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Open AccessArticle

A Nontechnical Guide on Optimal Incentives for Islamic Insurance Operators

Department of Finance, College of Business, Alfaisal University, Riyadh 11533, Saudi Arabia
J. Risk Financial Manag. 2019, 12(3), 127; https://doi.org/10.3390/jrfm12030127
Received: 25 May 2019 / Revised: 22 July 2019 / Accepted: 23 July 2019 / Published: 25 July 2019
(This article belongs to the Special Issue Islamic Finance)
The takaful industry is searching for an optimal model for Islamic insurance operation, which has turned out to be a challenging task. This paper translates the abstract scientific knowledge accumulated in the optimal contracting literature into a simple, nontechnical, analytical framework to analyze alternative business models which could be used by regulators to align the best interest of shareholders and policyholders in the takaful industry. This paper shows that the wakalahsurplus-sharing hybrid serves as the optimal structure for takaful operation; in the presence of Akerlof’s (1982) gift-exchange, the wakalah fee reduces the adverse selection problem; and the wakalah fee could be used to protect infant takaful operators. View Full-Text
Keywords: Islamic insurance; takaful guidelines; optimal incentives; wakalah; mudarabah; surplus-sharing; regulations Islamic insurance; takaful guidelines; optimal incentives; wakalah; mudarabah; surplus-sharing; regulations
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MDPI and ACS Style

Khan, H. A Nontechnical Guide on Optimal Incentives for Islamic Insurance Operators. J. Risk Financial Manag. 2019, 12, 127.

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