The Development of Sharia Insurance and Its Future Sustainability in Risk Management: A Systematic Literature Review

Abstract

The need for Sharia insurance products in the Muslim community continues to significantly increase. Sharia insurance offers sustainability in overcoming the risk of economic loss based on the principles of Islamic law. In addition, Sharia insurance can be a sustainable solution in providing risk management funds. This study aimed to analyze the development and sustainability of Islamic insurance as an alternative form of risk management, as well as its sustainability in the future. The general review is still in the form of the products offered and operational system models in the Sharia insurance industry. The systematic literature review method was used to obtain a visualization and general description of Islamic insurance, employing 774 data articles from 2010 to 2022. From the results of the analysis, it was found that research discussing Islamic insurance has demonstrated significant developments every year. Mitigating risks by offering the principles of Islamic law represents added value for the Islamic insurance industry. In addition, five models of Sharia insurance systems have been introduced and used; namely, the Mudharabah model, the modified Mudharabah model, the Wakalah model, the hybrid model, and the Waqf model. However, the products offered in Sharia insurance are not too numerous and are still focused on individual risk. Based on these results, Sharia insurance will undergo development in the future in terms of both the products offered and risk management. Of course, it can also lead to a transition to the development of sustainable Sharia insurance.

1. Introduction

Research on and discussion of Islamic economics have undergone significant developments [1,2]. This can be seen from the significant increase in research and discussions conducted among Muslim researchers and scholars in the Islamic economic sector. This situation can be confirmed from the Islamic economic products that have emerged, including in the banking sector in providing savings and loans, and in relation to other economic activities that have implemented the Sharia system [3,4,5]. With the changing times, the need for Sharia-based protection and provision of funding services is increasing in relation to meeting the needs of Muslims regarding running a business and mitigating the risk of loss [6,7,8]. Sharia insurance has been developed to address the risk of loss by applying Islamic law [9,10,11]. The employment of the concept of Takaful as Sharia insurance is demonstrated by the existence of several Takaful insurance companies in various countries that apply the principles of Islamic values and law. The principle developed in this Sharia insurance is that of implementing a business by obtaining halal profits through the Mudharabah system [12,13]. In Sharia insurance, the principle of Tabarru or togetherness is applied, and investors can benefit and not be harmed. Investors can be served satisfactorily depending on the quality and growth of the Sharia insurance company [14,15].

Sharia insurance businesses are built to help and protect policyholders or participants [16,17,18]. The activities carried out are in the form of collecting and managing Tabarru funds, which provide a pattern of return in the face of certain risks through contracts (agreements) that are formed according to Sharia principles. In addition, with the existence of insurance, customers (policyholders) can transfer the risk of economic loss they are subject to. Thus, the economic activities of customers can resume with the funds received through the claims submitted. Conventional insurance and Sharia insurance have their respective advantages and disadvantages [19,20]. Thus, the selection of insurance products is returned to consumers according to their individual needs and abilities. Sharia insurance uses the principle of sharing risk, where the risk from one person/party is borne by all people/parties who are policyholders [21,22,23]. Conventional insurance uses a transfer-of-risk system in which the risk from the policyholder is transferred to the insurance company [24,25,26,27,28]. It can be said that the role of a Sharia insurance company is to carry out operational and investment management of several funds received from policyholders, in contrast to conventional insurance companies, which act as risk bearers [29]. The contract used in Sharia insurance employs the principle of mutual help between fellow policyholders and representatives and cooperation of policyholders with Sharia insurance companies, while the contract used in conventional insurance is based on the principle of exchange or buying and selling [30].

In Sharia insurance, all aspects are important concerns in making decisions. Aspects of Islamic law are important in making Sharia insurance decisions. Determining Sharia insurance premiums, preparing policies, paying claims, paying operators, and managing Sharia insurance funds need to be considered, as well as, of course, applying the principles of Islamic law. Research discussing Sharia insurance has developed and been carried out by previous researchers. For example, research conducted by [31] discussed the operational model of Sharia insurance, which is still a problem that needs to be resolved. Based on the results of the research conducted, several models are often used; namely, the hybrid model, the Wakalah model, and the Mudharabah model. In addition, Tanuwijaya et al. (2022) [12] developed a mathematical model and system of management of premium funds for Sharia life insurance based on the Mudharabah scheme. The model developed takes into account Sharia insurance policyholders based on gender groups. From the results of the study, it was found that the level of profit obtained by the operator from the policy for female participants was greater when compared to the policies for male participants. Research [32], discussed incentives for operators or workers in Sharia insurance. The results of his research showed that incentives can be given to operators or workers in Sharia insurance through the distribution of the Wakalah surplus obtained.

Based on the research that has been undertaken, Sharia insurance certainly has a different systematic approach. This is achieved by adjusting the level of needs among the community and the type of risk insured. The increasing public interest in buying Sharia insurance products has an impact on the research conducted on the development of Sharia insurance products, leading to it increasing. Systematic literature review research in the field of Sharia insurance is quite an interesting and challenging thing to do. This was the initial motivation for the research conducted on developing Sharia insurance products by applying the principles of Islamic law. Moreover, the operational system in Sharia insurance is of particular interest because it has significant differences compared to conventional insurance. The research conducted aimed to determine the development of research carried out in the field of Sharia insurance. This article generally discusses the development of Sharia insurance, Sharia insurance products, and the operational systems of Sharia insurance. The evaluation carried out in this study was based on articles that were screened discussing Sharia insurance. Based on the results of the evaluation, the development and level of future needs for Sharia insurance in overcoming the risks faced by society can be determined. Research related to Sharia insurance is very useful for the community as it can help increase the understanding of Sharia insurance. Thus, it can increase public interest in buying Sharia insurance products; of course, by using the principles of Islamic law. In addition, the research conducted can be useful for insurance companies in designing and compiling product schemes and operational systems for Sharia insurance.

With ongoing research on Sharia insurance being carried out by academics, it is hoped that the future research in the field of Sharia insurance, both on dealing with more effective economic risks and on the products offered, will increase. Ideas offered on an ongoing basis by academics relating to the Sharia insurance system can help the community and the insurance industry in making sustainable economic risk management policies. Thus, the results of the research conducted have added value in the form of being able to increase people’s interest in switching to Islamic insurance. In addition, the increase in research conducted by academics can increase public understanding of the advantages of Islamic insurance. In addition, it can attract the interest of other academics from non-Muslim countries, encouraging them to conduct research in the field of Islamic insurance. So far, the majority of research conducted on Islamic insurance has been carried out by academics from Islamic countries. Thus, with research conducted by academics from non-Muslim countries, Islamic insurance can be accepted and developed in non-Muslim countries, such as in the Americas and Europe.

Based on the description above, it can be summarized that, in general, the Islamic economic sector has demonstrated significant progress every year. This progress can be seen in the many Islamic economic products that have been offered. One product area that is of concern to this research is the field of Islamic insurance. Islamic insurance has undergone significant development in Islamic countries but not yet in non-Muslim countries. In addition, Sharia insurance has not been able to compete with conventional insurance, which can be seen from the types of risk management and products offered. Based on previous research, economic risk management in Islamic insurance still functions on a small scale. This deficiency is a concern, and research should be carried out by academics on increasing knowledge about Islamic insurance.

This paper is structured as follows: Section 2 describes the materials and methods in terms of the data collection process used and the research data analysis system. Section 3 presents the results of the analysis in the form of a bibliometric visualization focusing on the topics discussed and the operational system models in Islamic insurance. A discussion of the results of the analysis is carried out in Section 4, with the discussion focusing on developments in Islamic insurance and differences in the Islamic insurance operational system model. Finally, Section 5 discusses the conclusions drawn from the results of the research conducted.

2. Materials and Methods

2.1. Scientific Article Data

The data used in this study were articles published from 2010 to 2022. The idea of Islamic insurance has existed since 1979 in the Sudanese and Arabic regions. However, this research focused more on research conducted from 2010 to 2022, as this Islamic insurance received a positive response in Muslim countries around 2010 and later. Publish or Perish software was used in the process of searching for articles that would become databases. In the search process, the keywords used were “sharia insurance” or “takaful”, depending on the research topic. In the first section, we searched for articles published in Scopus-indexed journals; then, in the second search, we looked for articles indexed by Google Scholar. In addition, in Publish or Perish software, the maximum number of results used was 1000, and 2010 was selected for the initial year and 2022 for the final year. Furthermore, based on the collected data, filtering was carried out by removing irrelevant article data pertaining to research topics, duplicate articles, and books. This was undertaken so that the research carried out would abide by the research objective, which was to discuss Sharia insurance, and avoid article databases that were not in accordance with the objective and main topics of the research being conducted. Based on the initial search carried out, 1203 data references were obtained, and after the screening, 774 data references were obtained, which later became a database at the literature review stage. The stages and search process in the systematic review (PRISMA) for the selection of the literature are given in Figure 1.

In this study, the discussion about the development of Islamic insurance was general. Therefore, in the process of searching the article database, we used the keywords “sharia insurance” and “Takaful”. The use of these two keywords was adjusted to the terms used in each country. While some countries use the term “sharia insurance”, such as Indonesia, other countries use the term “Takaful”, such as Malaysia. Both terms have the same meaning; namely, insurance applying the principles of Islamic law. Based on the search results with these general topics, the data were further classified based on topics that are widely discussed. Based on the topics that are widely discussed, it can be deduced that discussion of Islamic insurance topics is still lacking and they need to be studied more specifically and in-depth. Based on the database of 774 articles, the data were classified in terms of the number of studies published each year, which countries have researched the topic of Islamic insurance, the models of Islamic insurance systems that have been developed, and what topics are widely discussed.

2.2. Methods and Systematic Analysis of Data

The systematic literature review method was used in this research design. This is because the identification and interpretation of article data can provide an overview of future research. The stages of identification and interpretation were carried out by reading through a database of articles that discuss Sharia insurance in general one by one, this being the main topic of this research. At this stage of the evaluation process, a systematic literature review was carried out to avoid inappropriate topics, and there were no duplicate papers in the article database. Furthermore, in the final stage, which was carried out based on the article database collected, a re-evaluation was carried out as a way of analyzing the article database. The article database analysis was carried out in two stages, as follows:

(a)

Visualization of the article database using VOSviewer software. This visualization was carried out to map the most discussed word quotations in the database, the relationships and interrelationships between different word quotations in the database, and the development of research topics based on word quotations in the database;

(b)

The database used, based on the numbers of articles from 2010 to 2022, was mapped annually and presents the operational system models for Sharia insurance.

3. Results

3.1. Bibliometric Visualization

In this part of the study, VOSviewer software was used to describe the results of the obtained article database visualization. Bibliometric visualization was carried out to determine the relationships and linkages between the article data used. In addition, VOSviewer was used for bibliometric analysis, looking for topics that still have opportunities for research, references, and the topics that have been researched the most in the field of Sharia insurance. VOSviewer also offers text mining functionality that can be used to build and visualize co-occurrence networks for key terms drawn from a body of scientific literature. VOSviewer can present and represent specific information about graphical bibliometric maps. Simply put, VOSviewer can be used to display bibliometric maps in a way that makes it easy to interpret keyword relationships. The visualization in Figure 2 shows the network between the visualized quote words. If the paths or networks linking the two clusters in the bibliometric analysis have a close distance, this indicates that there is a relationship between one quote word and another quote word that is quite strong; in contrast, if the relationship between one quote word and another has a long distance from the cluster (circle), then it shows a weak relationship between the observed quotation words.

The bibliometric database visualization given in Figure 2 is presented in two parts. This presentation was used because there are two terms used in published articles; namely, Sharia insurance and Takaful. Where the two terms have the same meaning, but the mention used is different in each country. For example, Indonesia is generally more familiar with the term “Sharia insurance” than “Takaful”, while in Malaysia, it is generally known as “Takaful” rather than “Sharia insurance”. Based on these conditions, a bibliometric visualization of the two terms is presented. Figure 2a shows a clustered network for the keyword “takaful” with other keywords from the article database. In Figure 2a, it can be seen that the quote for the word “takaful” is based on the cluster size, which is very large when compared to other cluster sizes. This shows that, for the quote, the word “takaful” was the most widely discussed in the literature database used. In addition, it can be seen that the second largest cluster size was for Malaysia. This shows that the term “takaful” is more widely used in Malaysia, according to the database of literature articles used. Figure 2b shows a clustered network for the keyword “sharia insurance” with other keywords from the article database. In Figure 2b, it can be seen that the word “sharia insurance” has a cluster size that is very large when compared to other cluster sizes. This shows that, for quotations, the term “sharia insurance” was the most widely discussed in the literature database used. In addition, it can be seen that the second largest cluster size was for Indonesia. This shows that the term “Sharia insurance” is more widely used in Indonesia, according to the database of literature articles used.

3.2. Research Topic Focus

Increased research in the field of Sharia insurance (Takaful) among researchers can of course increase knowledge in the field of Sharia insurance. In addition, it can increase public willingness to switch from conventional insurance and investors’ interest in saving their capital in Sharia insurance. Research related to Sharia insurance has undergone a significant increase. This can be seen in Figure 3: the publication of articles in international journals has increased every year. Thus, research related to Sharia insurance is very interesting to undertake and aspects of Sharia insurance will certainly undergo development as well. This development can certainly improve the quality and marketing of Sharia insurance, and in the future it will be able to compete with conventional insurance. In addition, the developments that occur can result in the literature and scientific fields related to Sharia insurance also developing. The number of article publications from the database each year (2010–2022) is given in Figure 3.

As shown in Figure 3, the article database was composed of articles that discuss Sharia insurance published in both Google Scholar and Scopus. The database used included published articles in the form of doctoral theses, proceedings, and journals. In addition, in general, the articles used discuss all aspects of Sharia insurance. Based on Figure 3, the development of article publications discussing Sharia insurance has been quite significant each year. The highest number of published articles occurred in 2022, with a total of 106 articles. As for the lowest number of articles, there were 14 articles published in 2011. The increase in article publications that has occurred each year has certainly been influenced by the curiosity of researchers in relation to developing and reviewing policies pertaining to Sharia insurance. Based on the bar chart in Figure 3, research related to Sharia insurance has increased each year; of course, there is the potential for significant development in the field of Sharia insurance. It is possible that the development of Sharia insurance in the future will be very rapid, and Sharia insurance will be able to compete with conventional insurance. This will be achieved if researchers continue to conduct research on and study the field of Sharia insurance.

Based on the database collected, several topics related to Sharia insurance that have been widely discussed are given in

Table 1. Most discussed topics related to Sharia insurance.

Topic	Description	References
Analysis of the factors affecting public interest in Sharia insurance	The research that has been undertaken, in general, discusses which variable factors influence people’s interest in buying Sharia insurance products Some of the variables that are of concern are related to the Sharia insurance products offered and the public’s understanding of Sharia insurance	[33,34,35,36,37]
Islamic law studies related to Sharia insurance	Based on the database of articles, there has been much discussion about the extent to which Sharia insurance has implemented Islamic law	[38,39,40,41,42]
Sharia insurance vs. conventional insurance	Many studies have been conducted comparing Sharia insurance with conventional insurance Comparisons made discuss the advantages and disadvantages of the two types of insurance	[20,29,33,43,44]
Sharia insurance risk management	Research that discusses Sharia insurance risk management has focused on the efficiency of company costs and the operational system of Sharia insurance	[45,46,47,48,49]

.

The four research topics shown in Table 1 are the most widely discussed because they are the main issues that are quite interesting for researchers to discuss. For example, analyses of the factors affecting public interest in Sharia insurance have been carried out because there is still a lack of people buying Sharia insurance products. Based on the results of the research conducted, the lack of public understanding of Sharia insurance is among these factors. It is currently considered that the Sharia insurance system is the same as conventional insurance. In addition, from a security point of view, the community is still unsure about the level of security and the ability to make claims payments if there is a risk of loss. Furthermore, topics that are often discussed relate to the study of Islamic law on Sharia insurance, as shown by the investigation of the research literature focused on determining whether Sharia insurance has applied Islamic law. The investigation was conducted as a whole on the operational system of Sharia insurance, starting from the determination of premiums, contracts, payment of claims, payment of office operations, and profit-sharing systems. The next topic that is widely discussed based on Table 1 is Sharia insurance vs. conventional insurance. The research conducted has discussed the comparison of systems and concepts applied in Islamic and conventional insurance. In addition, the research that has been undertaken has also discussed the development of Islamic and conventional insurance. The developments seen are the extent to which the products are offered and the public’s response to buying Sharia insurance products compared to conventional insurance. Furthermore, for the topic of Sharia insurance risk management, the database of literature studies shows that Sharia insurance has been discussed as an alternative way of dealing with the risks faced by society. In addition, the discussions related to the concept of risk management in the operating system need to be considered in overcoming company losses. This is because the concept of managing Sharia insurance is still new and it needs to be considered thoroughly when running a company.

Research discussing Sharia insurance (Takaful) is mostly discussed by researchers from Asian countries. This is due to the large number of people on the Asian continent who are Muslim compared to other continents [50,51]. Apart from that, the Asian continent also has numerous countries with Muslim majorities. This has resulted in quite a lot of research on the Sharia insurance system being developed on the Asian continent. Researchers from the European continent have also conducted research looking at developments regarding Sharia insurance and the products offered in Sharia insurance, especially in the UK. The UK aspires to become a leading sector for the development of Sharia insurance in Europe and other countries. Figure 4 shows countries that have conducted large amounts of research related to Sharia insurance in general based on the article database.

Based on Figure 4, it can be seen that most of the research on Sharia insurance has been conducted in Malaysia, followed by Indonesia, Turkey, and Nigeria. Not all countries were included in the pie chart in Figure 4 because the published article database was still small. In the pie chart, countries were included that had more than five publications in the database. Thus, countries that had discussed Sharia insurance but had fewer than five publications in the database were not included in the pie chart. Based on Figure 4, it can be seen that Sharia insurance is widely discussed in countries where the population is predominantly Muslim. This is because Sharia insurance has been developed to meet the needs of Muslims in managing the risks they experience and, of course, it applies the principles of Islamic law. Thus far, conventional insurance has not applied Islamic law, so for Muslims, it is unlawful (not permissible in Islam) to buy conventional insurance products.

Overall, based on the countries in Figure 4, there is already a Sharia insurance industry. The application of Islamic insurance still involves Islamic banks in each country. For example, in Pakistan, Sharia-based life insurance is a product that is of great interest and involves Islamic banks in its management [52]. Meanwhile, in Indonesia and Malaysia, Sharia insurance does not only include life insurance products but also other products. For example, Islamic agricultural insurance has been offered to farmers [53,54]. This is also true in other Islamic countries that have implemented Sharia insurance, such as Brunei Darussalam, Qatar, Bahrain, Kuwait, Oman, and other Islamic countries.

3.3. Sharia Insurance Operational Model

Based on the results of the analysis of the article database, several models are used for the Sharia insurance operating system, including the Mudharabah model, modified Mudharabah model, Wakalah model, hybrid model, and Waqf model.

3.3.1. Mudharabah Model

The (pure) Mudharabah model is structured based on the principle of profit sharing, which involves partnerships between Sharia operators/companies and customer groups as providers of capital for Takaful funds. Small portion of the funds are invested in Sharia instruments, the returns from which are shared between the two parties at a ratio that is approved by the Sharia board. Part of the investment profit x is used to compensate the Takaful operator for managing the business, while the rest of the profit $\left(1-x\right)$ is shared among the customers. In the Mudharabah model, the overall underwriting surplus, which is the initial contribution minus operating expenses, is shared back among the customers. The underwriting surplus represents the surplus from the total contributions of the participants to the Tabarru fund plus the increase in reinsurance assets after deducting compensation/claim payments, reinsurance contributions, and increases in technical reserves in a certain period. The following is the compensation formula for Takaful operators (companies):

$$O_{mud}=xG$$

(1)

where $G$ is the investment profit resulting from a small investment of the total premium, and $x$ is the Takaful operator’s compensation from a portion of the investment profit. The compensation formula for customers is given as follows [55]:

$$P_{mud}=\left(1-x\right)G+C-E$$

(2)

where $\left(1-x\right)$ is the remaining profit shared with customers, $G$ is the investment profit resulting from a small investment of the total premium, $C$ is the amount of customer premiums collected, and $E$ is the operational costs. Profits and losses are actually borne by the customer as the capital provider, and when the budget is insufficient to pay claims, Takaful operators can lend funds without interest and be paid from future profits. Based on Equations (1) and (2), an overview of the Mudharabah model in the Sharia insurance system is given in Figure 5.

Based on Figure 5, contributions from the funds of all Sharia insurance customers in the Mudharabah model are directly deposited in the Takaful fund account (Takaful fund). They will then be invested and the proceeds will be shared between the customer and the company (Takaful operator). Takaful funds are also used for expenses, such as underwriting costs, Retakaful, and reserves, and to pay customer claims and the underwriting surplus (if any). In the research by [13], contribution funds obtained from Islamic insurance customers were divided into two accounts: participants’ accounts as savings, the funds of which are later returned to customers at the end of the insurance membership period; and participants’ special accounts as Tabarru. Furthermore, the funds from each of these two accounts are invested. Then, the funds from the participant’s account will be shared with the results of the investment for customers and companies in the proportion agreed upon at the beginning, while those from the participant’s special account are used to pay claims and for underwriting costs and reserves. Finally, if there is a surplus, the underwriting surplus will be shared among customers only. This is in line with research [56] on the process of sharing the profits from investment returns from Takaful funds in the Mudharabah model; these profits are distributed to customers and companies in the proportions agreed upon at the outset. Profits obtained by customers and companies come from investment returns based on profit-sharing ratios. Customer benefits can be obtained when the agreement ends or the customer resigns or dies. For the Tabarru account, the company also invests with the management of the Wakalah bil Ujrah contract, where the amount of the Tabarru contribution is determined based on age, gender, and the amount of the sum insured. The management of Wakalah bil Ujrah contracts includes administration, fund management, management of PRUlink Sharia investment funds, payment of underwriting claims, risk portfolio management, marketing, and execution of transactions. If there is a profit-sharing surplus formed from customer funds (Mudharabah account), then the customer will get a share if they never make a claim [57].

3.3.2. Modified Mudharabah Model

The modified Mudharabah model describes the relationship between Takaful operators (companies), Takaful funds (customers’ premium pools), and customers, similarly to the pure Mudharabah model. The difference from the pure Mudharabah model is the $x ϵ \left(0.1\right)$ return on investment. The modified Mudharabah model allows the insurance operator (company) to take a portion $y ϵ \left(0.1\right)$ from the underwriting surplus as an incentive to manage the Takaful business, especially for activity guarantees. By offering a more reasonable income for operators, this modified Mudharabah model enables operators to survive competition from conventional insurance. This modification model also aims to maximize actuarial calculations so that the amount of premiums collected from customers is more optimal without resulting in overpricing or underpricing. However, this modified model is still controversial because it deviates slightly from the pure Mudharabah model. The compensation formula for Takaful operators in the modified Mudharabah model is given as follows:

$$O_{mdf}=xG+y\left(C-E\right)$$

(3)

where $G$ is the investment profit resulting from a small investment of the total premium, $x$ is the Takaful operator’s compensation from a portion of the investment profit, $y$ is the incentive for managing the Takaful business taken from the underwriting surplus, $C$ is the amount of customer premiums collected, and $E$ is the operational cost. Mathematically, the formula for participant gain in the modified Mudharabah model is given as follows [55]:

$$P_{mdf}=\left(1-x\right)G+\left(1-y\right)\left(C-E\right)$$

(4)

Based on Equations (3) and (4), an overview of the modified Mudharabah model in the Sharia insurance system is given in Figure 6.

The Mudharabah modification scheme in Figure 6 shows that contributions from all insurance customers are directly deposited in the Takaful fund account (Takaful fund), which is then invested and the proceeds are shared between the customer and the company (Takaful operator). Takaful funds are also used for expenses, such as underwriting costs, Retakaful, and reserves, and to pay customer claims. If there is a surplus at the end—namely, an underwriting surplus—it will be distributed to customers and managers (companies) as additional compensation for the company. According to [12], if a customer contributes (premium), the funds will be divided into two accounts; namely, participant funds and Tabarru funds. Participant funds are funds owned by individual customers and these funds are invested by the manager (company). Tabarru funds are owned collectively by all customers and used to pay claims, and Tabarru funds are also invested by the manager (company). Profits from investment returns from participant fund accounts are distributed to customers and companies at a certain percentage that has been agreed upon at the beginning. Meanwhile, the profits from the investment from the Tabarru account and Tabarru funds are used for payment of claims. If there are advantages—namely, the underwriting surplus—they are also distributed to all customers and companies [56]. This is what distinguishes the Mudharabah model from the modified Mudharabah model; namely, the process of dividing the underwriting surplus. While, in the Mudharabah modification model, the distribution process includes customers and companies, in the Mudharabah model, the distribution only includes customers.

3.3.3. Wakalah Model

In the Wakalah model, the arrangement uses the agent principle, where the Takaful operator acts as an agent for a group of customer participants and the operator is tasked with managing a collection of Takaful funds in return for fixed payments. In other words, Takaful operators do not benefit from the underwriting surplus but receive fixed compensation to cover management costs and operating income. Theoretically, in the Wakalah model, Takaful operators still bear the risk when operators are required to lend funds when there is a deficit. In the Wakalah model, customers must provide additional payments for compensation or Takaful operator fees. So, the total premium (contribution) is $C+C^{*},$ where $C^{*}$ is the operator fee and $C$ is the funds transferred to the Takaful fund. The equations for the compensation received by Takaful operators and customers, respectively, are as follows [55]:

$$O_{wak}=C\ast$$

(5)

$$P_{wak}=S=C+G-E$$

(6)

Based on Equations (5) and (6), an overview of Wakalah models in the Sharia insurance system is given in Figure 7.

The Wakalah model scheme in Figure 7 shows that the contribution (premium) paid by the customer is partly entered into the operator’s fee account (the amount is determined as fixed compensation for the manager) and partly goes into the Takaful fund account, from where it is then invested by the manager (company). Profits from investment are distributed only to participants. The Takaful fund account is used to pay customer claims, underwriting costs, Retakaful, and reserves. If, at the end, there is a surplus, the underwriting surplus will also be distributed to customers. In the study by [58], contribution funds (premiums) paid by customers were divided into three accounts; namely, Wakalah fund accounts (administrative fees), investment fund accounts (participant funds), and Tabarru fund accounts. In contrast, in research [59], contribution funds from all customers are collected in the total premium account, which is then divided into two accounts: Wakalah fee accounts and Tabarru funds. The Wakalah fee account belongs to the manager as compensation, while the Tabarru fund account is further divided into two accounts: an investment fund account and a risk management fund account. The sum of the investment fund accounts and the return on investment represents the total investment funds that will be returned to customers. Risk management funds are used to pay claims from customers and, if reduced by the total operational costs, they are called the total (net) risk management funds. If there is a surplus, it will also be distributed to customers.

3.3.4. Hybrid Models

The hybrid model is a combination of the Mudharabah and Wakalah models. In the hybrid model, the Takaful operator (company) receives a fixed fee (such as compensation) in the form of $C^{*}$ from the participants, as well as $x ϵ \left(0.1\right)$ from the return on investment. This hybrid model is applied to maximize the investment performance of Takaful operators by providing several incentives from investment returns. However, in the hybrid model, Takaful operators do not benefit from the underwriting surplus. This hybrid model is increasingly being used because it minimizes conflicts related to the acquisition of part of the underwriting surplus by Takaful operators. However, it still allows Takaful operators to perform equivalently to conventional operators. The mathematical equation for compensation for Takaful operators in the hybrid model is as follows [55]:

$$O_{hyb}=xG+C^{*}$$

(7)

The gain equation for participants is:

$$P_{hyb}=\left(1-x\right)G+C-E$$

(8)

Just like in other models, Takaful operators are expected to be able to lend their funds without interest if there is a deficit. Based on Equations (7) and (8), an overview of the hybrid model in the Sharia insurance system is given in Figure 8.

The hybrid scheme in Figure 8 shows that the contribution (premium) paid by the customer is partly entered into the operator’s fee account (the amount is determined as fixed compensation for the manager) and partly goes into the Takaful fund account, from where it is then invested by the manager (company). Profits from an investment are distributed only to customers and managers (companies). The Takaful fund account is used to pay customer claims, underwriting costs, Retakaful, and reserves. If, in the end, there is a surplus, the underwriting surplus will also be distributed to customers. Research [60] describes how part of the contribution funds (premiums) paid by participants in the hybrid model system are taken to compensate the manager (company)—namely, the Wakalah fee—and then the other part are collected in the fund account, which will be managed and invested. Profits from the investment are distributed to customers and managers (companies). The total funds, which are the sum of the fund accounts and investment returns for customers, are used to pay customer claims.

3.3.5. Waqf Model

In this model, the Takaful operator or Takaful shareholder establishes a separate legal entity called a Waqf fund and injects initial capital contributions into the Waqf fund to extend financial assistance to a group of participating customers. This Waqf fund is a donation that cannot be withdrawn and is intended for charitable purposes without any intention of returning the funds. Furthermore, customer participants must deposit their contributions (premiums) to join Waqf funds, the function of which is similar to that of Takaful funds (as a separate entity belonging neither to Takaful operators nor customers). Therefore, investment profits are not distributed to customers but are shared between Waqf funds and Takaful operators as fund managers. Operators also receive investment benefits and a portion of the management fees (operational costs) from customers. The underwriting surplus belongs to the participants. The initial capital of the shareholders remains in the Takaful fund. The mathematical equations for compensation for Takaful operators and participants, respectively, are as follows [55]:

$$O_{wqf}=xG+C$$

(9)

$$P_{wqf}=C-E$$

(10)

Based on Equations (9) and (10), an overview of Waqf models in the Sharia insurance system is given in Figure 9.

The Waqf scheme in Figure 9 shows that the contribution (premium) paid by the customer is partly entered into the operator’s fee account (the amount is determined as fixed compensation for the manager) and partly goes into the Takaful fund account, from where it is then invested by the manager (company). The profit from the investment from the Takaful fund is not distributed to the customer (because at the beginning the customer intended it to be Waqf) but is partially distributed to the manager (company), and the other part is returned to the Takaful fund. This Takaful fund account is used to pay customer claims, underwriting costs, Retakaful, and reserves. If, at the end of the period, there is a surplus, the underwriting surplus will also be distributed to customers [61].

The five Sharia business models described above are applied to general Sharia insurance. What distinguishes a family Takaful contract from a general contract is the combination of savings and investment funds, in which the participant deposits a contribution (additional funds) for the operator to invest in order to obtain greater profits in the future. The Mudharabah, modified Mudharabah, Wakalah, and hybrid models are practically the same because the investment profits and underwriting surplus are distributed from the total funds. Furthermore, operator fees are not deducted from participant contributions but treated as additional payments so that the number of contributions received by the Takaful fund account remains the same for the four models. Thus, in the remainder of the article, we refer to the first four business models as non-Waqf models (they include no initial injection of funds as in the Waqf model). The Mudharabah model was first introduced in Malaysia in 1984 and is widely practiced in the Asia-Pacific region. However, the Mudharabah model is less accepted globally because, in the short term, it has low profitability for Takaful operators, while the profitability from the modified model is greater. The Wakalah model is characterized by transparent and fixed operator compensation, thus influencing operators to optimize the implementation of their duties. However, the Wakalah model has limitations because the only source of income for operators is Wakalah fees. However, setting Wakalah fees too high causes participants (customers) to be disinterested in this model. The hybrid model overcomes the limitations of the two previous models; namely, the Mudharabah and Wakalah models. Several studies have shown that the Waqf model is the best business model for Sharia insurance. However, it raises doubts among some experts because of the merging of Waqf and creates problems in governance because there are legal and tax aspects affecting the initial injection of shareholder capital. Although each business model implies different rights and responsibilities for customers and Takaful operators, all the models pursue the goal of sharing individual risks jointly.

4. Discussion

4.1. Development of Sharia Insurance

Globally, the concept of Sharia insurance was first introduced in the Arab region. This is, of course, a natural thing because since the beginning Islam has developed more in the Arab area compared to other countries. Based on Figure 4, the development of Sharia insurance research in general has mostly occurred in countries with a Muslim majority. This is because Sharia insurance can provide an alternative way for Muslim communities to avoid usury and, especially, major sins [11,62]. The development of the Sharia insurance industry around the world is quite significant and has received a positive response in the Muslim community. This can be seen in Figure 3, which shows that research discussing Sharia insurance has developed each year. This is in line with the results of research conducted by [22], who stated that research related to Sharia insurance has developed each year and will certainly become an interesting research topic in the future. Research related to Sharia insurance has certainly attracted interest from researchers in various parts of the world; mainly, of course, countries with a Muslim majority. Addressing the potential risks affecting society by offering the concept of Islamic law is of particular concern to researchers in Muslim-majority countries. The continuing development of research on the Sharia insurance industry can, of course, make it an alternative for Muslim people, leading them to buy Sharia insurance products when managing the risks of loss they face. Sustainable loss-risk funding, in accordance with the halal aspect, will be of particular interest to Muslim countries. According to [21], Sharia insurance can be interpreted as a business practice that has the aim of allowing participants to help and protect each other the operational implementation and legal principles of which are in accordance with Islamic law. In contrast, conventional insurance does not implement legal principles in accordance with Islamic law. Thus, for the Muslim community, rather than buying conventional insurance products, buying Sharia insurance can help participants avoid sin.

The existence of conventional insurance, of course, also supports the movement of the Sharia insurance industry in developing its products in all sectors. It is undeniable that conventional insurance is much more developed than Sharia insurance. The research conducted by [62,63,64] shows that, for the types of products offered by Sharia insurance, there are quite significant differences compared to conventional insurance. There are many conventional insurance products offered, both in terms of individual, group, and state funding, while Sharia insurance is still funded on an individual scale. This can be seen from the Sharia insurance products, where risks are still handled on a small scale and individually. Research discussing Sharia insurance products can be grouped into two groups: life insurance and general insurance. Just like conventional insurance, Sharia insurance products are also quite diverse. Based on the database of articles that served as the literature material, Sharia insurance products include Sharia life insurance [58,65,66], Sharia education insurance [67], Sharia health insurance [68,69], Hajj and Umrah insurance [70,71,72], agricultural Sharia insurance [53,73,74], and Sharia property insurance [75]. Sharia life insurance products provide benefits in the form of a sum assured to heirs if the participant dies. Islamic education insurance products provide education funds to grant recipients, in this case children, in accordance with an agreement. Usually, the funds given are adjusted to the level of education of the child. Note that this insurance benefit is still provided even if the insurance participant dies. Sharia health insurance products provide benefits in the form of compensation or reimbursement of funds when insurance participants are sick or have an accident that requires medical treatment [76,77]. Hajj and Umrah insurance products provide financial protection for Hajj and Umrah participants against disasters that may occur during their worship in the holy land [78,79,80]. Sharia-based agricultural insurance is a way for Muslim farming communities to guarantee agricultural management by managing the level of risk that can occur in relation to crop failure [81,82,83]. Sharia-based agricultural insurance is generally widely developed in Indonesia and Malaysia due to the floods that affect the plantations of farmers. The Sharia agricultural insurance pattern guarantees against the risks that can arise in agriculture within the Sharia framework so as to provide peace of mind to farmers who want their agricultural fields to have good and correct protection. Sharia property insurance is one of the products provided for individuals. This insurance product does not only cover buildings but also includes the contents of the buildings, machinery, and supplies inside residential buildings.

4.2. Differences between the Sharia Insurance Operational Models

Based on the operating concept of Sharia insurance, it is known that several models are used, including the Mudharabah model, modified Mudharabah model, Wakalah model, hybrid model, and Waqf model. Of course, the five models have similarities and differences in their application of the concept of Sharia insurance. The differences and similarities of the five models are presented in

Table 2. Differences and similarities of the five Sharia insurance operational models.

	Mudharabah	Modified Mudharabah	Wakalah	Hybrid	Waqf
Contribution	$\surd$	$\surd$	$\surd$	$\surd$	$\surd$
Operator’s fee	$\times$	$\times$	$\surd$	$\surd$	$\surd$
Underwriting cost	$\surd$	$\surd$	$\surd$	$\surd$	$\surd$
Retakaful	$\surd$	$\surd$	$\surd$	$\surd$	$\surd$
Reserve	$\surd$	$\surd$	$\surd$	$\surd$	$\surd$
Claim payment	$\surd$	$\surd$	$\surd$	$\surd$	$\surd$
Underwriting surplus (for participants)	$\surd$	$\surd$	$\surd$	$\surd$	$\surd$
Underwriting surplus (for companies)	$\times$	$\surd$	$\times$	$\times$	$\times$
Investment returns: Takaful fund (for participants)	$\surd$	$\surd$	$\surd$	$\surd$	$\times$
Investment returns: Takaful fund (for companies)	$\surd$	$\surd$	$\times$	$\surd$	$\surd$
Interest-free loan (if deficit)	$\surd$	$\surd$	$\surd$	$\surd$	$\surd$
Waqf fund (initial)	$\times$	$\times$	$\times$	$\times$	$\surd$
Initial capital	$\surd$	$\surd$	$\surd$	$\surd$	$\surd$

.

Based on Table 2, the most visible similarities between the five concepts of the Sharia insurance models are their implementation of contributions, underwriting costs, Retakaful, reserves, claim payments, underwriting surplus (for participants), interest-free loans (if deficit), and initial capital. The Waqf model provides Waqf funds, while the other four models do not provide Waqf funds as part of their Sharia insurance concepts. Waqf funds can be interpreted as cash or securities that have high value given by individuals, groups, institutions, or legal entities for the purposes of Waqf and then channeled according to Islamic law. In addition, Waqf Sharia insurance makes it easier for the public to donate, providing good benefits from insurance products and investments in Sharia insurance. The concept of Waqf is used in Sharia insurance products in the form of Sharia insurance policies in which there are insurance benefits and investment values that can be donated by policyholders with the approval of the heirs. The use of insurance benefits is intended to transfer or mitigate the risks for participants or parties appointed to receive the Waqf. This Sharia insurance Waqf is included as one of the types of Waqf with movable assets; namely, as cash. In addition, the Mudharabah modification model provides an underwriting surplus (for companies), while the other four models do not provide an underwriting surplus. In Sharia insurance, the underwriting surplus is the excess from the total contributions of the policyholders to the Tabarru fund after adding claim recoveries from reinsurance and deducting compensation/claim payments, reinsurance contributions, and technical allowances in a certain period.

In its development, the Sharia insurance system differs from conventional insurance systems. The differences between the Sharia insurance system and conventional insurance can be seen in

Table 3. Differences between the Sharia insurance system and conventional insurance.

Draft	Sharia Insurance	Conventional Insurance
Oversight of the Sharia council Contract	There is a Sharia supervisory board	There is no oversight
Contract	Mutual help (Takaful)	Buy and sell
Investment fund	Profit-sharing system	Based on interest
Fund ownership	Belongs to the participant	Company-owned
Payment of claims	From the Tabarru accounts of all participants	From the company fund account
Profit	Shared between the company and participants according to the principle of profit sharing	Company-owned

.

Based on Table 3, the Sharia insurance supervision system is maintained by the government, and the Sharia supervisory board is formed by Muslim groups in each country. As in conventional insurance, supervision is only carried out by the local government. In Sharia insurance, the supervision carried out by the government is more focused on the financial system of Sharia insurance, while the Sharia supervisory board is more focused on the operational system of Sharia insurance. Supervision is carried out by reviewing whether the Sharia insurance industry in its operational system has implemented the principles of Islamic law, as well as overseeing the products marketed and investment funds. Contracts in the Sharia insurance system apply the concept of mutual help, which is safe, in contrast to the concept of conventional insurance, which applies the concept of buying and selling. Investment funds in Sharia insurance are based on Sharia with a profit-sharing system, which is conventional insurance in that it uses the concept of investment based on interest from the amount of funds invested. In Sharia insurance, funds collected from customers through premiums paid belong to the participants and the company is only a trustee managing them. In conventional insurance, funds collected from customers (premiums) belong to the company so that the company is free to determine its investments. The process of paying claims in Sharia insurance takes place through the Tabarru accounts of all participants who have been willing to help from the start, whereas in conventional insurance, it is undertaken through the company’s fund account. Profits in Sharia insurance are earned by sharing them between companies and participants using the principles of Islamic law. In conventional insurance, all profits earned belong to the insurance company.

In general, what distinguishes Islamic insurance from other (conventional) insurance systems is the management concept. While Sharia protection employs the concept of sharing risk, conventional insurance uses the concept of transfer risk [84,85,86,87]. Sharing risk is the management used in Sharia insurance in which the participants have the same goal; namely, mutual help. This is achieved through investment in assets or Tabarru, which provide a return pattern for dealing with certain risks using Sharia-compliant contracts, the management of which is represented by Sharia insurance companies in return for an Ujrah [88,89,90,91,92,93]. The concept of transfer risk involves protection in the form of transferring the economic risk for someone who is insured to an insurance company as the risk bearer [94,95,96,97,98]. In other words, participants who buy or join as conventional insurance participants will be borne by the insurance company’s economic risk. In addition, Sharia insurance does not apply interest rates in determining premiums or investment returns [21,99].

5. Conclusions

Sharia insurance is a development of the conventional insurance system carried out by applying the principles of Islamic law. A review that discusses the sustainability of Islamic insurance in tackling economic risk can encourage the interest of researchers in developing it. This study analyzes the development of Islamic insurance in general as carried out by researchers. Based on the research results obtained, Islamic insurance publications in general continue to demonstrate development, with a significant increase in the number of publications each year. This suggests that research in the field of Islamic insurance has received a positive response among researchers. However, based on the research that has been conducted and published, the majority comes from academics from Muslim countries and has not received a positive response from academics from non-Muslim countries. This situation is because the Sharia insurance system is still unable to compete with conventional insurance. In non-Muslim countries, people do not have an obligation to avoid usury or interest rates in the economic system, as enforced and prohibited for Muslim communities. While not demanding the possibility, the increasing number of academics conducting research in the field of Islamic insurance may attract the interest of academics from non-Muslim countries, leading them to conduct research in this field so that Sharia insurance can compete with conventional insurance. In addition, the increase in the research conducted could increase non-Muslims’ understanding of Islamic insurance. This Sharia insurance is not intended for the Muslim community only but can be applied in countries where the majority of the population is non-Muslim; for example, in the Americas or Europe.

Based on the results of the analysis, there are five operational system models used in the Islamic insurance industry. The five models are the Mudharabah, modified Mudharabah, Wakalah, hybrid, and Waqf models. Of course, the five models have advantages and disadvantages in their application. Based on the results of the analysis, it can be concluded that the development of Islamic insurance is still far behind that of conventional insurance. This can be seen from the products, theories, and models that have been adopted in Islamic insurance, which are still underdeveloped when compared to those of conventional insurance. Research discussing Sharia insurance can, of course, continue to advance by improving the products offered and the theories and models related to Sharia insurance. These developments can be achieved by imitating and modifying existing concepts from conventional insurance systems, adjusting the principles of Islamic law and Sharia insurance systems. Of course, this is a topic that can be developed by researchers in the future. Systematic literature reviews can be carried out with the aim of mapping the studies that have been undertaken and providing an overview of topics and findings that can be developed in the future. Of course, the findings generated in the future can develop actuarial science specifically in the field of Sharia insurance. The involvement of institutions and universities in Sharia insurance research can increase academic output. Increasing academic products related to research findings also needs to be achieved through the publication of scientific work on the international stage. Thus, information on the development of actuarial science research, especially on Sharia insurance, can remain available on an ongoing basis and add to the knowledge of other researchers. In addition, the availability of information also contributes to innovation, creativity, and countermeasures against the risk of sustainable economic losses.

The limitations affecting the research conducted, as the topic of the literature review that was carried out (Sharia insurance) was still general in nature, included the fact that it did not specifically discuss the topic related to Sharia insurance that have been studied previously. In addition, the data used focused on articles written in English, so articles written in languages other than English were not included in the article database that became the material for the literature review. Furthermore, the article data that we used as a database comprised articles indexed by Google Scholar and Scopus. Based on the limitations of the research that we conducted, further researchers can develop this work by adding topics specifically related to Sharia insurance, as well as by addressing the database of articles used in the literature review, which can be improved further.