necessary steps to address the issues that may expose the company to undue risk of being insolvent.

Product Certification

A Takaful operator is require to submit the regulatory authority (Bank Negara) certification by an actuary who certifies that the premium basis of any life insurance product or as the Takaful contribution basis of any product of the Family Takaful Business is based on sound principles.

Actuarial Valuation

A Takaful operator is required to submit yearly to Bank Negara an actuary report on the actuarial investigation the financial condition of the life insurance found, as well as part of Family Takaful Business specifically allocated for the payment of the Takaful benefit.

The practical scenario involve in pricing procedures

Encik Hamdan wants to buy Insurance policy from authorize agencies. Initially, he is 30 years old. He indulges in Family Takaful Plan and the maturity period end is 25 years. In the contract stated that the proportion between Al- Mudharabah fund and At- Tabbarru’ fund are 91.7: 8.3 respectively. His policy amount is RM 50000

The issue arises?

Calculation

Total fund : RM 50,000 / (25 Years x 12 months)

: RM 166.67 per months

Tabbarru’ Fund : RM 166.67 x 8.3 %

: RM 15.00

Mudharabah Fund : RM 166.67 x 91.7 %

: RM 150.02

If Encik Hamdan passes away in the age of 40 years old, what is the total amount of money can be claimed by his beneficiary?

Encik Hamdan already contributed the money in first 10 months.

Calculation

Mudharabah: RM 166.67 x 10 years x 12 months

RM 20000.4

If the profit in 10 years is about RM 2500 and the contribution ration is 60:40

The participant will get 40% from the underwriting investment, which is RM 1000

Total fund: RM 166.67 x 20 remaining years

: RM 3333.4

Therefore the claimed that should be given to the Encik Hamdan beneficiary is

= RM 20000.4 + RM 1000 + RM 3333.4

= RM 24333.8(will distributed according with faraidh)

The issues of prefer ability in choosing Insurance policy

Why many people like to buy conventional policy insurance rather than Takaful insurance?

Practically, the transaction in conventional insurance is based on buy and sale agreement. The company will be the seller while the participant will be the buyer. When talk about claim in this contract, the policyholders will has fully right to claim whole amount from the company. This is one attractive attribute that makes people buy policy from conventional insurance company.

People may blur and doubt about why they can’t claim whole amount in Takaful practice. The main reason is that the Takaful has 2 accounts. One account is personal account the other is participant special account. Both accounts are treated as Mudharabah and tabbarru’ account respectively. In this case, the participant can only claimed the amount in participant account.

This has been stated in pricing procedure of Takaful, which inline with Shariah principle:

“…if anyone desires a system other than Islam never will it be accepted from him…”

The issue of claim at the end of period

If someone doesn’t make any claim during the policy period, what should they receive at the end of maturity?

In this case, Takaful practice provides such benefit to the participants. Each Takaful product has their own pricing procedures and the Takaful Company tries the best on serving them the best. Basically, there are 2 types of benefit that can be received by the policyholders.

Non Claim Benefit (NCB)

The regulation in all countries already stated that for those who not face any risk within risk period, they would be claimed by NCB. The illustration of NCB is like this:

There hadith that provide justification on NCB:

“…Muslim bound with the conditions, if it exceed the condition, Muslim is permitted…”

  Bonus

This will be given it the Takaful holder at the end of maturity. Basically, this money belongs to Takaful operator. It indicates that the companies show it appreciation towards customers.

The basic calculation in computing bonus:

= surplus – (General Expenses + Management Cost) – Zakat = Net Profit.

The bonus also can be treated as sadaqah. As mentioned in Quran:

“God will deprive usury of all blessing, but will give increase for deeds of charity, for he loveth not creatures ungrateful and wicked”

Family Takaful Scheme

 How to calculate the amount of insurance in Family Takaful Scheme?

There are several guidelines that should be adhering by the policyholders in order to determine the insurance amount. The steps are like above:

Step 1: determine the group of age

Step 2: refer to the rate given in Takaful scheme in Family Takaful Schedule

Step 3: Calculate the amount based on the percentage find in the schedule.

The final amount derived from this step, will be divided into 2 accounts, Personal account and Participants special account.

Example of Practical situation

Mr Halim is taking Family Takaful Plan and the maturity period is 30 years. His age right now is 25 years old and he contributes about RM 16.90 in his Takaful account. This account can become his back up from the unpredicted risk. But, Encik Halim still blur about the allocation of fund and why it different from the conventional practice?

Generally, the payment made by the policyholder in conventional insurance will be credited into the general insurance account. However, it different with Takaful operation. The money collected will be allocated between Mudharabah and Tabbarru’ fund.

Mr Halim in this case can be considered as Takaful participant and the company where he buys the policy is known as Takaful operator. The money that the company received will be segmented into different channels. The main channels are:

Management Cost

IBNR (incurred but not recorded)

This is one type of Risk Management fund that exist in life and family Takaful. The IBNR fund is a reserved fund for the occurrences that happen out policy period. The fund namely known as IBNR reserved. The fund is compulsory to all Takaful operators. In other words, Takaful operator should establish this fund for the convenience of Takaful participants. The rate of contribution in this fund is 2.5% based on the actuaries’ computation.

Example that can be used to explain detailed about IBNR fund:

En Nor buys a Takaful policy for 1 month. He buys it from Takaful Nasional with amount of

RM 10000. During the policy period, En. Nor facing an accident and his body become handicapped. His beneficiary does not log a report to the related parties (Insurance Company, police etc.). After several months (out of policy period), En. Nor claims his right from the Takaful company. The company will not give the money from Tabbarru’ account because the money raises there belongs to other participants. Therefore, the company will extract some money reserved for him under the IBNR fund.

Claim Reserved

The claim make by the participants in the policy period is come from the “claim reserved”. This is the reserved that collected from participant premium contribution every stated period. This contribution can be done by using several ways like from the deduction of salary, Individual pocket money etc. The participant can claim this benefit from the Takaful operator if they had facing several difficulties like accident, injury, loss of damages and other unpredicted risks. So, the company tends to put high rates on this fund for the purpose of gaining more funds as well as for the benefit for the participants. As far as this fund is concern, the main objective is to strive for the satisfaction of policyholders.

Unearned Premium

The participants should contribute certain amount of contribution in the Takaful fund. This amount can be contributed monthly or quarterly depends on the contract agreed. Sometimes, participants tend to contribute unequal amount through out the policy period. This practice is not wrong but it tends to get low amount in the fund. Alternatively, Takaful Company has provided one special fund known as unearned premium fund. This fund serves as a back up for the participants that not contribute equally in their premium payment.

Here is illustration to elaborate more about the unearned premium fund. Consider the following cash flow:

Based on this cash flow, the participants do not contribute similar amount in the whole 4 months. So, the company tries to make it same amount of premium in each month. Therefore, the company extract some money from the unearned premium fund for the covering the shortage. This fund come from the participant in which they have put extra amount than needed in the premium.

Re-Takaful

Re-Takaful is one type of risk management fund. The fund is needed for the Takaful company for its risk (Takaful Company risk). The company can buy the policy from other companies for the seek of helping them when the company in the unpredicted situation. In Malaysia context, the re-Takaful practice has been supervise and done by ASEAN Takaful Group (ATG) and ASEAN Re-Takaful International Labuan Limited (ARIL).

By definition, re-Takaful refers to transaction make by one Takaful company to another Takaful company for seek of join responsibilities and solidarity. There are 2 types of re-Takaful natures. The natures are:

Facultative : this type of re-Takaful nature reflects to the insurance by product. In other words, this nature goes products by products. Foe instance, the marine Takaful only can be re-Takaful by its own-based product (marine with marine). This is optional to the Takaful company and there are no strict regulations on it.

Treaty : this is the compulsory to all Takaful operators and also has been law by the government. This nature reflects to the all Takaful products can be re-Takaful under one roof. There is no restrictions imposed on the products. Under this nature, it can be classify according to compulsory and non-compulsory.

All the risk management funds mentioned above are treated based on At-Tabbarru’ principle. This principle refers to gifts or donation which given by one person to others sincerely without any reward in return. The funds are mainly for needy and helpless people for their security, survival and happiness. Based on Hadith, this fund will not be returned or claimed by participants unless they face any unknown risk. Prophet Muhammad S.A.W said:

“…a person who contribute his/ her money and then claim it back is like a dog that eat and then vomit and it eat its own vomit…”

The new item that will be included in the distribution of Takaful premium is Special Security Fund (SSF). What is SSF?

Special Security Fund is a fund that will help Takaful company from facing insolvency or bankruptcy. At this stage, the fund is not established yet but in process to get approval from Central Bank of Malaysia. The establishment of this unique fund requires big funding and capital to set up it. The capital requisite is around RM 10 millions up to 50 millions. This fund is based on Shariah principles for sharing the burden between concern parties. Basically, Prophet encouraged people to share the difficulty face and try to make it lighter. Prophet said:

“…whosoever alleviate the difficulties of believers, Allah S.W.T will alleviate his difficulties in this world and in the hereafter…”

The mechanism suggested in Special Security Funds is basically based on mutual cooperation between participants and Takaful operator. Both of them need to contribute proportion of money in the fund. For example, the participants should contribute 2% in the fund and the operator also must put 2% in account for each participant. This amount can be accumulated in specific period and with that amount, operator can cover or back up it from loss.

The amount that already for used can be distributed or reimburse to the operator on the lump sum basis. The principle implies here is Qard Al-Hassan. This term refers to benevolent loan to the specific party. There is no additional charges and interest imposed. By right the company able to manage the fund for protective from bankruptcy or loss. The extra amount derived from the loan should be used for charity and welfare purposes like helping needy build welfare center and cater or manage orphanage.

Hopefully, this fund can been realized and approved by Central Bank of Malaysia. Viewing it as apart of the development of Islamic economic, it also tends to help Islamic institutions from suffering from unexpected risk. As short, the benefit from establishing the Special Security Fund (SSF) may be shared by both contributing parties.

The management cost, should the company bear all the expenses or should they take part of premium as the cost?

The establishment of company like Takaful company need to face several problems especially it term of budget and expenses. Even though it involves lot investment activities and other financial activities, Takaful company still need support or other source for survive.

One of it source come from the participants’ premium contribution. This contribution already channeled into different sort of fund for their future benefit. And apart from the premium is management cost. Bear in mind that this cost is the crucial activities in Takaful practice. Without proper management, the Takaful company may not serve the participants’ demand and fulfill their need. At last the Takaful company end up with poor quality, low services expectation and the worst pat is participants will left the Takaful and find other reliable insurance companies for their risk coverage.

In the management point of view, this cost use for payment of salaries as well as the utilities used. The proportion may not big as in risk management fund. In practice, the Takaful operator may deduct about 5% up to 10% of premium for management fund purposes. Example, if the premium is RM 150, the management cost is only RM 7.50 per participant.

Looking this matter from Islam point of view, every work or task should be compensated equally and with justice. It is not meaning Islam encourages it disciple to seek material gain for sincere job. But it is matter of appreciation with the task done. Prophet Muhammad S.A.W said:

“…for every service must be charged before the sweat dry…”

the commission, salary, bonus and wages should be pay equal with the task or work done. In this issue, Islam has clearly stated that the charge should be imposed and the participants should understand the reason behind it.

The extra of premium after deducting and allocating into various funds is known as surplus. The issue arise, for whom surplus should go?

Surplus can be considered as underwriting income for a company. In the simple word known as gain of the Takaful company. This gain comes from the participants extra contribution. The distribution of surplus toward the participant merely known as ex-gratia or ihsan

Here are Ulama' opinion regarding the surplus and it different between life policy and family Takaful policy.

Life policy :

Family policy :

ACTUARY, UNDERWRITER AND LOSS ADJUSTER

Public still confuses who evaluates the price of policy insurance? Is it actuary or underwriter or loss adjuster? The correct answer is actuary. This is the important people behind Takaful industry. For clarify further, here are several information pertaining these 3 Takaful related jobs.

ACTUARY

Base from the definition from the Human Resource point of view, actuary is a combination of business executive, mathematician, financier, sociologist, and investment manager. They are problem solvers who use actuarial science to define, analyze, and the financial, economic and other business applications of future events. Mainly, they define the risk within country boundaries and also define it base on the damages like accident, fire etc.

Actuary is trained to analyze uncertainty, risk and probability. They also create and manage programs, which will reduce the adverse financial impact of the expected and unexpected things that happen to people and businesses. Here are several responsibilities of actuary:

UNDERWRITER

The underwriter is involved with review and processing of application for participants’ compensation insurance. Here are several functions of underwriter under certain Takaful company:

LOSS ADJUSTER

Who is the loss adjuster? Human Resource defined loss adjuster as an independent expert in the handling and settlement of insurance claim. It means that the loss adjuster is entity for investigating any damages and launches a report for claiming purposes. Basically, here is several roles play by loss adjuster in Takaful industry:

EXAMPLE OF CONTRIBUTION OF PREMIUM

Takaful Rawat:Ehsan package

Pelan Takaful Siswa

Pelan Takaful Dana Pekerja

Pelan Takaful Hawa: Package A

MUDHARABAH RATE STATED BY TAKAFUL MALAYSIA

Takaful already determine the rate that should be fulfill in order to separate the contribution into Al- Mudharabah account. Here is the table extracted from Syarikat Takaful Malaysia Berhad for Mudharabah rate in January 2003 to August 2003 (express in percentage):

The figure from September onward is not available yet due to unfinished analysis done by actuary.

ARTICLE FROM TAKAFUL WEBSITE RELATE TO PRICING

 Extracted from www.takafu-malaysia.com/article.php?sid=47

MANAGEMENT EXPENSES ARE NOT CHARGED ON THE CONTRIBUTION PREMIUM

Participants of the Takaful business would have the opportunity to enjoy ‘free cover’. Perhaps it may sound strange, as it would imply that Takaful is just like another charitable organization. No business would give away its products or services for free except on the occasion of special event. From the context of insurance it looks more awkward because the core activity of insurance after all is to provide some kind of financial guarantee in order to compensate against loss or liability in the event of a misfortune. What more the quantum of guarantee may exceed the premium paid in the first place in the event of a huge misfortune.

Nevertheless, through the profit-sharing contract of al-Mudharabah, as provided by Takaful such an opportunity is no more a dream. Taking the performance of Takaful Malaysia as an example, where participants have been enjoying a rate of profit averaging at around 35% p.a. for the general Takaful business over the last five years, participants who have been sticking to Takaful in terms of their insurance needs would fully appreciate the meaning of ‘free cover’. With the total aggregate of the three consecutive years profit it would obviously be more than sufficient to pay for the fourth year renewal contribution (premium), assuming that the amount of contribution each year has been the same throughout. But profit is something, which is not guaranteed or assured.

On the other hand, whether such level of profit rate could be sustained would depend on the claim experience as well as the accounting practice adopted by a Takaful operator. Certainly, in the event of big claims the financial benefits paid from the Takaful fund would be correspondingly high. This would decrease the balance of the fund and hence would affect its underwriting results. Should the amount of claims exceed contributions the underwriting performance would suffer a deficit. Hence there would be no profit.

From the technical standpoint, Takaful, to all intents and purposes, is no difference from insurance. It therefore follows that the art of evaluating or underwriting a risk would also be no difference from the principles commonly and universally practiced by insurance, so long as these principles do not contravene the Shariah rules. After all Islam calls for good governance and excellent management, particularly in a situation where one is entrusted as custodian or trustee to manage and handle money. In a contract, the parties involved have to uphold certain obligations and responsibilities to ensure fairness, transparency and equitability. Honesty and sincerity are essential hallmarks to check one side from taking undue advantage at the unfair expense of the other resulting to unjust loss and injury not only to the other side, but others as well who at the same time may be having joint financial interest in the same contract. This is where the ‘utmost good faith’, a doctrine strongly advocated in Islam, should strictly be adhered to as a way to prohibit all parties in a Takaful contract not to conceal any material fact either at the point of inception of the contract or upon the happening of a misfortune leading to claim.

Since it in the best interest of the parties concerned to safeguard the Takaful fund from any undue exposure due to unwarranted practices, it would rest upon the shoulder of the Takaful operator to see and ensure that proper professional management is in place. After all, the fund which is built from the tabarru’ or donation portion of the contributions paid by the participants is for their common benefit. Together with the operator as trustee and manager on the one hand, and the participants as the `insurers’ and ‘insured’ at the same time on the other must protect the Takaful fund from undesired claims. Towards this end, every strategy adopted in ensuring good management of an insurance company would also be relevant in ensuring good management of Takaful. If insurance requires professional skills and strong technical know how in the areas of underwriting, risk management and claims evaluation, so would Takaful. However in the case of Takaful an appreciation of Shariah would help to enhance towards better understanding of its operation.

The accounting practice adopted is also a critical factor in determining the profit. For practical reason, Shariah generally accepts that cash accounting would be a suitable basis for any contract. Although it is not strictly an issue of Shariah, it is however argued that any profit to be shared must be based on actual or realized figure. To distribute profit which has been not realized is simply not practical. In this respect for the type of Takaful operation with profit-sharing arrangement, as practiced by Takaful Malaysia, for example, the most appropriate accounting policy would be on cash basis. By this policy, only the recognition of income is on cash basis, but liabilities and expenses are accrued.

Following this practice, participants who pay their Takaful contributions early, ideally on the day the Takaful contract is incepted would have the opportunity to receive relatively higher amount of profit from late paymasters. Profit is calculated from the day contribution was paid. Therefore any delay in the settlement of the contribution would mean an opportunity due to relatively less amount of actual profit received. For example a participant who pays the contribution on the same day the Takaful commences would enjoy a full year profit upon the expiry of cover. On the contrary if payment is made three month later, the amount of profit distributed would be equivalent only to three quarter of the full year’s profit.

The other critical feature commonly adopted as part of the accounting policy under the Mudharabah practice is on the treatment of the operator’s management expenses. In this respect, a distinction has to be made between costs of Takaful, such as payments of claim, re-Takaful and reserve which are borne by the Takaful fund, from the management expenses of the operator which are charged to the shareholders’ fund. In terms of the Takaful contract, participants of general Takaful agree that the operator would pay on their behalf claims to their aggrieved fellow participants and other related costs including re-Takaful and reserve as tabarru’ or donation from their contributions. Like insurance, due to the nature of general Takaful, tabarru’ amount can only be known when a misfortune occurs. For the purpose of profit sharing therefore, the contribution recognized as the Mudharabah capital would be the balance after deducting the tabarru’ amount. And investment profit will be added back to the capital.

RECOMMENDATION

All the issues and problem arise should be clarify and clearly stated to all especially for those who has interest in buying Takaful policy. The company will provide assistance for the convenience of the policyholders even though the valuation of certain policy quite rigid. At the same time, the company should put a lot of effort in providing the necessary information to future client. The computation, segmentation and evaluation of policy must be converted to public. This vital information can open the eyes of all about the beautifulness of Shariah principle in transactional and insurance activities.

The actuary also plays the critical responsibilities in making such information avail. On the other hands, they also tend to promote the Takaful product to all. The procedure and step in estimating and approximating should be done keen and decent. As a matter a fact, the pricing may be the core element in attracting the client. Therefore, the interactive and two way direction of communication can be suitable mechanism in transmitting the valuation ideas.

The Takaful company and others qualify authorities should collaborate and co-operate in marketing and revealing the pure Shariah concept in the in Takaful products. The brand name, purposes, benefits and the calculation of claim should be main ingredient in Takaful brochure, websites, kiosk and other promotion tools. By relying on traditional activities, the company may not get huge feedback from the public.

Perhaps, the government and other financial institute should lend the hands to Takaful industry. This shows that the commitment by other concern parties will make the Takaful product and the prospect clients can generally accept it pricing procedure. Nevertheless, the effort and exertion that the company put on this pricing procedure may become a benchmark for other companies.

In short, the pricing procedure should serve as primary information in marketing the Takaful products. And this mechanism can’t work alone and need support by various organizations to realize it.

Conclusion

Actuaries do the pricing procedure. This is the vital role in Insurance field. The valuation should be done in appropriate manner and in Takaful case, it should base on Islamic jurisprudence.

The actuary department is responsible in calculating new product ‘s cost in light to mobility rates, mortality rates, projector investment return, information from marketing research and providing value to the company. At the last stage, the approval should be verified by bank Negara Malaysia.

The process of pricing in Takaful is starting with conducting research on the need of the society by the marketing department. The purpose of the costing is used in determined the right pricing rate for the new product. After getting the approval, BNM will fill the documents and approving the proposals. The IT will create system for the new product before it launched in the market.

The pricing regulation in Takaful is based on Mutual Cooperation between brotherhood and it has defined in Quran. This procedure may not involve riba’ and other usury elements as prohibited by Islam.