Under wakalah model, the surplus is referredto the surplus contributed by the participant into the Risk Fund based ontabarru’ contract. Upon reaching a financial period, the sum of tabarru’ willnot be equal with the amount the claim. If the tabarru’ amount is less than thesum of claims then the Risk Fund will be deficit, otherwise the tabarru’ amountexceed the claim then the Risk Fund will have a surplus. Thewakala model is the default standard for takaful. Operators charge and carryout takaful operations.
For takaful operators, he makes a profit if wakala feeexceed expenses. Thesurplus is actually the excess premium paid by the participants, so the surplusrefund can be explained as a experience refund. Once this is accepted, then thesurplus is belongs of the participants.
InMalaysia, several takaful companies provide shareholders to share in experiencerefund. Given that the participants are responsible for the deficit in the riskpool, it may seem odd that participants should share any excessive contributionto the shareholders. Many see this as an incentive compensation to the operatorto manage the portfolio well, as evidenced by the surplus.
However, whetherthis incentive is necessary given since the operators have already received afee for underwriting services. As practised in Malaysia, wakala models is amodel where operators only impose their management and distribution coststhrough wakala fees, while the profits are from the sharing of any underwritingsurplus. There is also a wakala model where even management expenses anddistribution costs are met from underwriting surpluses and zero fees arecharged. This last extreme wakala model is similar to the mudarabah model. Evensome Shari’ah scholars will also describe mudarabah model as a wakala modelwith zero fees Wecan explain this wakala model from the perspective of both participants andoperators. From a participant’s perspective, the decision on the use of awakala model whether operators share in excessive premiums or not will dependon how much higher is the wakala fee he has to pay.
It is not always clear thathaving a share of the operator in the the underwriting surplus gives theparticipants the best value proposition. Fromoperator’s perpective, the wakala fee is determined as the sum of: a.Management expenses;b.
Distribution costs include commissions; andc.Benefits to the operator Givena scenario where the surplus and deficit are in the participant’s account andwhere the operator’s solvency requirements, hence the capital requirements arenot excessive. It is possible to impose a low wakala fee, thereby benefitingthe participants. If the operator’s profit depends solely on the underwritingsurplus, then such as the mudarabah model, this wakala model will not becommercially sustainable in the long run.