2011 International Conference on Information and Finance IPEDR vol.21 (2011) © (2011) IACSIT Press, Singapore
Deena M Barakah, DDS : Dental Clinic Department, King Saud Medical City, Ministry of Health, Riyadh, Saudi Arabia
E-mail address: drdeena@gmail.com
Shakir Ahmed Alsaleh : School of Public Health & Health Informatics, King Saud bin Abdulaziz University for Health Sciences
E-mail address: Alsalehs@ksau-hs.edu.sa
Abstract. In order to fulfill the country's health sector developmental objectives, the Kingdom of Saudi
Arabia has endeavored to reorganize and improve its health care systems. One area of health sector that has
undergone profound change and significant progress is health insurance. A comprehensive health insurance
programs - based on the Islamic concepts- have been created and implemented through a new government
council for cooperative insurance. This paper discusses the Saudi health insurance act, its Islamic philosophy,
implementations of its programs and a brief summary of its concrete accomplishments. A detailed discussion
is given for the many challenges and difficulties faced the implementation of this act. The Saudi cooperative
health insurance innovative approach to health care development, can serve as a model program for
developing countries undergoing rapid health sector development. Evaluation of its effectiveness in
providing improved health care in the kingdom of Saudi Arabia may also offer an example for other Arab
and Islamic countries with similar health care needs.
Keywords: Islamic Cooperative Insurance (Takaful), Saudi health systems, Health Insurance in
developing countries
1. Introduction:
The overall development boom witnessed by the Kingdom of Saudi Arabia over the past four decades
has led to a steady growth of the population of the Kingdom of Saudi Arabia (3.1% per annum), one of the
highest in the world. In addition, the country infrastructure development required a large number of foreign
expatriate workers. This brought to the country more than seven million workers. In view of the existence of
this population growth coupled with the huge workforce expansion, the demand on health services soared
and associated with a considerable rise in the cost of health care. This has reflected on the significant of the
health services and encumbered public hospitals from providing satisfactory health care.
Health insurance system has been anticipated as a strategic solution to this problem and hopefully
expected to realize many objectives of health care sector development. [1] The start of the health insurance
reform was initiated on 1999, when the council of Ministers passed a resolution for the establishment of
cooperative health insurance system aiming at the provision of health care and its organization to cover all
the non – Saudi residents working in the private sector and their families. Later on, the Cooperative Health
Insurance act was issued by a Royal Decree no: M /10 on August 1999.
1.1. Methodology of the Paper:
In this paper, we present a summary of the progress made to implement health insurance system in the
kingdom. A detailed discussion is given for the many challenges and difficulties faced the implementation of
this act. An exploratory approach is used as a primary research method to determine the status of the
cooperative health insurance system in the kingdom of Saudi Arabia. Our study is mainly based on the rich
literature of Muslim scholars on Cooperative insurances, the Saudi insurance act contents, and on official
cooperative health insurance council reports, statistics and documents.
1.2. Related Works and Research Significances:
Prior work on this subject has focused on assessing the application of Islamic principles into insurance
and how this type of insurance arrangement works.[2-4] Several research studies also investigated the growth
of “Takaful” insurance industry and its availability and operation on various countries, especially those with
a significant Muslim population. [5-7]. Studies on the level of knowledge and understanding among Muslims
towards the Takaful concepts are presented in reference [8, 9]. The development of Saudi health sector
based on Takaful insurance is presented in several official reports[1, 10-13] While these published works
are valuable, it is also fundamentally important for researchers to continuously monitor and document the
health care progress and improvement surrounding using new insurance approaches. With lack of sufficient
research studies on Saudi health community, this work seeks to address this gap via presenting a descriptive
study of the current status of cooperative insurance in the kingdom health sector. As few studies have
discussed health insurance in Saudi Arabia, the work presented in this paper, may therefore be the base for
other studies to come. The description of applications and progress of cooperative insurance in Saudi health
sectors is also a valuable initial step towards evaluation of their effectiveness in providing improved health
care in the kingdom of Saudi Arabia.
1.3. Paper Organization:
The paper is organized as follows: The subject of building the insurance industry on the Islamic principle
and Shariah (Islamic law) is discussed in the next section. This section reviews the concepts and principles of
Islamic cooperative insurance which is proposed as an alternative to conventional insurance. In section three,
the trends and history of Cooperative health insurance is covered. Section four describes the Cooperative
Health Insurance Act and the role of the council of cooperative health insurance that has been formed to
implement the act in the Saudi society. In section five, we review the challenges, progress, and achievements
made so far in applying the Takaful system in the kingdom. Complications that faced the growth of the
health insurance industry are discussed in section six. Finally, the conclusion sections summarize the result
of this study.
2. Islamic Cooperative Insurance (Takaful):
Muslim jurists generally agree that Islamic insurance Takaful is based on principles of mutuality and
cooperation. These necessities shared responsibility, joint indemnity, common interest and solidarity, and
freedom from Islamic forbidden elements such as gambling, uncertainty and interest. As an insurance
business, Takaful is perceived as a cooperative insurance, where members contribute a certain sum of
premiums money to a common fund with not profits purpose but to uphold the principle of “bear ye one
another’s burden." Based on this, the main principles of Takaful insurance are as follows: [6, 14]
• Every policyholder pays his premiums to a common Takaful fund
• Losses are shared and liabilities spread among participants as any participant suffering illness would
receive a certain sum of money or financial benefit from Takaful fund as defined in the insurance pact.
• All transactions and commercial activity of Takaful must be in accordance with the Islamic principles
and in compliance with the Shariah (Islamic Laws).
• Uncertainty is minimized in respect of subscription and compensation by implementing the concept of
Tabarru (denotation). Thus each participant shall agree to give certain portion of his Takaful instalments
as “a donation”.
• An insurance company is established as manager of the Takaful Operations and is allowed to charge a
management fee for Takaful transactions.
• The Takaful Fund, consisting of the premiums paid as donations, is further invested by the Company in
compliance with the Shariah law with no element of interest (Riba) involved. The investment profit will
be shared on agreed ratio. This surplus is normally distributed on expiry of each insured’s insurance
policy.
• If the participants premiums and investment are insufficient to meet these adjustments, those affected
insured could be assessed for additional contributions.
The above key issues reflect the basic differences between Takaful and conventional insurance. [15]
3. Trends and History of Takaful Health Insurance:
Takaful, or Islamic insurance concepts are based on the principles of TA-AWUN (mutual assistance and
cooperation) and Tabarru (Voluntarily) origin. These can be traced back to Islamic guidance revealed in the
holy Quran fourteen centuries ago. The development of Islamic insurance (Takaful) in recent times was first
initiated in Sudan in 1979 and Malaysia in 1984[16]. The practice was given a strong support by the 1985
Fiqh (Jurisprudence) Complex ruling declaring that conventional commercial insurance is not allowed
islamiclly and that the application of insurance business should be based on the cooperative principles.
Since then, the Takaful industry operations, expanded very rapidly in many countries throughout the world.
Malaysia has been the leading country for Takaful progress through the introduction of several dedicated
Takaful regulations allowing the cooperative insurance industry to have a high growth rate in that country
[17]. This approach was followed by other countries primarily in Islamic countries and countries with a large
Muslim community including: Indonesia, Brunei, Singapore in the Far East and Saudi Arabia, Bahrain, Iran,
Qatar in the Middle East. Recently, takful has also been introduced in UAE, Kuwait, Egypt, Bangladesh and
in non-Islamic countries such as Sri Lanka, Belgium, US and Canada. Main global presence of takful in the
world is mainly in Saudi Arabia (27%) Malaysia (34%), and Indonesia, Bahrain and UAE (5%) [7, 15, 16,
18]. The growth of number of Takaful companies reached 26% per year for the period 2006-2010. In this
regard, it is worth noting that Takaful contribution reached US$2.2 billion and by 2015, and it is estimated
that Takaful contribution could approach US$11 billion, with a growth rate of roughly 11-15% per year [7,
15]. The estimate for global Takaful assets is about 15$ billion by 2015. [15] This shows clearly that there is
a tremendous opening for Takaful to develop worldwide, and with more introduction of Takaful regulations
and investments, Takaful industry is expected to become a healthy and growing industry and strongly
competes with the conventional insurance business.
4. Saudi Cooperative Health Insurance Act and Laws:
Insurance in the Kingdom of Saudi Arabia was first regulated by the provisions of the articles of
incorporation of a national company for cooperative insurance issued by Royal Decree No (M/5) on 1985.
This laid the base to start insurance industry by insurance companies registered in the Kingdom and
operating in accordance with the practice of cooperative insurance and not inconsistent with the provisions of
Shariah. In 1999, the Cooperative Health Insurance Act was issued by a Royal Decree to launch a new
health insurance program, aimed at covering ultimately the whole Saudi and non Saudi population. This new
program is based on ‘Takaful’, or Islamic insurance concepts. The Cooperative Health Insurance act consists
of nineteen articles and aims to first regulate the provision of health care for non-Saudi residents in the
kingdom, and later on, after specified time phases to be applied to Saudi Citizens. [13] The act made the
health insurance compulsory, with anyone sponsoring a non- Saudi resident shall be obliged to participate in
the cooperative health insurance for the benefit of the resident and by attachment of the residence permit
issuance and renewal to fulfilling a cooperative health insurance policy. The Cooperative Health Insurance
act also established the Cooperative Council for Health Insurance (CCHI) to supervise the implementation of
the cooperative health insurance act. The main tasks of the CCHI include: the preparation of the act
executive bylaws, certification of the cooperative insurance companies, accreditation of “private & public”
health care providers centres, and the definition of the cooperative insurance financial regulation and fees.
[19] The act also defined a health insurance policy that covers the basic health services. These services do
not however prejudice the requirements of the social insurance regulations nor with health services offered
by private companies, institutions and individuals to their employees in excess of those provided by this act.
Following the promulgation of the cooperative insurance act, the rules of implementation of the
cooperative health insurance system and the details of cooperative health insurance policy was issued by
Minister of Health Resolution No. 460/23/DH on June 2002. [20] On July 2003, a Royal Decree No M/32
approved the control law of cooperative insurance companies. This law complements the Cooperative Health
Insurance Act and aims towards controlling insurance and re-insurance activities and to regulate and approve
rules for cooperative insurance companies’ establishment and licensing in the kingdom. The Saudi Arabian
Monetary Agency (SAMA) was assigned the power of technically supervising the implementation of the
insurance control law. SAMA main task is to guarantee that insurance companies satisfy the conditions and
the rules applicable in this respect [21]. On 10/2002 the council of Ministers passed a resolution for the
enforcement of the Cooperative Health Insurance Act on Saudi citizens working with companies, private
establishments or individuals. Finally, On May 2009, based on CCHI resolution, the executive bylaws of the
cooperative insurance act and the terms of a unified standard policy was declared in a ministerial decision by
the minister of health [22].
5. Challenges and Achievements:
In this section, we are interested in reviewing the application of this new Islamic insurance scheme and
what are the factors that contributed to its success or failure. In the positive side, as a result of health
insurance act, since 2007, health insurance became the largest line of insurance business. At that year it
accounted for 36% of total gross written premium (GWP) and 43% of total Net Written Premiums (NWP)
in 2007 [19, 23]. By early 2011, and after five years from the date of health insurance implementation on
15/07/2006, there are 8.3 million health insured individuals, 2,147 Health Care Providers accredited, and 26
Health Insurance companies certified [19,23]. Recent economy survey into the Saudi insurance sector
revealed that the sector will create between 35,000 to 40,000 job opportunities over the coming decade. [19,
23]. This survey results also revealed that, the sector itself will be worth US$18 Billion by 2016. [19]
The most drawbacks of the kingdom experience with insurance solutions are quite similar to the
experience of developed countries that have preceded the kingdom in implementing commercial health
insurance. Continuous increase of health care cost due to the large demand for health care encouraged by the
insurance sector and the relatively small number of certified insurance companies. The prices of various
health services have continuous rises (5-10%) yearly in the value of insurance premiums depending on the
types of services covered [19]. Other drawbacks is lack of compliance with the Shariah laws by many
insurance companies, due to the absence of regulatory bodies and accurate information data and
transparency of the cooperative insurance practice, which resulted numerous disputes, fraud and abuse of
insurance policies by all parties involved.
6. Conclusion:
The Kingdom’s experiment with health insurance is relatively new and full of challenges. Takaful health
insurance in Saudi society contributed relatively moderate positive impact on certain sectors of Saudi
economy, namely insurance industry, private health care business and job market. However, several negative
fallbacks also occurred which call for reconsidering other additional solutions for funding health care
services
Speaking at the symposium entitled “Health Insurance Conference – Options & Prospects” organized by
the Ministry of Health on 2011, the Saudi Minister of Health pointed out that the main aim of applying
cooperative health insurance in the Saudi kingdom is to improve and develop the health sector according to
the sound principles of Islamic religion and culture without burdening the citizens, as is the case in many
other countries. He also stated that there should be more efforts to identify the concept, the purposes and the
consequences of insurance, to differentiate between commercial health insurance and cooperative health
insurance, and to know that the concept of insurance is not necessarily associated with the privatization of
the health sector. The experience of developed countries demonstrated clearly that the implementation of
commercial health insurance and the privatization of the health sector, led to increasing costs of healthcare”
[24].
In our opinion, the relatively short experiences of the Saudi health sector demonstrated the strong need to
a comprehensive public health insurance coverage. With the respect to Takaful insurance sector , our
opinions is that the application of cooperative health insurance noble principles can assist in reducing
health care cost if this sector is re-structured and regulated.
7. References:
[1] Ali, Kasi Md. Mortuza, 1989. “Principles and Practices of Insurance under Islamic Framework,” Insurance Journal,
(December): 29-38.
[2] Bank Negara Malaysia. (2005). 20 Years Experience of Malaysian Takaful Industry. Bank Negara Malaysia.
[3] Bhatty, Ajmal , “The growing importance of Takful Insurance “ , Asia regional seminar , OCED and bank of
Negara , Kuala Lumpure , 22-24 September , 2010
[4] Dawood, Yousef Taylor, “Takaful in the new millennium Where are we now? Where do we go from here?” ,
Takaful articles , Number 1: ICMIF , August 2005
[5] Habshi, Syed Othman, 1997. “Takaful – A Suitable Alternative for Contemporary Economy,” Labuan
International Summit on Takaful, June 19-20, Labuan, Malaysia.
[6] Kahtani, Ali Ayad “Experience of Mandatory Health Insurance in Kingdom of Saudi Arabia”, Presentation of
Compulsory Medical Insurance Workshop, Bahrain Insurance Association 12-13 OCT 2008, Bahrain.
[7] Maysami, Ramin Cooper, 1998. “Islamic Insurance: Sudan to Singapore,” Asian Business Law Review,19
(January): 62-68.
[8] Maysami, Ramin Cooper and W. Jean Kwon, “An Analysis of Islamic Takaful Insurance--A Cooperative
Insurance Mechanism,” Journal of Insurance Regulation, Vol. 18, No. 1, Fall 1999, pp. 109-132.
[9] Marcel Omar Papp , "Understanding Takaful/reTakaful" , Swiss Re Zurich Company – Retakaful Branch,
Research Report, October 2010
[10] Mohamad Abdul Hamid, Mohd Sukki Othman, "A Study on the Level of Knowledge and Understanding Among
Muslims Towards the Concepts, Arabic and Shariah Terms in Islamic Insurance (Takaful)", European Journal of
Social Sciences – Volume 10, Number 3 (2009).
[11] Norlida AM, Rosemaliza AR, Yusnidah Ibrahim. 2004. Awareness and Ownership of Family Takaful Scheme
Among Muslim Community in Malaysia. The Journal of Muamalat and Islamic Finance Research (JMIFR) Vol.
1/No. 1: 121-136
[12] Penland, Claude, Recent Trends in Takaful, Casualty Actuarial Society, World Wide Web :Casualty Actuarial
Society site : (www.ClaudePenland.com)
[13] Proceeding of the 3rd International Islamic Banking , Finance & Insurance (TAKAFUL) Conference "Islamic
Banking, Finance & Insurance (Takaful) in North America: Opportunities & Challenges“ Ottawa Congress Centre,
Ottawa, Canada May 2007
[14] Rabeah, Abdullah, Conference opening ceremonial speech , Health Insurance Conference – Options & Prospects”
Ministry of Health on 2011 , the Saudi Minister of Health April 2011,
[15] Sharif, Abdullah I., Secretary General Council of Co-operative Health Insurance,” Health System and Insurance
In Saudi Arabia ” , BHF Southern African Conference , July 2008
[16] Sharif, Abdullah I., Secretary General Council of Co-operative Health Insurance , “Compulsory Health Insurance
Way Forward” ,Health Insurance Conference –“ Options & Prospects” Ministry of Health , April 2011
[17] Usmani, Imran, “Takaful : the Islamic insurance” Securities and Exchange Commission of Pakistan (SECP )
Takaful Conference , Karachi , March 14, 2007
[18] Cooperative Insurance Companies Control Law, Royal Decree No M/32 , July 2003, (2 Jumada II 1424)
[19] The First Annual Report For the Year 1428H (2007G), Cooperative Health Insurance Council, Ministry of Health ,
Riyadh Saudi Arabia ,2007Jiang, R. Fan. Recognition of Biological Signal Mixed Based on Wavelet Analysis.
[20] The Second Annual Report For the Year 1429H (2008G), Cooperative Health Insurance Council, Ministry of
Health , Riyadh Saudi Arabia ,2008
[21] The Third Annual Report For the Year 1430H (2009G), Cooperative Health Insurance Council, Ministry of
Health , Riyadh Saudi Arabia ,2009
[22] The Cooperative Health Insurance Act, Royal Decree no: M /10 on August 1999. (1/5/1420 H)
[23] Rules of Implementation of Cooperative Health Insurance system, & cooperative health policy, Ministry of health
Resolution No. 460/23/DH , 1423
[24] Implementing Regulations of the Cooperative Health Insurance Law in the Kingdom of Saudi Arabia (Amended).
Cooperative Council for health insurance Session No. (73), Ministerial Decision No. DH/1/30/6131 , 08/06/1430H
[25] World Wide Web : www.cchi.gov.sa (Council of Co-operative Health Insurance), July 2011
[26] World Wide Web :www.moh.gov.sa ( Ministry Of Health) July 2011
[27] World Wide Web :www.cdsi.gov.sa ( Central Department for Statistics and Information) July 2011
[28] World Wide Web :Casualty Actuarial Society (www.ClaudePenland.com) June 2010
[29] World Wide Web :Institute of Insurance and Risk Management (IIRM) (www.iirmworld.org.in)
[30] www.kantansurance.htmkji.com/fiqh/I May 2010
[31] www.eventscom.net/bia/presentation.htm (Compulsory Medical Insurance Workshop , Bahrain) ), July 2011
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