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Islamic website condemns insurance

January 18, 2012

Many Muslims detest conventional, Western insurance.  On Dec. 23, the Daily Hadith posted this critique:

Insurance has Gharar

Abu Hurairah (radi Allahu anhu) narrated: “The Messenger of Allah (sal Allahu alaihi wa sallam) prohibited sales of ‘whatever a pebble thrown by the seller hits,’ and sales in which there is chance or risk (Gharar).” [Sahih Muslim]

Gharar is chance or risk, meaning it is not known whether it will come to be or not, such as selling fish in the water or birds on the wing. It includes transactions of unknown things, the particulars of which are not fully comprehended by the buyer and seller.” [Reliance of the Traveller by Ahmad ibn Naqib Al-Misri]

“There are certain types of sales and transactions prohibited in Islam. Insurance is one of these. In addition to the fact that insurance is usurious (involves Riba), buying and selling insurance policies is also unlawful because of the Prophet’s prohibition of sales in which there is Gharar.” [Reliance of the Traveller by Ahmad ibn Naqib Al-Misri]

“Urging the permissibility of insurance, one Muslim modernist has written that the very precise statistical data possessed by insurance companies concerning the probabilities of various eventualities makes what they are selling determinately known (Ma’lum). This argument fails when one realizes that statistical data from a group of events yields probability figures that, properly speaking, are a description of the group as a whole, and are only analogically applied to the individual events within it. When generalized to similar groups of events in the future, such probabilities yield commercially useful knowledge about the likelihood of a particular outcome for these future groups. But they cannot and do not tell what the outcome will be for any particular member of the group, in this case the particular insurance policy. Thus, a “17% probability” that circumstances will enable one to collect such and such an amount on a policy is a mere description of the whole group of previous policy holders in similar circumstances, which does not tell whether one will collect the amount or not. One may collect a certain amount or may not collect it, which is precisely the Gharar that is unlawful.” [Reliance of the Traveller by Ahmad ibn Naqib Al-Misri]

Those who support sharia finance point to gharar as a major problem in conventional finance, putting gharar alongside the “sins” of riba and gambling.  Although gharar is often characterized as uncertainty or risk, Vincent Cornell’s Voices of Islam, Vol. III offers a more precise explanation of gharar as deception:

The Prophet Muhammad, may peace be upon him, said, “Do not contract to buy merchandise on the way too market, but wait until it is brought to the market [so that its fair price is established].”  The Prophet also said, “It is impermissible to sell a thing if one knows that it has a defect, unless one informs the buyer of the defect.”  These traditions are examples of ethical exhortations against the practice of gharar.  The majority of Islamic scholars consider gharar as “both ignorance of the material attributes of the subject matter of a sale, and the uncertainty regarding the availability of its existence”…  Gharar literally means “deception.”  Hence, the best definition of gharar in business is “deception based on preventable ambiguity or uncertainty.”

Insurance has been a central part of sparing people from the loss of property, life, and limb since the days of Benjamin Franklin.  Islamists don’t just hate women in bikinis.  They hate the very basis of our legal and economic system.

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