The Garden of Knowledge

بسم الله الرحمن الرحيم

23 Dhul Hijjah 1446/20 June 2025

All praise is due to Allah ﷻ , the Cherisher, Sustainer, Nourisher and Provider of the entire creation. May peace, blessings and salutations be upon our Beloved Prophet Muhammed ﷺ.

Without a doubt we are currently living in an era where The digital world has taken control over our lives especially since the inception of Covid-19. Over the past 15-20 years we have noticed the gradual development of the digital world and Fintech. At first we noticed many businesses went digital and now operate as online stores. We witnessed the development of banks going online, making it easier to conduct transactions and most recently we have noticed development in the Fintech industry in the form of Cryptocurrencies, Crowdfunding etc.

The application of Artificial Intelligence is pre-dominantly included advanced web engines, recommendation systems which are found in applications such as Youtube, Facebook etc. and it was also used in devices used to understand human speech such as Siri and Alexa. When we look at the Takaful industry today, we may wonder how we can make use of Fintech and Artificial Intelligence to develop the industry. One of the main ways forward to bring the Takaful industry forward into the future is through TakafulTech which makes uses of systems such as Robo Advisory and Chatbot.

TakafulTech/InsurTech

TakafulTech, also known as TakaTech is the application of Fintech in Takaful. While this might be one of the slowest growing areas in the Islamic Finance industry, there are numerous new advancements in the Takaful sector that will allow it to adopt and embrace technology. (Adam, 2020, pp. 202–206)  TakafulTech is all about getting to know each customer more intimately and then providing them with personalized insurance products and services. There are numerous technological trends which can be used by Takaful firms to improve and expand their offerings. Amongst them we have:

• Artificial Intelligence and machine learning: One of the major trends within the field of AI and machine learning is the use of Chatbots. What is a Chatbot? A chatbot is artificial intelligence (AI) software that can simulate a natural language interaction with a user via messaging apps, websites, mobile apps, or the telephone. (Expert.ai Team, 2020)

 Chatbots are available to assist consumers at all hours of the day and week, and are not restricted by time or location. This makes it desirable to many organizations that may lack the manpower or financial means to maintain employees working 24 hours a day, seven days a week. (FRANKENFIELD, 2019) There are two types of Chatbots, namely:

1. Set Guideline Chatbots: The conversational capabilities of a chatbot that operates under a set of guidelines are restricted. It can only react to a limited number of requests and has a limited vocabulary, and its intelligence is limited by its programming code.
2. Machine Learning Chatbot: An artificial neural network inspired by the neural nodes of the human brain powers a chatbot that uses machine learning. As new phrases and words are introduced to the bot, it is programmed to self-learn. 

The incorporation of Chatbot into a Takaful firm’s service delivery will allow for more cost-effective and streamlined services. Machine Learning and Artificial Intelligence (AI) will assist firms to minimize bogus claims and automate the claims processing cycle. (Adam, 2020, pp. 202–206) 

• Blockchain: Blockchain has the potential to completely transform and develop the environment of Takaful interaction. The use of Blockchain technology will improve data security and trust amongst Takaful parties. This will reduce costs, enabling Takaful enterprises to be more competitive in terms of price and bolstering the growth of the Takaful industry. (Adam, 2020, pp. 202–206) 
•  Robo-Advisory: The term “robo-advisor” is defined by Brenner and Meyll (2020) as an “automated financial advisor.” The objective of using a robo-advisor is to automate the financial counselling process and make it more accessible, flexible, convenient, and, most importantly, cost-effectiveness. (Hemed et al., 2021) Objectivity and the avoidance of human errors, which could result in significant legal/regulatory expenses for an organization, are indeed other advantages of robo-advisory.

Robo-advisors are objective in the sense in which they do not possess self-interest, desire or and hidden agendas hence the recommendations made by robo-advisors are considered to be unbiased. As automated advisors are built on complex algorithms, they can curate appropriate insurance policies depending on each customer’s risk tolerance and financial history. This might enable potential customers to choose the best takaful plan for them, as well as enable takaful operators to reach out to clients in multiple areas at the same time, without creating a conflict of interest. At the same time Robo-advisors have the potential ability to respond to behavioural changes and adopt to new needs that arise based on algorithms which enables them to adapt.

Robo-advisory is convenient and easily accessible in the sense that robo-advisors can respond to inquiries in real time not dependent on the working hours of man. Robo-advisory has the potential to serve multiply clients concurrently which is unlike any human agent who has the potential to serve one client at a time. (Hemed et al., 2021)

However Robo-advisory lacks two important aspects which every person seeks when claiming/purchasing a service. The first aspect is the lack of personal contact and emotion. When doing business, people really seek for service providers that have that personal touch and emotional connection with them as it provides a sort of a safe space and allows for the development of trust and a long standing relationship. The second aspect which Robo-advisory lacks is the lack of personalization. As we know Robo-advisory makes use of general automated algorithms which sometimes may be inaccurate as a result of partial data and incorrect assumption.

Despites these two disadvantages found with Robo-advisory, there is still great potential for Robo-advisors to improve the operational efficiency of Takaful operators.

• Internet of Things (IoT): Takaful providers will be able to be more competitive as a result of the interconnectedness of devices enabled by the IoT, and they will be capable of engaging with mainstream providers. Wearables, smart appliances, and telematics data could be used to deliver more accurate risk assessments and better risk modelling.

As time goes on and with the advancement of Fintech, we notice that the Islamic Financial sector tends to get left behind especially with regards to the Takaful (Mutual Indemnification) sector.  One of the main reasons for this is the lack of knowledge and understanding pertaining to the field of Takaful within Shariah. It is high time that we educate not only ourselves but our communities at large on what is Mutual Indemnification in terms of the Shariah. The implementation of AI in Islamic Fintech subsets such as Takaful has great potential to take the industry to new heights and allow for the industry to operate on a level playing field with conventional insurance firms in terms of cost, accessibility and objectivity.

 May Allah ‎ﷻ accept our efforts from us and grant us understanding In Sha Allah!

Adam, F. (2020). Introduction to Islamic Fintech (pp. 202–206). Amanah Advisors Press.

Expert.ai Team. (2020, March 16). Chatbot: What is a Chatbot? Why are Chatbots Important? Expert.ai. https://www.expert.ai/blog/chatbot/

FRANKENFIELD, J. (2019). Chatbot. Investopedia. https://www.investopedia.com/terms/c/chatbot.asp

Hemed, H. A., Alamoudi, A. A. A., Al Qassim, A. A. A., & Qasem, B. M. S. (2021). The Potential Use of FinTech Developments in Takaful. International Journal of Management and Applied Research, 8(2), 109–121. https://doi.org/10.18646/2056.82.21-007