All praise is due to Allah alone, and peace and blessings be upon the one after whom there is no prophet:
In the tenth session of the Council of Senior Scholars, held in Riyadh in the month of Rabi' al-Awwal, in the year 1397 AH, the Council reviewed what a group of experts prepared regarding what could serve as an alternative to commercial insurance, and the foundations upon which it is based to achieve the legitimate cooperative goals for which it was established, and its validity as a lawful alternative to commercial insurance in all its forms.
After the Council listened to what was necessary to read from what was prepared in this regard, and after study, discussion, and exchange of opinions, the Council decided, except for the esteemed Sheikh Abdullah bin Mani', that it is permissible and that it can suffice as an alternative to commercial insurance in achieving what the nation needs in cooperation according to the rules of Islamic Sharia, for the following reasons:
First: Cooperative insurance is one of the donation contracts aimed primarily at cooperation in mitigating risks and sharing responsibility when disasters occur, through the contribution of individuals with monetary amounts designated to compensate those who suffer harm. The cooperative insurance group does not aim for trade or profit from the money of others, but rather seeks to distribute risks among themselves and cooperate in bearing the damage.
Second: The absence of usury in cooperative insurance in both types: usury of excess and usury of delay, as the contracts of the contributors are not usurious, nor do they exploit what is collected from the premiums in usurious transactions.
Third: The ignorance of the contributors in cooperative insurance regarding the benefits they may receive does not harm them; because they are donors, there is no risk, uncertainty, or gambling, unlike commercial insurance, which is a financial commercial exchange contract.
Fourth: A group of contributors or their representatives can invest what is collected from the premiums to achieve the purpose for which this cooperation was established, whether this is done as a donation or for a specific fee.
The Council, except for the esteemed Sheikh Abdullah bin Mani', believes that cooperative insurance should take the form of a mixed cooperative insurance company for the following reasons:
1. Commitment to Islamic economic thought, which leaves individuals responsible for undertaking various economic projects, with the role of the state coming only as a complementary element for what individuals are unable to accomplish, and as a guiding and supervisory role to ensure the success of these projects and the safety of their operations.
2. Commitment to cooperative insurance thought, whereby the cooperators independently manage the entire project, in terms of its operation, and in terms of the executive apparatus and the responsibility for managing the project.
3. Training the locals to engage in cooperative insurance, creating individual initiatives and benefiting from personal motivations. There is no doubt that the participation of locals in management makes them more vigilant and cautious to avoid the risks for which they collectively bear the cost of compensation, thus achieving their interest in the success of cooperative insurance, as avoiding risks results in lower premiums for them in the future, while their occurrence may impose higher premiums on them in the future.
4. The mixed company model does not make insurance appear as a gift or grant from the state to its beneficiaries, but rather as a partnership with them only; to protect and support them as they are the actual stakeholders. This is a more positive stance that allows cooperators to feel the role of the state, while not absolving them of responsibility.
The Council, except for the esteemed Sheikh Abdullah bin Mani', believes that the following principles should be considered in drafting the detailed provisions for cooperative insurance:
First: The cooperative insurance organization should have a central office with branches in all cities of the Kingdom, and the organization should have departments distributed according to the risks to be covered, and according to the various categories and professions of the cooperators, such as having a department for health insurance, a second for disability and old age insurance, etc. Or there could be a department for street vendors, another for merchants, a third for students, and a fourth for freelancers such as engineers, doctors, and attorneys, etc.
Second: The cooperative insurance organization should be highly flexible and avoid complex methods.
Third: The organization should have a higher council that decides work plans and proposes the necessary regulations and decisions that will be effective if they comply with the rules of Sharia.
Fourth: The government should be represented in this council by members it chooses, and the contributors should be represented by those they choose to be members of the council, to assist in government oversight and ensure the soundness of its operations, protecting it from manipulation and failure.
Fifth: If the risks exceed the resources of the fund, which may require an increase in premiums, the state and the contributors will bear this increase.
The Council, except for the esteemed Sheikh Abdullah bin Mani', believes that a group of experts specialized in this field, chosen by the state, should be responsible for drafting the detailed provisions for this cooperative company. After they complete their work, what they have written should be returned to the Council of Senior Scholars for study and application according to the rules of Sharia.
And with Allah's success, and peace and blessings be upon our Prophet Muhammad and his family and companions.