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6.1.4. Takaful Operational Framework
The operational framework developed to guide the TOs contributed significantly to the progress
of Takaful industry in Malaysia, increased the number of players and expanded the business
scope and product range. BNM issued Guidelines on Takaful Operational Framework (TOF) in
2012 detailing the parameters for the operational processes of TOs who are expected to meet
their obligations towards participants, particularly in adhering to Shari'ah principles,
undertaking fiduciary duties and meeting prudential standards. Discharging fiduciary duties
and responsibilities requires them to recruit appropriate personnel and to have in place
appropriate processes and controls, including good governance and oversight structures.
The objectives of TOF (BNM, 2013 June) are to enhance the operational efficiency of Takaful
business; build healthy and sustainable Takaful funds; safeguard the interests of participants;
and promote uniformity in Takaful business practices. The TOF is formulated to promote the
following principles: 1) standardisation of Shari’ah principles, 2) prudent management of
Takaful, 3) fairness and transparency, 4) appropriate charges and good governance and 5) risk
management practices.
The TOs are expected to establish an operational model with clear policies, procedures and
management responsibilities for Takaful operations. The model must uphold the principles of
TOF beyond Shari'ah compliant contracts. It is mandatory to separate the assets of the Takaful
funds from the assets of the TOs in terms of family Takaful business and general Takaful
business. TOs must ensure that efficient processes are established to manage Takaful funds.
These processes should include effective risk controls and strong monitoring systems to protect
Takaful funds and interests of stakeholders. Effective risk management system must be
implemented to identify, assess and analyse the frequency and severity of risks involved. TOs
must be constantly responsible for promoting the interest and well-being of Takaful funds.
As part of the continuous supervisory framework, and to meet the environmental challenges of
competition, changingmarket and economic conditions, various business practices and different
opinions about the operations of Takaful, BNM has proposed a new Takaful operational
framework (se elow). The existing requirements for Takaful model are based on the
agency relationship where TO acts as a manager and administrator of the Takaful funds. The
new model is proposed to enhance the model by adopting risk-sharing arrangements between
TOs and the Takaful policyholders.
In addition, the Shari'ah contract specifically designed for Takaful is also recommended to
change from wakalah and mudarabah to more specific operational requirements for the
provision of tabarru’, qard and hibah in the products structuring and legal documentation. The
proposal is to outline specific requirements to inform the consumers.
In managing funds, the TOs need to separate between savings and investment funds in the
Shari'ah contracts. The present requirement does not differentiate between savings and