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Utmost Good Faith and Takaful in Malaysia

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Good Faith in Insurance and Takaful Contracts in Malaysia

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Abstract

This chapter sets out the concept of takaful or Islamic insurance as well as its juridical basis and application in Malaysia with respect to both the pre and post-contractual duty of utmost good faith. It analyses the shortcomings of the duty, pre and post-contract with respect to takaful, and evaluates the recent reforms introduced via the Islamic Financial Services Act 2013 (Malaysia) vis-a-vis its predecessor the Takaful Act 1984 (Malaysia), the common law and the reforms pertaining to conventional insurance introduced in Australia and the United Kingdom. The chapter also briefly addresses the extent to which the duty of utmost good faith in takaful contracts has been regulated, in other Muslim-majority jurisdictions where takaful is offered in a large scale, so as to place the Malaysian takaful reforms in context.

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Notes

  1. 1.

    Maysami and Williams (2006) pp. 229–230. This section draws on research appearing in: Thanasegaran (2008, pp. 144–145).

  2. 2.

    Khorshid (2004, p. 113).

  3. 3.

    Lim and Abdullah (2001, p. 7). See: The last official population and housing census conducted in 2010 for Malaysia: Department of Statistics Malaysia (2010).

  4. 4.

    Masud (2011, p. 1133).

  5. 5.

    This section draws on research appearing in: Thanasegaran and Shaiban (2014, p. 331).

  6. 6.

    This section draws on research appearing in: Thanasegaran (2013, p. 107); Also see: Swartz and Coetzer (2010, pp. 336 and 338).

  7. 7.

    Bhatty http://www.newhorizon-islamicbanking.com/index.cfm/section=features&action=view. Accessed 30 May 2012.

  8. 8.

    See: Masud, above n 4, 1139.

  9. 9.

    See: Section 17 of the Marine Insurance Act 1906 (UK) as amended by s14 of the Insurance Act 2015 (UK); and s13 of the Insurance Contracts Act 1984 (Cth) (Australia).

  10. 10.

    This section draws on research appearing in: Thanasegaran, above n 6, 107.

  11. 11.

    Baker and Simon (2002, pp. 37–38).

  12. 12.

    See: Masud, above n 4, 1139.

  13. 13.

    See: Au Pui Khuan and Maysami (1998); Central Bank of Malaysia (1999, p. 256). This section draws on research appearing in: Thanasegaran, above n 1, 145.

  14. 14.

    See: Masud, above n 4, 1144; This section draws on research appearing in: Thanasegaran, above n 6, 109.

  15. 15.

    Central Bank of Malaysia, above n 13, 257.

  16. 16.

    Saudi Arabia has however, since moved to the cooperative insurance model following a directive from the Saudi Arabian Monetary Authority (SAMA).

  17. 17.

    Ernst and Young (2012, p. 54).

  18. 18.

    Ibid 55.

  19. 19.

    Swiss Re Economic Research and Consulting (2011, p. 6). This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 334.

  20. 20.

    Ernst and Young, above n 17, 56.

  21. 21.

    Ibid 57.

  22. 22.

    This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 334.

  23. 23.

    The Central Bank is therefore, responsible for administering the regulations (including licensing and fund management requirements) governing both conventional insurance and takaful in Malaysia. This has remained unchanged under the Islamic Financial Services Act 2013 (Malaysia).

  24. 24.

    This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 335.

  25. 25.

    Central Bank of Malaysia www.bnm.gov.my/index.php?ch=li&cat=insurance&lang=en Accessed 30 June 2015.

  26. 26.

    See: Mohamed (2005). This section draws on research appearing in: Thanasegaran, above n 1, 147.

  27. 27.

    This section draws on research appearing in: Thanasegaran, above n 1, 147.

  28. 28.

    Mahmood (1992, p. 247). The use of s5 of the Civil Law Act 1956 (Malaysia) to permit the application of English insurance and mercantile law in force at the time, to Malaysia has been set out in Chap. 2 of this book.

  29. 29.

    Masud, above n 4, 1141; Hoyle (2012, p. 525).

  30. 30.

    Tsang and Hodgins (2012, p. 1) http://www.mondaq.com/x/188132/islamic+finance/Asia+Insurance+Review+Takaful+Conference+910+May+2012. Accessed 30 June 2015.

  31. 31.

    This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 330.

  32. 32.

    Khorshid, above n 2,160.

  33. 33.

    Ernst and Young (2014, pp. 7–8).

  34. 34.

    See: Maysami and Williams, above n 1, 232 which is an interesting article that examined these issues, albeit more particularly with respect to neighbouring Singapore. It provides an indication that Muslims who are supposedly the target recipient of takaful products remain largely unaware of the existence of these services and more so, that Muslims with conservative values seem to be less aware of takaful compared to the more liberal Muslims.

  35. 35.

    See: Table of Cases Referred to the Financial Mediation Bureau from 2000 to 2014 in the Appendix.

  36. 36.

    Ibid. However, it should be noted that the breakdown in terms of the types of takaful complaints is no longer available from 2012. This section draws on research appearing in: Thanasegaran (2011, p. 199) but the statistics have been updated up to 2014 from 2009 previously.

  37. 37.

    This was a 10-year programme launched in 2003 to educate consumers (of takaful and insurance) of their contractual rights and responsibilities. This was to enable them to make well-informed decisions, both in product selection as well as meeting their legal and contractual obligations.

  38. 38.

    Mahmood, above n 28, 247.

  39. 39.

    This is unlike the situation in Pakistan for instance, where its Takaful Rules 2005 clearly provide that any gap therein shall be filled by reference to the Insurance Ordinance 2000.

  40. 40.

    Section 2 of the Takaful Act 1984 (Malaysia).

  41. 41.

    The function of the Sharia Committees is supervisory, in that it is to advise the company on matters relating to Sharia. The Takaful Act 1984 (Malaysia) did not however, mention matters such as the status of the committees’ advice, for example, as to whether it was binding on the company.

  42. 42.

    This section draws on research appearing in: Thanasegaran, above n 1, 154.

  43. 43.

    Mahmood, above n 28, 250.

  44. 44.

    See: Seah Cheoh Wah v Malayan Banking Bhd & Anor [2009] 7 CLJ 485 and the Table of Cases Referred to the Financial Mediation Bureau from 2000 to 2014 involving takaful in the Appendix.

  45. 45.

    On the contrary, this is a necessary requirement for avoidance of conventional insurance policies in Australia under ss28 and 29 of the Insurance Contracts Act 1984 (Cth).

  46. 46.

    This section draws on research appearing in: Thanasegaran, above n 1, 155.

  47. 47.

    This is pursuant to s67 (2) of the Takaful Act 1984 (Malaysia).

  48. 48.

    This section draws on research appearing in: Thanasegaran, above n 1, 155–156.

  49. 49.

    This section draws on research appearing in: Thanasegaran, above n 1, 158–159.

  50. 50.

    Ibid.

  51. 51.

    See: Section 5 of the Civil Law Act 1956 (Malaysia); Mahmood, above n 28, 43. Judicial acknowledgement of the application of s17 of the Marine Insurance Act 1906 (UK) to takaful contracts in Malaysia is apparent in Seah Cheoh Wah v Malayan Banking Bhd [2009] 7 CLJ 485.

  52. 52.

    This is by virtue of s282 of the Islamic Financial Services Act 2013 (Malaysia).

  53. 53.

    This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 338.

  54. 54.

    Ibid.

  55. 55.

    Ibid 338–339.

  56. 56.

    See: Section 21 of the Insurance Contracts Act 1984 (Cth) (Australia).

  57. 57.

    This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 339.

  58. 58.

    See: Section 2 (2) of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK) and s21A of the Insurance Contracts Act 1984 (Cth) (Australia).

  59. 59.

    Paragraph 6 (2) of Schedule 9 to the Islamic Financial Services Act 2013 (Malaysia) which is based on s3 of the Consumer Insurance (Disclosure and Representations) Act 2012 (UK) and s21A of the Insurance Contracts Act 1984 (Cth) (Australia).

  60. 60.

    This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 339.

  61. 61.

    Ibid.

  62. 62.

    Paragraphs 7 (7) and 7 (5) respectively of Schedule 9 to the Islamic Financial Services Act 2013 (Malaysia).

  63. 63.

    This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 339–340.

  64. 64.

    Paragraphs 13 (4) and 13 (3) respectively of Schedule 9 to the Islamic Financial Services Act 2013 (Malaysia); Ibid 340.

  65. 65.

    Ibid 340.

  66. 66.

    Ibid.

  67. 67.

    This provision takes into account the improvement made to s22 of the Insurance Contracts Act 1984 (Cth) (Australia) by the Insurance Contracts Amendment Act 2013 (Cth) (Australia). Ibid 341.

  68. 68.

    Ibid.

  69. 69.

    Ibid.

  70. 70.

    Ibid.

  71. 71.

    This section draws on research appearing in: Thanasegaran, above n 6, 115–116.

  72. 72.

    [2009] 7 CLJ 485.

  73. 73.

    This section draws on research appearing in: Thanasegaran, above n 6, 116.

  74. 74.

    This section draws on research appearing in: Thanasegaran and Shaiban, above n 5, 342.

  75. 75.

    Ibid.

  76. 76.

    Ibid 354.

  77. 77.

    See: Financial Mediation Bureau (2009, p. 20).

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  1. Monash University, Melbourne, VIC, Australia

    Haemala Thanasegaran

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Thanasegaran, H. (2016). Utmost Good Faith and Takaful in Malaysia. In: Good Faith in Insurance and Takaful Contracts in Malaysia. Springer, Singapore. https://doi.org/10.1007/978-981-10-0383-7_5

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  • DOI: https://doi.org/10.1007/978-981-10-0383-7_5

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