(Legal) uncertainty: Takaful between English common law and Shari’a law

Abstract

Concepts and principles of Islamic finance, which respect the beliefs and practices of the Muslim faith, are becoming more prevalent in the United Kingdom (UK). The concept of Takaful (Islamic insurance), while still in its infancy in the UK, is proving a viable alternative to traditional insurance models. This paper argues that increased efforts should be made by UK financial services regulators to develop suitable corporate governance standards and enhance Takaful awareness. Such efforts will ultimately increase domestic insurance penetration by providing Muslims with a compliant system of insurance, and, further, allow the UK to emerge as a viable and global Takaful market. The comparative study between English common law and Islamic law in this paper illustrates, inter alia, the differences between risk (measurable uncertainty) and uncertainty (pure risk, namely an immeasurable form of hazard), with the goal of finding a uniform standard for the incorporation of the concept of risk management into English insurance contracts. Fundamentally, the difference between risk and uncertainty is derived from the understanding of Professor Frank Knight. Ultimately, the differences in the ideologies of risk-taking in Western countries and risk-sharing in Islamic countries, specifically in relation to the insurance industry, do not constitute a challenge, but instead, the basis for possible common ground upon which to build a mutual system of cooperation between different legal traditions.