Sharia Insurance Policies - what you need to know


Despite concerns over Brexit, the UK Real Estate market remains attractive to Middle Eastern investors, with around $85bn likely to flow in over the next 10 years. This figure represents a five-fold increase over the previous 10 year period.

Strong growth in investment from outside the European Union is being fuelled both by the current weakness of the pound and by the longer-term prospect of its recovery once Britain is free to strike its own international trade deals. This combination leads investors in the Middle East to suspect that there are bargains to be had in the UK real estate market right now (CBRE Report, 2015).

For their part, UK real estate owners and developers are seeking to capitalise on the Middle East as a source of investment. A growing number of joint ventures have been set up focused on Islamic compliant banking and insurance (or takaful, as it is commonly known) to facilitate such deals. PwC estimates that takaful insurance contributions will grow roughly six-fold over the next decade, as Islamic investors seek out Sharia-compliant investments in the UK.

What is takaful insurance?

Whilst the UK insurance market has its origins in Edward Lloyd’s 17th century coffee shop on Tower Street, Sharia compliant insurance dates all the way back to the 7th century when the early Muslim communities of Mecca and Medina began pooling liabilities among the tribes of the Arabian Peninsular to compensate those wronged in the course of tribal disputes.

Conventional insurance is generally seen as incompatible with Sharia law, which views it as creating too much uncertainty over future financial outcomes (and hence sharing some of the characteristics of gambling, which Islam prohibits) and because interest-bearing investments are involved, representing a form of usury (riba), which is also prohibited under Sharia law.

The concept of Islamic insurance is based on mutual cooperation and assistance. Participants make contributions into a pool. Then, should one of them need to make a claim, it will be paid out from this fund. In essence, takaful is a form of mutual insurance. The key point is that, to abide by Islamic principles, a takaful insurer may not earn interest on its investments.

Why are we telling you about this?

At Lockton REAC we are delighted to be able to offer you a fully Sharia-compliant insurance solution for your UK assets, based on the same market-leading policy wording and technology systems that all of our other clients benefit from.

Our agreement with insurers means you will see no difference in policy coverage, claims handling, or anything else. All the functions required to make the policy Sharia-compliant take place behind the scenes. The crucial point is that investors can be confident that the policy is fully endorsed and supported by a certificate of Sharia compliance.

What can’t be covered under a Sharia policy?

The vast majority of risks we deal with could, in theory, be placed on a Sharia-compliant basis. There are, however, a number of trades whose activities are seen as unacceptable from an Islamic
perspective and could not, therefore, be Sharia-compliant. Examples would include pubs (alcohol), casinos (gambling) and banks (interest charging).

To find out more about our new takaful offering, please get in touch and we would be more than happy to answer any queries you may have.

Jason Payne
Account Handler
T:            +44 (0)20 7933 2162
M:          +44 (0)7545 950 331