Utilising principles of Takaful Islamic Insurance for blockchain based “socio-surance”

Modern financial technology has made data more accessible than ever — and therefore creates an opportunity to re-engineer how many asset classes are managed and serviced.

However, prior to creating a brave new world, it may be worthwhile to look into centuries old concepts, long overlooked  and dismissed by the incumbents.

This article looks into the concepts of Islamic insurance as a precursor of decentralised ledger, which in nowadays coined into a fancy blockchain. 

Traditionally, the domain of insurance belongs to an elite group of underwriters and actuaries, because risk assessment is a complex area which requires highly specialised skills.

However, with the evolution of the machine learning technology it is  becoming possible to “democratise data”  making this knowledge available to everyone.

There is a lot of data around us. Machine learning is starting to become a commodity and blockchain is enabling the use of collective knowledge and community risk sharing as opposed to traditionally being a centralised  domain of financial institutions. That calls for evolution of insurance into a mutual “socio-surance”, a principle long perfected by Islamic Financiers and Traders.

Takaful is a form of mutual insurance based on the principles of cooperative risk sharing, mutual responsibility, mutual protection and solidarity among groups of participants. 

The concept of takaful has reportedly been practised in various forms since 622 AD.[6] Muslim jurists acknowledge that the basis of shared responsibility (in the system of aquila as practised between the Muslims of Mecca and Medina) laid the foundation of mutual insurance. 

The addition of technological layer to the millennia old concepts will lead to elevation of socio-economic value of insurance and provide solution for old conflict of interest between insurance profit gains and claims adjustments. Community based insurance can become a global phenomenon and the community responsibility driver rather than the source of profit from unrealized risk for insurance companies. Getting rid of intermediaries will make insurance more cheap and affordable.  The insured person will become part of the community, which should play significant role in their life and expose moral hazard phenomena to reduce risk on the platform. 

Peers get additional benefits by sharing risk coverage with those who were traditionally denied coverage creating reputation based social networks responsibility and underwriting.