The need for insurance is increasingly mushrooming among Indonesian people, but there are still many who don't really know about the differences between sharia insurance and conventional. These two insurance principles do have quite striking differences, therefore it is important for the public to understand them correctly.

Differences between Sharia and Conventional Insurance

In short, conventional insurance can be interpreted as an insurance model that applies the principle that if there is a risk on the part of the customer, then the company is responsible for bearing that risk as the guarantor (transfer of risk). The company is the party that bears the risk while the customer is the insured party.

This is different from sharia insurance which is based on the principle of following sharia law or takaful, which can be understood as a principle where customers will make contributions to participants who are listed as having a disaster. The concept applied to sharia insurance is the concept of risk of sharing between participants and they will contribute by using a tabarru' contract.

In this way, it is clear that these two insurance principles are contradictory in practice. Not only that, but there are several other differences between sharia and conventional insurance that are worth understanding, such as:

1. Party Overseeing Funds
   Apart from having different principles, these two insurances are also supervised by different parties. The process of monitoring funds for conventional insurance will be carried out by the OJK or Financial Services Authority which is protected by state law. Conventional insurance companies manage funds under direct and strict supervision by the OJK.
   
   Meanwhile, the party that supervises sharia insurance is the DPS (Sharia Supervisory Board). They will try to ensure that transactions carried out by customers and companies comply with sharia principles and they are also responsible to the MUI (Indonesian Ulema Council).
   
   
2. Underwriting Surplus
   Sharia insurance companies recognize underwriting surplus, whereas in conventional insurance there is no such thing as this term. Maybe there are still many who are not very familiar with the term underwriting surplus, but the short explanation is that this is the excess difference that comes from underwriting risk management of tabarru' funds to be given to participants according to the product features that have been agreed upon.
   
   This underwriting surplus figure is calculated for a certain period and the amount will be reduced by compensation, technical reserves and reinsurance. However, it should be understood that this is not guaranteed and will only happen if the claims taken are less than the contributions received.
   
   
3. Flower
   It can be said that the clearest difference between sharia insurance and conventional insurance lies in the regulations regarding interest. For sharia insurance, there is no application of the interest system in financial transactions because this system is prohibited in sharia and Islamic law.
   
   Meanwhile, in conventional insurance there will be an interest component found in every financial transaction. The amount of interest also varies depending on the policies set by conventional insurance companies.
   
   
4. Policy Holder
   People who use sharia insurance can benefit from being shared with other family members. This is because this insurance policy can be registered and held by one family so it is not limited to just one person.
   
   This is different from conventional insurance, which only allows one individual to hold an insurance policy. Premiums that have been paid by conventional policy holders will also be managed in accordance with previously agreed agreements.
   
   
5. Fund Ownership
   The ownership system for conventional insurance will be based on premium payments made by the customer. Apart from that, conventional insurance also manages funds by adjusting the agreements set by the insurance company.
   
   In contrast to the conventional system, sharia insurance has a collective fund ownership system without any rights belonging to the insurance company. Not only that, but sharia insurance also invites participants to manage funds together so that the profits obtained can be transparent.
   
   
6. Agreement Agreement
   Finally, the agreement process applied between these two insurance companies is also completely different. Conventional insurance makes agreements based on financial considerations and a buying and selling system. Meanwhile, sharia insurance uses a tabarru' agreement, which is done to help fellow participants who use sharia insurance.

Closing

It cannot be denied, sharia insurance and conventional insurance are not the same. The following are important points that differentiate these two insurances in Indonesia:

1. Sharia insurance applies an Islamic system while conventional insurance is based more on state law and economics in carrying out its operations
2. Conventional insurance companies are the guarantors (risk transfer), while sharia principles prioritize mutual cooperation because policy holders will help each other.
3. The management of sharia insurance funds will be supervised directly by ulama or DPS, while conventional insurance is regulated and supervised by a regulatory body that supervises it in accordance with applicable law.

These are the various differences that make sharia and conventional insurance so different and contradictory. Even though both have their own advantages and disadvantages, insurance companies that apply one of these two principles offer many benefits to the public, so make sure that you choose an insurance company that suits what you want.