Gharar

Basically, Gharar means "uncertainty". The definition of uncertainty in the Muamalah transaction however, is "Where there is a matter that is concealed by one party, where it (concealment) can raise a sense of inequality as well as tyranny to another party"

According the Ibn Rush, Gharar means: "the lack of information about a certain product (object); the existence of uncertainty in the presence of that object and, the lack in quantity and conciseness of information about the object.". While Ibn Taimiyah states that Al-Gharar means "When a party obtains his rights and the other party does not get what is rightfully his." Kitab Qalyubi wa Umairah states that the Mazhab Imam A-Shafie has defined Gharar as: "An 'aqd (Contract) that has an outcome hidden from us, or a situation between two possibilities where the frequent one happens to be the most feared."

Professor Madya Dr. Saiful Azhar Rosly states that, "Al-Gharar is defined as a contract that refers to a risk and uncertainty raised from one's manipulation that causes anguish towards a person who has been oppressed. For example; in the used car business, the customer is not told of the true condition of the car, and the trade of the car is complete, the gharar in the object of trade can be made a reason to cancel the contract. This is because gharar is a result of an oppressive act done intentionally."

An insurance contract contains gharar because, when a claim is not made, one party (insurance company) may acquire all the profits (premium) gained whereas the other party (participant) may not obtain any profit whatsoever. Ibn Taimiyah further reasoned "Ghara found in the contract exists because one party acquired profit while the other party did not".

According to the Set Up Action Committee in Malaysia, "It is clear that the insurance contract practiced today contains elements of Gharar because the Ma'qud

Alaih (Object) is not clear, and is connected with; the uncertainty of whether the payment will be accepted as promised. The amount to be paid is not known. The time it will occur is not known.

The existence of Gharar in an insurance contract is due to "trade". In Islam, if a subject is involved in the trade of Muamalah, then it must satisfy the basic principles found in trade. Some of these principles are: The Buyer and Seller ; (ijab and Qabul) Sighah , Offer and Acceptance, Consideration (Ma'qud Alaih) Object / Subject matter.  The question now is the existence of uncertainty in the "object" found in the contract due to the unfulfilled conditions determined by Syariah. In Islam, the conditions for each of the principles are important and must be fulfilled. A few of the principles that an object must satisfy include; the object must be included in the aqad (Agreement/ Contract), the time of surrender is determined, the quantity of the object is determined. The place of surrendering the object is determined. The object must not have elements prohibited by Syariah.

Maisir

Islamic scholars have stated that Maisir and Gharar are inter-related. Where there is elements of Gharar, elements of Maisir is usually present. Maisir exists in an insurance contract when; the policy holder contributes a small amount of premium in the hope to gain a larger sum; the policy holder loses the money paid for the premium when the event that has been insured for does not occur; the company will be in deficit if the claims are higher that the amount contributed by the policy holders.

Riba

The element of Riba (usury / interest) exists in the policy loans offered to the policy holders of a life insurance product. In these policy loans, the insurer charges interest to the policy holders who take up the loan. It is clear that the interest paid is a form of Riba, which is prohibited in Islam.

The element of Riba also exists in the profit of investments used for the payment of claims to policyholders. This is because most of the insurance funds are invested in financial instruments such as bonds and stacks which may contain element (s) of Riba.

The term Takaful in most countries is referred to as Islamic Insurance. This is due to the apparent similarity between the contract of Kafala and that of insurance.

Al-Gharar, Al-Maisir and Al-Riba has been discussed in the paragraphs above. Islamic laws set standards that are ethical and the same protects fairness and justice in all transactions.

As a complete religion, the teachings of Islam encompasses the essence of peace, economic well being and development of the individual, family, social, state and Ummah (communities) levels. To illustrate the importance of this relationship in the life of a Muslim. Islam calls for the protection of certain basic rights.

Islamic Insurance was first established in the early second century of Islamic era when Muslims Arabs started to expand their trade to India, the Malay Archipelago and other countries in Asia. Because the journeys / voyages were long, they suffered huge losses dues to mishaps and misfortunes and robberies along the way. These travelers mutually agreed to contribute to a fund before they started their long journey. This fund was used to compensate anyone in the group who suffered losses through any mishap. This concept was copied by others and later became known as marine insurance.

Today, Muslim jurists have concluded that insurance in Islam should be based on the principles of mutual cooperation. the system embodies the elements of shared responsibility, joint indemnity, common interest, solidarity and brotherhood. The participants would cooperate among themselves for their common good; every participant would pay his contribution / subscription in order to assist those who are in need, the Donation (Tabaaru') the element of uncertainty will be eliminated in so far as subscriptions and compensation are concerned.

The general view of Muslim jurist is that the operation of the conventional insurance, being an exchange transaction under a buy and sell agreement, does not in its present form conform to the rule and requirements of the Syariah

In 1972 the National Fatwa Committee of the Malaysian Affairs Council decreed that conventional insurance and especially those involved in life insurance are null and void (fasid). and inconsistent with the principles of the Syariah. They do not suit the practice of Islam, because they contain the elements of interest, gambling and uncertainties. In 1985, the Islamic Fiqh Academy, Jeddah under the auspices of the Organization of Islamic Conference (OIC) resolved that all forms of conventional insurance (life and general) do not conform to Islamic principles.