Risk and Insurance in Islamic Banking and Insurance - Auto Insurance Products, Processes, and Workflow - Term Paper Example

The paper “Risk and Insurance in Islamic Banking and Insurance - Auto Insurance Products, Processes, and Workflow” is an outstanding version of a term paper on finance & accounting. An insurance contract refers to the binding contract between the insured and the insurer. The contract obligates the to make fixed payments called premiums to cover for the unforeseen risk. If the risk occurs, the insured is entitled to compensation from the insurer (Abu-Hussin, Muhamad, & Hussin, 2014). Islamic banking and Islamic insurance (takaful) companies entered the UAE financial system after the system was liberalized in 1977.

Several factors prompted the companies to enter into UAE market. Firstly, conventional banking was perceived as not complying with Islamic laws (Abu-Hussin, Muhamad, & Hussin, 2014). This inconsistency caused anxiety among the Muslim community. Secondly, the Muslims contemplated embracing a financial system that was politically and economically consistent with all aspects of life taught in Islam.

The pressure from Muslims who form the majority of the UAE citizens, compelled the government to initiate the Islamic financial system (Abu-Hussin, Muhamad, & Hussin, 2014). There has been the creation of new dimensions in the insurance industry in the UAE since the establishment of new financial systems (Abu-Hussin, Muhamad, & Hussin, 2014). The UAE citizens have been presented with insurance choice between the takaful insurance and the conventional insurance sine the changes to the financial systems were introduced (Abu-Hussin, Muhamad, & Hussin, 2014).

Auto insurance and auto takaful insurance are the largest insurance sector with the highest net premium contribution. 54% total contribution of net premiums to the general takaful sector came from auto insurance between 1986 to 2004. (Abu-Hussin, Muhamad, & Hussin, 2014). In 1988 and 1991 auto takaful premium contribution had a notable increase. Afterward, it still remained at the top of the list (Abu-Hussin, Muhamad, & Hussin, 2014). The takaful/insurance represented only 1 percent from 1986 to 2004 in comparison to the yearly premium contributions deposited by the auto takaful/ insurance sector (Abu-Hussin, Muhamad, & Hussin, 2014).