Clarification of hadith about selling auto insurance.

Q. I need a clarification on a fatawa I saw on the website concerning selling of car insurance which you said was haraam. Please indicate to me the source of the hadith, and the scholars who made such pronouncement.

A. If Auto Insurance existed at the time of the Prophet (SAS), it would have been very easy to give you a hadith regarding its prohibition. However, seeing that it did not exist at that time, I can give you the statements of the most renowned scholars, as well as the guidelines given in the Shariah that show the prohibition of Insurance, in general.

First of all, it must be understood that Auto Insurance like other forms of insurance comprise of certain elements which are all forbidden in Islam, as given in the Holy Quran and the Ahadith.

From among the prohibited elements, is that of gambling which the scholars have cited to be found in Insurance. The issue of gambling comes about where the policy holder continue to pay premiums on a regular basis knowing very well that he may gain more than he paid, or he may receive nothing in return, if there were no claims.

So in this regard we have two basic elements which result in the transaction being one that have gambling in it. The first element is that of ‘risk’ which comes about when the policy holder contributes a small amount of premium in the hope/risk to gain a large sum. The second element is that of uncertainty. This comes about when the policy holder loses the money paid in the premiums when the insured event does not occur.

Another prohibited element which is found in all forms of conventional insurance, (including Auto insurance) is that of Riba (interest). The side of Riba is seen when the policy holder is paid large amounts when a situation arises (for which the insurance was taken). This amount in all cases are seen to be much higher that the premiums that were paid. This excess is not given as a profit on investments, nor is it given as a goodly loan (Qard Hasan) or a gift. Instead, it is given with the understanding that the policy holder has a claim upon the large sum of money which will be given to him. The question then arises as to why the policy holder can make a claim upon a sum of money which he does not own, nor is it through the way of an investment or a business? It is clear that the amount given is an excess/extra sum which has been fixed between the policy holder and the insurance company. All the scholars have considered the additional amount (above the total premiums paid) to be Riba, and hence, totally forbidden.

It should be noted that both Riba and gambling have been prohibited in clear terms in the Holy Quran and the Hadith of the Prophet (SAS).

With respect to the Religious Verdicts given by other well known scholars, the following is the ruling given by the great scholar of our time Justice Mufti Muhammad Taqi Usmani. He writes, ‘All the commercial Insurance prevalent in the traditional Insurance companies is against the Islamic principles because they have either an element of Riba or the element of Qimar (gambling) or gharar(uncertainty).

The insurance of cars or other goods with the traditional Insurance Companies is a commercial transaction in which the person who wants to insure his goods is bound to pay a premium to the company in accordance with the prescribed conditions. This payment is certain and mandatory without which insurance is not possible. But on the other hand, the payment by the company is not certain. It is contingent upon an event or accident which may or may not occur. If the accident takes place, the company is bound to pay an amount far more higher than the amount of the premium paid by the insured, but if the accident does not take place, the company does not pay to him anything and the premium paid by him goes without any return, In other words, the insured is bound to pay in any case while the company may or may not pay. This kind of transaction is termed as gharar and Qimar and is strictly prohibited in the Shariah.

Moreover, if the accident takes place, the amount of insurance is paid to the insured as a consideration of the amount of premium. It is again repugnant to the well-settled principle of Shariah that where money is exchanged for money, both the amounts should be equal in quantity. Any increase on either side is Riba which is clearly prohibited by the Holy Quran and Sunnah.

It is for these reasons that all the prevalent forms of commercial insurance have been held by the majority of the contemporary Muslim jurists as prohibited. This subject has been thoroughly discussed in different international seminars and conferences. Lastly, the question was also put before the Second Annual Session of the Islamic Fiqh Academy (established by the OIC) in Jeddah where all the Muslim countries were represented through their eminent scholars. After a detailed discussion of the subject, the Academy has adopted the unanimous resolution that the prevailing forms of insurance are prohibited in the Shariah. However, the Muslim countries can develop their own system of insurance through the concept of takaful, waqf etc. (Contemporary Fatawa by Mufti Taqi Usmani Pgs. 186-187).

In a similar manner, the great scholar of Saudi Arabia, Shaikh Abdullah bin Abdur Rahman Al Jibreen has stated, ‘Insurance , in my opinion, is harmful because the company might take sums of money from the insured every year without doing anything for them, and they might not require it (the money) for repairs or anything else. They might take only small sums of money from others and lose large amounts on it. There are some car owners who have little faith and fear of Allah, Most High. So when one of them insures his car, he does not care what happens, so he exposes himself to risks and drives carelessly, which results in accidents and believing people are killed and property which should be respected is destroyed- but that does not bother him, because he knows that the company will bear the responsibility for the result of his actions. So I say that this insurance is not permissible under any circumstances for these reasons and others, whether upon cars, lives, properties or other things.(Fatawa Islamiya – Islamic Verdicts Vol.5 pg.20).

In Fatawa Rahimiyya, the great jurist and scholar, Shaikh Mufti Abdur Raheem (AR) has written, ‘Insurance, although it may seem to have apparent benefits, it is nevertheless connected to interest and has a type of gambling in it. The teachings of Islam have clearly highlighted that both interest and gambling are totally haram (unlawful), hence, it is not permissible to be a part of such transactions’. (Fatawa Rahimiya vol.3 pg. 190)
While speaking on the topic of Insurance, the great scholar of our time Shaikh Khalid Saifullah Rahmani states, ‘There is no doubt that all the different types of insurance are not free from ‘interest and gambling’ which are both prohibited in Islam’( Jadeed Fiqhi Mabahith vol. 4 pg. 198).

Shaikhul Hadith, Mufti Ahmad also writes, ‘Auto insurance etc. are also connected to interest and gambling which are prohibited in Islam’. (Jadeed Fiqhi Mabahith vol. 4 pg. 4)
These are only a few of the references that I have quoted on the topic of Insurance/Auto Insurance. There are however, hundreds of such Fatawas (Religious Verdicts) that have been issued by the great scholars of the past and present, which indicate to the prohibition of all forms of Insurance. While on this topic, the scholars have also stated that where there is an established law in a country pertaining to Auto Insurance, one will be allowed to take out such policy only to fulfill the requirements of the law.

And Allah knows best.

Mufti Waseem Khan