AZE.US
Azerbaijan has begun introducing Islamic insurance, known as takaful, a new product for the local market that differs from the traditional insurance model and is based on the principles of mutual assistance and Islamic finance.
The Central Bank approved the application of Islamic insurance in the country in February. The core idea behind takaful is that participants form a common fund, which is then used to cover losses when an insured event occurs. In other words, this is not simply the purchase of an insurance service, but a collective mechanism for sharing risks.
In traditional insurance, if no insured event occurs, the amount paid by the customer usually remains with the insurance company. Under the takaful model, participants’ money is accumulated in a Mutual Assistance Fund. These funds are used to pay claims, cover administrative expenses and compensate the operator, while the remaining amount may be returned to clients or taken into account when renewing the policy.
Experts say this feature could make Islamic insurance attractive to some citizens. If a person insures movable or immovable property, part of the payment goes toward servicing the product, while another part is transferred to the common fund. If money remains in the fund at the end of the period, the client may receive part of it back or get a cheaper policy next time.
Insurance market expert Ilkin Najafov says the system is managed through an operator, which may be either an insurance company or an insurance broker. The operator manages the funds collected from participants of the Mutual Assistance Fund and ensures that the money is used in line with Islamic finance principles.
Special attention is paid to where and how the fund’s money is kept. In takaful, it is important that the funds are not involved in transactions that contradict Islamic financial norms. That is why market participants speak not only about insurance protection, but also about the “purity” of the financial mechanism.
Experts believe the emergence of takaful in Azerbaijan is linked to the gradual development of Islamic financial instruments in the country. Islamic banking, leasing and other products are already being discussed in the market, while insurance is becoming another element of this system.
According to Najafov, there is a group of citizens in Azerbaijan who can afford insurance but avoid traditional products for religious reasons. For such clients, the launch of takaful may become an important alternative.
Although Islamic insurance is only beginning to develop in Azerbaijan, interest in the product is already visible. Globally, takaful is also showing strong growth. Experts say the segment is expanding at roughly twice the pace of traditional insurance.
AZE.US