Issues and Problems in The Ethical Practice of Takaful Agents Against Consumer PDF

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FACULTY BUSINESS AND MANAGEMENTBACHELOR OF BUSINESS ADMINISTRATION (HONS.) INVESTMENTMANAGEMENTINS510: INTRODUCTION TO TAKAFULINDIVIDUAL ASSIGNMENTPREPARED FORENCIK MOHD KHAIRUL ARIFF NOHPREPARED BYNAME STUDENT ID GROUPIZZATUL NADIA BINTI ABDUL HALIM 2020898414 JBA2513ASUBMISSION DATE3 rd DECEMBER 2...

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FACULTY BUSINESS AND MANAGEMENT BACHELOR OF BUSINESS ADMINISTRATION (HONS.) INVESTMENT MANAGEMENT

INS510: INTRODUCTION TO TAKAFUL INDIVIDUAL ASSIGNMENT

PREPARED FOR ENCIK MOHD KHAIRUL ARIFF NOH

PREPARED BY NAME IZZATUL NADIA BINTI ABDUL HALIM

STUDENT ID

GROUP

2020898414

JBA2513A

SUBMISSION DATE 3rd DECEMBER 2021

Table of Contents 1.0

INTRODUCTION AND BACKGROUND OF STUDY.....................................................3

1.1

CONCEPT OF TAKAFUL...............................................................................................3

1.2

DIFFERENCES BETWEEN TAKAFUL AND CONVENTIONAL INSURANCE.......4

2.0

ISSUES AND PROBLEMS IN THE ETHICAL PRACTICE OF TAKAFUL AGENTS

AGAINST CONSUMER.................................................................................................................5 Issue 1: Cheating in The Explanation of a Product or Takaful Service................................5 3.0

CAUSES AND EFFECTS OF THE ISSUES.......................................................................6

Issue 1: Cheating in The Explanation of a Product or Takaful Service................................6 4.0

POSSIBLE SOLUTIONS OF THE ISSUES.......................................................................7

Issue 1: Cheating in The Explanation of a Product or Takaful Service................................7 CONCLUSION................................................................................................................................8 REFERENCE..................................................................................................................................9

1.0 INTRODUCTION AND BACKGROUND OF STUDY 1.1 CONCEPT OF TAKAFUL Takaful, which means "guaranteeing each other" in Arabic, is similar to insurance but is allowed by Islamic jurisprudence or Sharia principles. By joining in a takaful plan, it embodies the concept of insurance based on people's mutual cooperation and solidarity. Takaful is a sort of Islamic insurance in which members pool their funds to protect each other against loss or injury. Takaful insurance is founded on sharia, or Islamic religious law, which describes how people are obligated to work together and protect one another. Takaful policies provide coverage for health, life, and other types of insurance. Takaful insurance firms were created as an alternative to commercial insurance companies, which are thought to violate Islamic regulations on riba (interest), al-maisir (gambling), and al-gharar (uncertainty), all of which are prohibited under sharia law (Takaful international, 2021). Why was it necessary to create takaful (insurance)? This is because some aspects of traditional insurance are incompatible with some of the core values of an Islamic financial contract. This should be considered in terms of the fact that Muslims are commanded by their faith to follow a path of righteousness in their everyday actions. Gambling and exploitation, for example, are absolutely prohibited. Usury, often known as riba, is a form of extreme exploitation. While charging interest is not always exploitative, it can lead to other forms of exploitation and is thus prohibited (What Is Takaful? 2021). Furthermore, in an Islamic financial structure, a genuine sense of fair play is essential. A lender who lends simply for the purpose of profiting by charging interest is abusing his position as owner of the main amount by not sharing the risks connected with the borrower's use of that capital in business or otherwise. Such protections are built into typical insurance contracts. To begin, debt and equity are used to fund investments and operations, with debt being interest-based. In addition, interest is charged when a loan is given on a typical insurance contract. In an Islamic contract, this is not authorized. Second, even though the contracts are priced at a marketable level, the benefit from insurance operations built with policyholders' money is owned by the shareholders, making the situation manipulatable. This

is also viewed as policyholders risking their hard-earned resources for no return if there is no claim, but under a takaful contract, a "no claim" scenario always results in a partial refund to the policyholder (Takaful international, 2021).

1.2 DIFFERENCES BETWEEN TAKAFUL AND CONVENTIONAL INSURANCE

A standard insurance contract is an arrangement in which an insurer agrees to pay a policyholder a certain amount of money if a specific event occurs (Mohammed Khan, 2008). However, the most obvious difference between Takaful and conventional insurance is that Takaful complies to Sharia law. Gharar, maisir, and riba are not present in takaful. Takaful was developed as a replacement for conventional insurance in order to avoid these banned elements. There are a few other differences between the two policies besides the main feature described above. The risk is moved from the insured to the insurer under conventional insurance. Takaful, on the other hand, is built on the principle of shared risk. Each member makes a contribution to a Takaful fund, and in the event of a loss, the participant will be repaid for the amount of their claim (Wahab, 2021). Moreover, unlike conventional insurance, Takaful participants own a part of the fund. Participants' contributions are then invested in 'halal' or Sharia-compliant funds to generate investment income. If the fund earns a profit, it is divided among the participants and, in some situations, with the Takaful operator. This results in a win-win situation for all parties involved (Wahab, 2021).

The table below summarizes the differences between Takaful and traditional insurance: Takaful Cooperation amongst people. Donations

Conventional Insurance A policy in which the risk is transferred to

from participants are used to supplement the

the insurance provider. To be covered, you

funds. The pooled funds might be utilized to

must pay a premium.

ensure the safety of other participants. Both Sharia and government laws apply. The Takaful company will only invest in

Only the laws of the government apply. Insurance firms have complete freedom to

Sharia-compliant securities that do not

invest in legal instruments such as stocks,

contain gharar (uncertainty), maisir

bonds, and other securities.

(gambling and chance), or riba (interest). A Takaful fund's profits and surplus are split

Dividends are paid out to stockholders.

among its participants and operators.

2.0 ISSUES AND PROBLEMS IN THE ETHICAL PRACTICE OF TAKAFUL AGENTS AGAINST CONSUMER

Most takaful enterprises in Malaysia require an agent to market their products and takaful services to the general public. Depending on his subscription, the agent is compensated in the form of a commission. Takaful agents operate as consumers' representatives in managing their takaful plan participation procedures while also providing consumers with transparent and clear information about takaful plans. In the Takaful sector, Takaful agents have become one of the most important distribution channels (Che Mohd Salleh et al., 2013). However, there are a few ethical difficulties that occur while working as an agent marketing takaful items and communicating with customers on behalf of the company. Cheating in the explanation of a product or takaful service, giving incorrect information, hiding facts, and delaying claim settlement are just a few of the issues (Abdullah et al., 2020).

Issue 1: Cheating in The Explanation of a Product or Takaful Service Since firms increasingly shift their strategic focus toward developing mutually beneficial customer connections, unethical behavior is on the rise (Cannon and Perreault, 1999; Ganesan, 1994; Gundlach and Murphy, 1993; Alamer, 2015; Aziz et al., 2016). At least 13 of the agents' behaviors have been recognized based on earlier research by (Abdullah, 2018). These behaviors have been condensed to 13 key agents' behaviors. After reviewing previous study, the researcher discovered that delivering false information about takaful products and services is the most common agent behavior. As a result, it's arguable that over half of past studies conclude that agents who fail to offer truthful and clear information are acting unethically in their role as a liaison between takaful enterprises and consumers. The takaful company has suffered as a result of these

actions. Hamid, Ab Rahman, and Nor have all stated this (2012). They claim that issues with agent behavior can lead to low production, lower incentive for good agents to fully commit to their jobs, and possibly cause those agents to leave the takaful sector. An agent who is unable to provide a clear explanation is one who lacks the ability to interact with the user. Agents will be hesitant to provide information about takaful items and services to consumers due to a lack of communication skills. As a result, agents will be unable to persuade customers of the high quality of takaful products and services. Previous research has identified conflicts of interest amongst agents as one of the behaviors to watch out for. When agents in a corporation compete against one another, a conflict of interest arises. It's possible that this is due to agents fighting for more users (Abdullah, 2018).

3.0 CAUSES AND EFFECTS OF THE ISSUES

Issue 1: Cheating in The Explanation of a Product or Takaful Service However, the studies found that sales target pressure is the most important factor influencing an agent's behavior. According to Yi, Dubinky, and Lim (2012), sales pressure is the cause of an agent's ethical concerns, particularly while dealing with clients. According to Aziz, Ghani, and Shaari (2016), unethical behavior among agents is on the rise as a result of agents' desire to improve their sales. Agents are under a lot of strain, so there's a good chance they'll act out of character till they supply false information. Aside from that, they may conceal facts or convince clients to purchase optional products and plans (Abdullah et al., 2020). As a result, the problem will have a negative influence on customers. In order to meet sales goals, agents frequently act unethically with regard to cultural norms. As a result, agents' customer relationships weaken, and they will lose customers. It was previously claimed that agents' self-confidence influences their unethical behavior. Apart from that, such unethical behavior would reduce clients' trust and confidence in the agents and the takaful companies they represent. As a consequence, the takaful sector will be severely impacted. 4.0 POSSIBLE SOLUTIONS OF THE ISSUES

Issue 1: Cheating in The Explanation of a Product or Takaful Service To elaborate, a takaful corporation will set a sales objective for its agents. As a result, the agents will be forced to reach the target. Agents with poor self-confidence and self-esteem will be doubtful of themselves in this situation. It's understandable if they're despondent or under pressure to meet the takaful strategy and product sales goals. Agents with low selfconfidence are more likely to act unethically (Abdullah et al., 2020). This includes offering untruthful responses, communicating with consumers in an unpleasant manner, and resolving customer issues. As a "driver" in the work of the takaful agents, a takaful firm leader must follow specific standards. Carter (2002) outlined four principles that must be followed by all businesses. These concepts are critical in ensuring that employees feel comfortable communicating with various groups of stakeholders both inside and outside the company (Abdullah et al., 2020). Organizational leaders must be receptive to criticism, failure, and ideas. As an excellent example for a takaful agent, leaders who practice ethical behavior must always listen and respect the opinions of others. It will serve as a role model for all employees, particularly takaful agents in the takaful organization, in an indirect way. Future research in agents' behavior toward takaful participants can be done in addition to research on the leadership of takaful corporate managers. The subject is both fascinating and important since academics can learn how agents interact with their consumers. This is critical because agents might act unethically toward takaful participants. This is especially true when it comes to recognizing customers' demands and their role in promoting takaful products and services (Abdullah et al., 2020).

CONCLUSION

The Takaful industry is one of the financial industry's subsectors that reaches a big percentage of the population, due to the availability of well-tailored Takaful products that can suit the needs of the society's average and low-income earners (Mohamed et al., 2013). The Takaful industry has experienced significant growth and development as the Islamic financial system has evolved, indicating a clear manifestation of the recognition of Islamic insurance as an important source of enhancing Shariah (Islamic law) compliant protection against weakness or risk arising from untoward events. Despite the importance of the Takaful sector in general and for Malaysians in particular, the report did not address the ethical issue, instead focused on the domestic and international demand for life insurance. Management should handle any issues that may impair the company's reputation as a result of the increased demand for Takaful insurance. As is widely known, many services are so abstract and complicated that the buyer is unable to assess the quality of the service provided. Similarly, the ethical behavior of Takaful agents and consumer trust in Takaful insurance businesses were found to have a statistically significant link (Makki & Faleel, 2021). The behavior of takaful agents observed in earlier studies demonstrates that this is not a minor issue, as it might have a negative impact on takaful users' engagement. This is because takaful agents' bad behavior will undermine consumer confidence and perception of takaful to some extent. Agents serve as a crucial connector between the consumer and the business. As a result, takaful agents must have a high level of credibility in order to help build positive attitudes and behaviors in the industry's future. Lastly, the takaful agent makes certain that both parties benefit from the takaful contract (Salleh, 2016).

REFERENCE

What Is Takaful? (2021, July 21). Investopedia. https://www.investopedia.com/terms/t/takaful.asp Takaful international. (2021). Takaful Concept – Takaful. Gig Bahrain Takaful. https://gigtakaful.bh/takaful-concept/ Wahab, A. (2021, October 13). A complete guide: Takaful vs conventional insurance in Malaysia. Iproperty.Com.My. https://www.iproperty.com.my/guides/takaful-vs-conventionalinsurance-in-malaysia/

Aziz, N. A. A., Ghani, A. H. A., & Shaari, H. (2016). Issues and problems in ethical practices amongst Takaful agents. International Review of Management and Marketing, 6(4), 21– 26. https://dergipark.org.tr/en/download/article-file/366896 Abdullah, N. A., Hassan, S. A., & Yusoff, S. Z. (2020). Factors that Influence the Ethical Behaviours of Takaful Agents. International Journal of Academic Research in Business and Social Sciences, 10(8). https://doi.org/10.6007/ijarbss/v10-i8/7535

Abdullah, N. A. (2018). Studies on Takaful Agent Behavior against Consumers. International Journal of Academic Research in Business and Social Sciences, 8(11), 973–982. https://doi.org/10.6007/ijarbss/v8-i11/4975 Makki, R., & Faleel, J. (2021). the Relationship Between Agents’ Ethical Behavior and Customers Attitude , Satisfaction Trust and Commitment. 18(13), 808–817. https://www.archives.palarch.nl/index.php/jae/article/view/8232/7687

Che Mohd Salleh, M., Abdullah, N. I., & Razali, S. S. (2013). The Relationship of Takaful Agents’ Islamic Ethical Behavior towards Customers’ Satisfaction, Trust and Commitment: A Preliminary Analysis. Journal of Islamic Finance and Business Research, 2(1), 77–88. http://irep.iium.edu.my/40216/1/Marhanum_journal_2013_2.pdf Salleh, M. C. M. (2016). The Significant Contribution of Islamic Relationship Marketing Practice in Malaysian Takaful Industry Towards ... Asian Academy of Management Journal, 21(1), 171–207. http://web.usm.my/aamj/21s12016/aamj21s12016_8.pdf Mohammed Khan, P. (2008). Takaful vs. Conventional Insurance. Islamic Finance: A Guide for International Business and Investment, 139–142. https://www.mbri.ac.ir/userfiles/file/Islamic Banking/‫ا‬฀‫بانک مقال‬/Takaful/Takaful vs Conventional Insurance.PDF...