The difference between cooperative and commercial insurance Blog Image

The difference between cooperative and commercial insurance

11 May 2024

Cooperative insurance, also known as Takaful insurance, is a unique concept that brings together individuals and businesses in a spirit of cooperation and mutual support. In the Kingdom of Saudi Arabia (KSA), cooperative insurance has gained popularity as it aligns with the Islamic principles and values that hold significant importance in the local culture.

So, what exactly does cooperative insurance mean? Well, imagine a group of people who come together and pool their resources to protect themselves against potential risks and losses. Instead of relying on a traditional insurance company, these individuals form a cooperative insurance group where they share the responsibility of covering each other's losses.

In KSA, cooperative insurance is regulated by the Saudi Arabian Monetary Authority (SAMA) under the Cooperative Insurance Companies Control Law. The aim is to ensure that the insurance industry operates in accordance with Islamic principles and meets the specific needs of the local population.



What is commercial insurance?


Commercial insurance, also known as business insurance, is a crucial safeguard for businesses in Saudi Arabia (KSA). It offers protection against unexpected financial losses and liabilities that can disrupt the smooth functioning of a business.

In KSA, commercial insurance plays a vital role in ensuring that businesses are well-prepared for the uncertainties they may face. It provides coverage for a wide range of risks and helps businesses recover and regain their stability in times of crisis.

One of the most common types of commercial insurance in KSA is property insurance. This coverage shields businesses from property damage caused by events like fires, theft, vandalism, or natural disasters. It ensures that businesses can quickly bounce back from such unfortunate incidents without suffering significant financial setbacks.



What are the types of commercial insurance?


1.      Property Insurance: This type of insurance covers the physical assets owned by your business, like buildings, equipment, inventory, and furniture. It provides coverage against events like fires, theft, vandalism, or natural disasters that could damage or destroy your property.

2.      General Liability Insurance: This insurance is like a safety net for your business. It protects you from third-party claims of bodily injury, property damage, personal injury, or advertising injury. So, if someone gets hurt on your premises or you accidentally damage someone's property, your insurance will cover the costs.

3.      Professional Liability Insurance: If your business provides services or advice, professional liability insurance is crucial. It protects you from claims of negligence, errors, or omissions that may result in financial losses for your clients. This way, you can focus on your work without worrying about potential lawsuits.

4.      Workers' Compensation Insurance: Taking care of your employees is essential, and workers' compensation insurance helps you do just that. It covers medical expenses and lost wages for employees who are injured or become ill while performing their job duties. It's mandatory in most places and helps protect your business from potential lawsuits related to workplace injuries.

5.      Commercial Auto Insurance: If your business uses vehicles for operations, like delivery trucks or company cars, commercial auto insurance is a must. It provides coverage for accidents, theft, or damage to the vehicles. It may also include liability coverage for injuries or property damage caused by your business-owned vehicles.

6.      Cyber Insurance: In today's digital world, cyber threats are a real concern for businesses. Cyber insurance addresses these risks by providing coverage for financial losses, legal expenses, and liabilities resulting from cyberattacks, data breaches, or other cyber incidents. It helps you recover from the financial impact of such events.

7.      Business Interruption Insurance: Unexpected events like fires or natural disasters can disrupt your business operations. Business interruption insurance helps you recover lost income and cover ongoing expenses during the downtime. It ensures that your business can get back on track as quickly as possible.

8.      Product Liability Insurance: If your business manufactures or distributes products, product liability insurance is essential. It protects you against claims of injury or property damage caused by your products. It covers legal expenses, settlements, or judgments related to product liability claims.



What are the fundamental differences between cooperative and commercial insurance?


Cooperative insurance and commercial insurance are two different types of insurance models with distinct characteristics. Here are the fundamental differences between the two:


1.      Ownership Structure:

·         Cooperative Insurance: In a cooperative insurance model, the policyholders themselves own the insurance company. They are also the beneficiaries of the insurance coverage. Policyholders have voting rights and can participate in the decision-making process of the cooperative.

·         Commercial Insurance: In commercial insurance, the insurance company is owned by shareholders or a private entity. The policyholders are customers who purchase insurance policies from the company. Policyholders do not have ownership rights or voting privileges in the company.

2.      Purpose:

·         Cooperative Insurance: The primary purpose of cooperative insurance is to provide insurance coverage to its members at cost-effective rates. The focus is on meeting the insurance needs of the policyholders rather than generating profits for shareholders.

·         Commercial Insurance: The main objective of commercial insurance is to generate profits for the company's shareholders. The company aims to provide insurance coverage to customers while maximizing its financial returns.

3.      Profit Distribution:

·         Cooperative Insurance: In a cooperative insurance model, any surplus generated from the insurance operations is returned to the policyholders as dividends or premium refunds. The surplus is shared among the policyholders based on their participation in the cooperative.

·         Commercial Insurance: In commercial insurance, the profits generated by the company are distributed to the shareholders in the form of dividends. The shareholders, who are not necessarily policyholders, receive a portion of the profits based on their ownership stake in the company.

4.      Decision-Making Process:

·         Cooperative Insurance: Policyholders in a cooperative insurance model have the opportunity to participate in the decision-making process of the company. They can vote on important matters such as the election of board members, approval of policies, and distribution of surplus.

·         Commercial Insurance: Decision-making in commercial insurance is typically controlled by the company's management and board of directors. Policyholders do not have a direct say in the company's operations or decision-making processes