REMEDIES FOR MISREPRESENTATIONS IN TAKAFUL CONTRACT: CURRENT INDUSTRY PRACTICE IN MALAYSIA

Abstract

Takaful is a contract whereby the participants commit to contribute an amount of money to a specified fund to mutually guarantee each other in the unprecedented event of misfortune and appoint a takaful operator to manage that fund. In takaful contract, the participants have the opportunity to mitigate or reduce any possible risks that they or their families might face in case of any unpredicted event. As a requirement under Schedule 9 of Islamic Financial Services Act 2013 (IFSA), for individuals or institutions who wish to participate in a takaful contract, a takaful operator as a fund manager may ask certain material questions to underwrite the individual or institution. Under the principle of utmost good faith, it is the obligation of the takaful participant to disclose material matters to takaful operator. In the event of non-disclosure or misrepresentation by a takaful participant, Bank Negara Malaysia (Central Bank of Malaysia, hereinafter referred to as “BNM”) and IFSA have spelled out certain remedies that serve as minimum requirements to be implemented by takaful operators. Hence, some takaful operators may differ in the practices of remedies which are not specified by BNM and IFSA or implement more stringent and stricter remedies in addition to minimum requirements. This research will provide SharÊ‘ah justifications on the disclosure and representation requirements, and study the differences of Malaysia’s takaful operators’ practises in exercising remedies for misrepresentations in takaful contracts. Seven takaful operators in Malaysia were chosen and the data was gathered from the interviews made with the representatives of the respective companies. The misrepresentations, their types according to IFSA 2013 and the treatment from regulatory body in Malaysia, BNM, were also critically examined. This research focuses on remedies for misrepresentation with regard to termination of contract and refund of moneys only. Takaful operator’s duty and other remedies will not be discussed in this research. The study concludes that very few deviations or noncompliances occur in Malaysian takaful market, and identifies that there is a need of policy statement from the regulatory body regarding the issue of unearned wakÉlah fee in cases of misrepresentations.