Explanation of Cooperative Insurance and Commercial Insurance

Question:
The presenter says: Welcome. We have heard that you have a fatwa regarding insurance, or specifically regarding the establishment of cooperative insurance that is advertised in the newspapers. We ask for clarification and explanation of the matter. May Allah the Exalted preserve you.

Answer:
This is a fatwa from the Council, the Council of Senior Scholars, of which I am a member. It is a fatwa on the permissibility of cooperative insurance and the prohibition of commercial insurance. Many people have exploited the Council’s statement on cooperative insurance and labeled their insurance as cooperative falsely; it is not cooperative. They took advantage of the Scholars’ Council’s word on cooperative insurance, claiming that they have made it lawful, and used it for directional insurance. They mixed the two to deceive people. The cooperative type that the scholars approved is when a group gathers, for example in a town or a tribe, and they pool money to help their poor, and those who suffer from debt or loss. It is charity from them and assistance to them; they do not seek profit or anything else from it. They gather, and this one contributes a hundred, this one two hundred, this one a thousand, and this one two thousand, or they agree on a hundred every month, or a certain amount every year. It is deposited in a specific place, and from it they support their poor, their needy, their debtors, and those who are struck by an accident. If they place it under the control of a person who causes it to be used for trade and profits from it, the profit follows the principal for the needy, the poor, and the destitute of their tribe, or of their town, or for one who is heavily in debt and unable to pay it off quickly, or one who is struck by an accident and reads from it. He has no ownership in it, nor profit for them, nor return. This is the cooperation: they donate charity and assistance to their brothers who are struck by need, death, or something similar to these needs. Then they support people from this pooled money that they placed with so-and-so, or so-and-so spends it, trading in it, so that its growth follows these assistance funds. As for commercial insurance, it is the money they set aside for trade. If one deposits his car with them, he pays so much and so much. If it is struck by an accident, he pays so much and so much, a certain amount every month, and a certain amount every year. They handle what is required if the car is struck by an accident, or if it is on a ship, or on a steamer. This is what is called commercial insurance. This is not permissible. It contains gharar (excessive uncertainty) and gambling. This is what many people do and call cooperative, but it is a lie; it is not cooperative. This is the maysir (gambling) that Allah has forbidden. One might pay twenty riyals, or a hundred riyals, or a thousand riyals, or two thousand riyals, and then the car is destroyed and they pay him many thousands, or the steamer is destroyed and they pay him a large sum of money, while he only paid a thousand or two thousand. This is the gambling that Allah has forbidden, which is maysir. Yes.