general Islamic Insurance rating/pricing model

What is it about?

This paper seeks to provide means of measuring risks underwrite by the general Islamic insurance industry. Since the goal of Islamic insurance is to compete with the conventional insurance. In other word, the two industries are competing to capture substantial insurance markets across the world. Therefore, I posited that effective pricing "rating" mechanism would be an ideal method for Islamic insurance to capture and secure insuring public's trusts. Thus, reducing chances of conventional insurance dominance of risk markets around the world. This idea is genuine since Islamic insurance has no specific pricing mechanism compare to its conventional counterpart. Hence, it makes the research much timely and important to the Islamic insurance proponents. Add to this, is the fact that the aim of Islamic insurance isn't to sell protection and making profit from that compare to conventional insurance orientation. Thus, I further theorized that unearned contributions (as in premium that owners did not make claims in conventional insurance) and investment returns (if any) can be modeled and incorporated as a variable into the traditional actuarial rating model. This would allow the Islamic insurance operators to return the remaining funds of the pool to their rightful owner "contributors". This would eliminate the questionable practice of conventional insurance practitioners taking unclaimed premium as their personal earning. Finally, the Islamic insurance products pricing would seem cheaper compare to the conventional insurance. This conclusion would satisfy the law of demand "The lower the price the higher the demand"........ and the higher the returns on the long run.

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Why is it important?

This work is important because the Islamic finance emerged in order to emancipate the Muslims from commercial activities that are in odd to the dictate of Islamic law (Qur'an & Sunnah). And the Qur'an specifically states that measure in accurate and do not consume people's properties or monies without justice and their happiness. Many insuring public are crying of the ways conventional insurance operate and consumption of unclaimed premiums at the end of the year. In fact if insurance is not legally obligatory there might no one who would subscribe to insurance policies. Thus, Islamic insurance need to distance itself from such predicaments and returning unclaimed premiums to their owner would be an ideal way to escape such accusations. This cannot be achieved if the pricing model of Islamic insurance yet follow the same pattern of the conventional insurance pricing model. This is why having special pricing model which suits the Islamic insurance's nature, aims, and objectives is the best way to distinguish Islamic insurance as a viable and important risk management mechanism from its conventional insurance counterpart.

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