Shariah-compliant insurance product launched in Canada

Ches Special Risk has launched Canada’s first Shariah-compliant insurance product under the name Ethical Insurance.

The product conducts insurance transactions based on principles of Islamic finance — also known as Takaful — and excludes investments or coverage of industries that don’t align with Islamic values.

The product arose because Ches saw a need for policyholders to have coverage that is compliant with Islamic financial teachings, which can differ from western insurance solutions. For example, when lending or investing money, Muslims are not allowed to receive or charge interest payments. 

According to Statistics Canada, Islam is the second most common religion in Canada, with nearly 1.8 million people identifying as Muslims in 2021. This has more than doubled in the last 20 years (from 2% of the population in 2001 to 4.9% in 2021).

“In Canada, we are seeing a lot of our neighbours…follow the Muslim religion, and a lot of them find it ethically very difficult to buy insurance in Canada, because of the fact that it’s not a Shariah-compliant process,” says Gary Hirst, CEO and president of Ches Special Risk.

“The idea was to develop a policy coverage, as well as a workflow, that would allow policyholders to feel more confident in the way that their dollar is being spent on premiums.”

Becoming Shariah-compliant

The product excludes coverage for adult entertainment, arms and ammunition, and certain pharmaceutical and food industries, to name a few, that are contrary to Islamic teachings.

Policy wordings have also been adapted to be Shariah-compliant.

For example, “it’s very important that anyone buying this policy is aware that they are a participant in the policy,” says Hirst. “So, the word ‘insured’ is now understood to mean a participant who receives protection under the policy.”

Similarly, the word ‘insurer’ is defined as a subscribing Takaful provider.

The meaning and collecting of ‘underwriting profit’ is also adapted to adhere to Takaful teachings.

“Underwriting profit is now understood to mean a surplus,” says Hirst, “and that is where the concept of mutualization comes in.”

In a Takaful policy, any surplus ‘premiums’ are distributed back to participants. However, if there’s not enough surplus to create a meaningful repayment to participants, the surplus amount will then be distributed as a payment to charities. For Ethical Insurance, Hirst says these will be community-based charities, though not strictly religious charities.

The Takaful principles that Ethical Insurance adheres to have been certified as compliant by a Shariah Law supervisory board.

“The way that we transact the business, the way that we issue policy wordings — which is very important — and the way that any surplus is distributed at the end of the financial year, now complies with our Shariah certificate,” says Hirst.

Though there are Shariah-compliant insurers elsewhere, such as in the U.K. and the Middle East, Hirst says Ethical Insurance is setting a precedent in the Canadian P&C space.

“You can currently open a bank account with a Shariah-compliant bank, and you can currently borrow money from a Shariah-compliant bank,” says Hirst. “There is a whole financial industry that is currently growing in the Canadian economy, except for insurance.”

Feature image by iStock.com/Riza Azhari