PROFIT IN INSURANCE
Ardhie Praditya Syam
In a simple definition, insurance is a
risk transfer mechanism from insured
to insurer. However regardless all
opinions that agree or disagree, allow
or forbid the legal practice of
insurance, there is one more thing we
need to know to understand the real
problem and to provide more clarity
to the matter.
Insurance practice in Indonesia from the very
beginning until today has been taking its original
drive from England. In london toward the end of
17th century, there was this group consisted of ship
owners, ship’s captains, and merchants who agreed
to establish a financial institution renowned as
Lloyd’s of London to cover the risk of uncertain
perils on the sea belonged to its members. The
perils were for example fire, storm, pirate, sinking,
or war. To run the Lloyd’s, they employed people
capable and willing to underwrite the risks.
The basis of agreement was to protect everybody’s
interest which happened in the cargos or ships. To
proceed the insurance was quite simple, the Lloyd’s
would take payment (usually called premium) from
each member and the amount was calculated
according to the underwriting of insured risks.
Once a member paid the premium, then the period
of protection was effectively running. And if there
was any peril occurred to the insured object,
Lloyd’s would have to cover the damage or loss as
much as the peril had caused.
If we compare the system run by Lloyd’s above to
current insurance practice, there are several
interesting points can be drawn to make a clear
point of view.
The first point in the consideration is the purpose
behind the establishment of Lloyd’s. It was true
that Lloyd’s was a legal organization to manage the
risks of its members, but it was never declared
firmly as a profit organization. To manage the risk
means to help each other who unfortunately had
been peril striking on the insured object. If the
members did not carry any risk, the Lloyd’s would
never be required to exist. Nowadays, as a profit
organization, insurance companies are demanded
to fulfil its financial objective to produce as high
profit as it can. It is totally nonsensical if the
original purpose was to support and donate money
for the member with unexpected misfortune, then
the organization wished to take regular profit from
all participating members.
The second point is ownership. It was made up
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clearly that the owner of Lloyd’s was the members,
not the head of Lloyd’s structural hierarchy. The
members had made an agreement and agreed to
invest their money to establish Lloyd’s of London.
From all possible point of views, the investors or
shareholders of Lloyd’s were the members. Put it
into logical mind, why would someone who owned
an organization that used his money or assets to
run its activities take benefit from himself as the
customer? This question simply confirms the real
status of insurance company that it must not be a
profit organization.
The third point on the list is the money invested
within the organization. Often occurred, not all
expected perils will actually go on and cause
damage to all members. It means not all premium
from the Lloyd’s members was turned out to pay
the damage, there must be some amount of it left
in one period of protection. The unused amount of
money was still owned by the members (as the real
investors), and it must be used, shared, or spent on
behalf of them, not once again people employed to
run the organization. This issue and the
unpredictable damage are something that we
usually happen to have while discussing the ‘halal’
or ‘haram’ nature of insurance business.
After pointing out those three fundamental points,
some conclusions can be drawn out into the
following outline,
1. The original form of insurance business is not a
profit organization but social or non profit. It
must not transform because the nature of
business is to distribute risk among the
members and support members who suffer an
unexpected damage or loss. This concept of
help is used in sharia insurance practice
(known as ta’awuun).
2. The real owner of insurance company must be
its insured or the policy holders. In case there
is a third party of investor, insured are also
having right to get the share of profit because
some part of money within the business are
theirs. Please take a note that with help
concept, insurance is no longer a buy and sell
transaction.
Wallahu a’lam bisshawab.
Reference :
 http://en.m.wikipedia.org/wiki/History_of_insura
nce
 Insurance Practice, The Standard Chartered
Insurance Institute, Study Course P01