(i)

Wakalah Model.

Under wakalah model, the surplus is referred

to the surplus contributed by the participant into the Risk Fund based on

tabarru’ contract. Upon reaching a financial period, the sum of tabarru’ will

not be equal with the amount the claim. If the tabarru’ amount is less than the

sum of claims then the Risk Fund will be deficit, otherwise the tabarru’ amount

exceed the claim then the Risk Fund will have a surplus.

The

wakala model is the default standard for takaful. Operators charge and carry

out takaful operations. For takaful operators, he makes a profit if wakala fee

exceed expenses.

The

surplus is actually the excess premium paid by the participants, so the surplus

refund can be explained as a experience refund. Once this is accepted, then the

surplus is belongs of the participants.

In

Malaysia, several takaful companies provide shareholders to share in experience

refund. Given that the participants are responsible for the deficit in the risk

pool, it may seem odd that participants should share any excessive contribution

to the shareholders. Many see this as an incentive compensation to the operator

to manage the portfolio well, as evidenced by the surplus. However, whether

this incentive is necessary given since the operators have already received a

fee for underwriting services. As practised in Malaysia, wakala models is a

model where operators only impose their management and distribution costs

through wakala fees, while the profits are from the sharing of any underwriting

surplus. There is also a wakala model where even management expenses and

distribution costs are met from underwriting surpluses and zero fees are

charged. This last extreme wakala model is similar to the mudarabah model. Even

some Shari’ah scholars will also describe mudarabah model as a wakala model

with zero fees

We

can explain this wakala model from the perspective of both participants and

operators. From a participant’s perspective, the decision on the use of a

wakala model whether operators share in excessive premiums or not will depend

on how much higher is the wakala fee he has to pay. It is not always clear that

having a share of the operator in the the underwriting surplus gives the

participants the best value proposition.

From

operator’s perpective, the wakala fee is determined as the sum of:

a.

Management expenses;

b.

Distribution costs include commissions; and

c.

Benefits to the operator

Given

a scenario where the surplus and deficit are in the participant’s account and

where the operator’s solvency requirements, hence the capital requirements are

not excessive. It is possible to impose a low wakala fee, thereby benefiting

the participants. If the operator’s profit depends solely on the underwriting

surplus, then such as the mudarabah model, this wakala model will not be

commercially sustainable in the long run.