Sharia insurance is a risk management arrangements which comply with the provisions of sharia, are mutually helping involving participants and operators. Sharia comes from provisions in the Quran (the word of God delivered to Muhammad SAW) and Sunnah (the example of the life of Prophet Muhammad).
Location of the differences between Sharia and conventional insurance is on how risk was managed and borne, and how the Sharia insurance funds are managed. Further difference is on the relationship between the operator (the term used conventional insurance: Insurers) by participants (in the conventional insurance terms used: Insured). And responsibility in managing risk, insurance does not allow the existence of sharia gharar (uncertainty or speculation) and maisir (gambling). In the investment or fund management is not allowed any riba (interest). Third this prohibition is an area that should be avoided in the practice of sharia insurance, and that becomes the main differentiator with conventional insurance.
In an effort to avoid gharar, on each insurance contract of sharia should be made clearer and be fully open. Openness that can be applied on both sides, ie both in subject matter and the provisions of the contract. Not allowed on the Sharia insurance contract when there are elements that are not clear in the subject matter and / or scope of the contract itself. Sharia insurance in the contract of sale and purchase is not allowed uncertainties (gharar) between one party to another party.
Maisir (gambling) arise because of gharar. Participants (the insured) may have an interest insured, but if the transfer of risk (or risk sharing in Islamic insurance) contain elements - the speculative element, it is not prohibited under the insurance.
Riba (interest) completely banned under sharia law and sharia under insurance arrangements. To avoid Riba, in Sharia insurance, the contribution of the participants managed the risk sharing scheme (risk sharing) and not as a premium, like in conventional insurance. In the provisions of any applicable law insurance contributions in the form of donations to the conditions of compensation (tabarru). Further sources of funds derived from contributions or donations of the participants, it must be managed and invested under the provisions of sharia.