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New takaful law will drive innovation, says lawyer

A new law regulating the takaful insurance industry could drive innovation and enhance shair’a scholars’ understanding of the insurance market, Clyde & Co has claimed.

Last month, the UAE Insurance Authority issued a new law setting out a series of legislative measures for the takaful insurance industry.

Under the new law, takaful insurers must now have a shari’a board consisting of three qualified scholars. The Insurance Authority must also establish the Supreme Committee for Fatwa and Shair’s Supervision, charged with issuing fatwas, supervising individual shari’a committees and settling disputes between committees and company directors.

Peter Hodgins, Clyde & Co Islamic insurance partner, welcomes the new law. He said: “It makes some very valid and far-reaching changes, and it creates a level of specificity that recognises that takaful is slightly different.”

He added: “With regards to the shair’a boards of the individual takaful operators, they have got a limitation on the number of shair’a boards any one scholar can act, and that is two. That is sensible in terms of conflicts of interest, albeit I have my reservations of whether or not there are enough scholars out there to fulfil all the roles.

“But, in the long term I think there will be a much broader population of shari’a scholars who have a real understanding of this area because they are going to have to be trained up and educated about insurance.”

Hodgins said the requirement for insurers to separate documents between the risk that is insured and the takaful model will drive innovation.

“Historically all the scholarly attention has largely gone into how to set these things up, what model do you use and the takaful operation, and a lot less attention has been given to what is the product we sell to the customer. People have not necessarily thought through all the ramifications of the products they sell and it is an area where we will see innovation from the scholars going forward, this change in the law merely makes it more likely that people will look at the products.

The new regulations are due to be formally announced in the official gazette.