Insurance Based on Waqf and Blockchain Technology:

A Strong Social Impact & Efficiency

FATIMA ZAHRA MESKINI, RAJAE ABOULAICH

Laboratory of Applied Mathematical Studies and Research,

Mohammadia School of Engineering (EMI), Mohammed V University,

Ibn Sina Avenue, Agdal, Rabat,

MOROCCO

Abstract: - We surveyed to measure the satisfaction of policyholders in Morocco, and the results clearly show

that the majority of customers do not appreciate the current services. They suffer from the ambiguity of

contracts, and delays in reimbursement and do not feel the real impact of insurance in society. To solve this

problem, we propose an innovative insurance based on blockchain and waqf. We suggest in this paper, to use

smart contracts to create an efficient and automatic process in the collection of premiums and reimbursement of

policyholders. The goal of this paper is to build insurance that reflects the true meaning of solidarity through

Waqf while integrating transparency and speed through Fintech. This insurance model is supposed to be

resilient in times of crisis, have a strong social impact, and be attractive to customers. Many advantages of the

proposed model are discussed in the paper. In addition, the suggested insurance model will be represented

through simulations on the NetLogo platform. We carry out the analysis in normal times and evaluate the

behavior of policyholders in choosing a specific type of insurance, depending on some decision-making tools.

We also analyze the impact of insurance during a time of crisis, as a particular example, the crisis experienced

during the coronavirus pandemic. The simulations aim to evaluate the model in different situations and prove

its efficiency.

Key-Words: - Blockchain, insurance, Waqf, multi-agent-based simulation, decision making, social impact,

pandemics.

Received: March 14, 2023. Revised: January 17, 2024. Accepted: February 9, 2024. Published: March 8, 2024.

1 Introduction

Our paper aims to build an innovative insurance

made of solidarity and transparency, to study the

efficiency of our model in normal conditions, and

then during a pandemic crisis. Using the platform of

multi-agent modeling NetLogo [1], we run

simulations in a complex environment where agents

are interacting and influencing each other, [2], to see

whether policyholders are going to be interested in

our new product. Then, we move from normal

conditions to the pandemic context to examine the

behavior of insurance during a crisis.

Our model is based on Blockchain, which is a

distributed ledger with specific characteristics such

as security, decentralization, and immutability. This

technology of data transmission was launched in

2008, [3]. The first application is the public

blockchain of the most famous cryptocurrency

Bitcoin. The powerful aspect of blockchain is that it

ensures a high degree of transparency. This

transparency is the missing part in many insurance

companies, which causes a problem of trust in the

relationship with policyholders. On the other hand,

smart contracts are very helpful for insurance based

on blockchain, [4]. They enable an automation of

claims verification and also refunds. In other words,

rapidity and efficiency are the qualities provided by

those contacts.

The insurance we suggest is not a simple

insurance based on blockchain, it is based on a waqf

fund and considers the premiums paid by

policyholders as donations offered for a social

purpose in a perpetual way, [5]. Papers about waqf,

insurance (Takaful), and blockchain are quite

abundant, tackling those concepts from different

perspectives, from history to the latest experiences

but also by exploring applications in different areas.

To the best of our knowledge, exploring waqf

Takaful as a new insurance model based on

transparency and made of the latest technologies is

new and innovative. It will be the aim of our study.

Insurance companies are supposed to enable

people to face unpredictable risks and protect them

from uncertain events in the future. But, a survey –

detailed in the next part- shows that policyholders

do not trust insurance companies enough. To fill this

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gap between insurance companies and their clients,

we should rethink the role supposed to be played by

insurance, not only in daily life but also in times of

crisis.

To achieve our goal of building a consistent

model of insurance, we have chosen to combine a

very old concept full of solidarity, which is Waqf,

and a very recent financial technology, which is

blockchain. When we base our Takaful insurance on

Waqf, we focus on the social aspect of insurance

and mutual aid. On the other hand, making use of

fintech enables building a very transparent platform

with clear smart contracts rapidly executed.

The purpose of this paper is to suggest a strong

model of insurance with specific characteristics.

Then, we will simulate several scenarios to evaluate

the model in the NetLogo platform to test it in the

normal context, and then, explore it during a crisis

such as a coronavirus pandemic. We will end up

with some conclusions about the relevance of the

model and suggest some recommendations to

improve it in a particular way, but also improve the

insurance sector in general.

2 Methodology and Tools

In this section, we will tackle the research

methodology and the main tools used in the paper,

to follow step by step our study from problem

statement to simulations and discussion.

2.1 Problem Formulation

We survey a sample of 120 people from Morocco to

evaluate their satisfaction with the existing

insurance companies. The age categories vary from

20 to 65 years old, and the profiles were diverse:

salaried employees, retirees, and students. The pool

shows that they are generally unsatisfied with

insurance companies. After analyzing the results, we

grouped the answers and noticed that the majority

are complaining about the following aspects: The

ambiguity of the activity of insurance companies,

the prices are expensive and the conditions of the

contracts are not clear. For the reimbursement, only

15% of policyholders are fully satisfied with it,

while 28 % find it too long and 56% want it to be

faster. Adding to this, a great number are saying that

they buy some insurance products only when it is

compulsory.

All those aspects show that the clients are not

satisfied enough and need a new model of insurance

to trust those companies again.

Adding to this, no one can deny that

Coronavirus marked the last years, this pandemic

has affected more or less all countries of the world,

to different degrees. The economy suffered great

losses because many sectors were seriously

damaged. Several businesses went bankrupt, many

people were infected and many died. This

unexpected crisis has destabilized the world. This

critical situation makes us think about the efficiency

and the role of insurance companies.

Insurance is made to protect people in case of a

problem and should implement an atmosphere of

confidence and solidarity. For those reasons, we

have chosen to create innovative and efficient

insurance companies.

2.2 Literature Revue

As long as we are dealing with insurance which is

based on blockchain, we found a great number of

papers about blockchain technology and smart

contracts starting from how it works and all the

technical details, to limitations, [4], [6]. Many

researchers study the application of fintech in

several domains and others are particularly

interested in the financial sector such as, [7], [8],

[9]. The literature is quite abundant concerning

blockchain, its characteristics, and applications.

Concerning Waqf Takaful, some papers are

discussing this concept and comparing it with the

other types of Takaful such as Wakalah or

Mudarabah-based insurance, [10]. On the other

hand, other works are trying to discuss the

challenges insurance can face when it is based on a

waqf fund. Concerning new technologies, mixing

waqf and blockchain is also a topic of research, and

some concrete applications already exist such as

WAQFchain, which is a blockchain of waqf

developed by Finterra (Islamic Social Islamic

Blockchain), [11].

For Covid-19 and the insurance sector, some

papers are interested in the impact of this pandemic

on the insurance sector in general, or a specific type

of insurance such as health insurance, [12], [13], or

[14].

In this work, we have chosen to add our

contribution to the previous studies, which is a

suggestion for new insurance that is going to

combine the transparency of blockchain and the

social impact of waqf to attract policyholders and

face unexpected crises.

For this purpose, we will make use of the

software of multi-agent-based modeling explained

in the next paragraph.

2.3 Multi-agent-based Modeling

Multi-agent systems (MAS) study the way a group

of autonomous entities called agents organize

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themselves to solve problems, achieve tasks, and

produce global phenomena that agents cannot

realize alone. The MAS can give a more realistic

alternative to conventional approaches such as

traditional discrete event simulation, object-oriented

simulation, and dynamic microsimulation. Multi-

agent systems modeling is inspired by methods of

logical reasoning of classical artificial intelligence

(AI), process management work of distributed AI,

and the behavioral approach of artificial life, [15].

The first applications of multi-agent simulation

appeared in the mid-1980s and gradually covered a

variety of domains. But, even if most of Multi

Agent Based Simulation (MABS) has been used in

purely social contexts, MABS has several

interesting properties that make it useful also for

other fields, [16].

Using NetLogo, as an agent-based programming

language and integrated modeling environment, is

very convenient for our study. It is easy to use and

suitable for our modeling as long as we simulate

virus spread, interaction between people and the

reaction of insurance companies in the pandemic

crisis. NetLogo allows creating of many scenarios

by modifying switches, sliders, choosers, inputs, and

other interface elements, to run our model in a

variety of assumptions. Thus, this software is very

useful in our study. For the simulations, we will

need some data to simulate some scenarios in a

quite realistic context.

2.4 Data Collection

In our study, we will make use of data related to the

population, particularly policyholders, other data

related to the virus spread and finally data in

relationship with insurance companies.

2.4.1 Data Related to the Population

To represent our population, we select three main

attributes to define policyholders: age, wealth, and

religiosity. For the age parameter, according to the

age structure of Morocco given by recent statistics,

the approximate distribution is as follows:

-Middle-aged (30 <age< 55) 50 % of the population.

-Young people (age < 30) 30 % of the population.

- Elderly people (age> 55) 20 % of the population.

Concerning religiosity, it is clear that the

insurance we suggest is not dedicated to Muslims; it

is just a new and transparent model of insurance.

But, this kind of insurance is also based on Takaful,

which is a Sharia-compliant model. Thus, Muslims,

with a high degree of religiosity, would tend to

choose this insurance rather than the conventional

one. The average religiosity is represented as a

slider and is rated from 0 to 10. Each policyholder

has a specific religiosity, we suppose that this

parameter follows a normal distribution.

For the wealth parameter, we simply assume

that wealth is following a normal distribution with a

mean defined as a slider.

2.4.2 Data Related to Insurance Companies

In the first part of simulations in normal conditions,

we will check if the suggested insurance is going to

attract policyholders in an environment of different

kinds of insurance companies.

For this purpose, we have selected six

characteristics that matter in choosing a specific

insurance company: cost, rapidity, transparency,

conformity, reputation, and proximity. We selected

those criteria from the survey mentioned earlier.

- Cost: People are generally interested in the

insurance contracts suggesting the cheaper

premiums. This factor is very important to the

majority of policyholders. At the beginning of

the simulation, we consider that the services of

our insurance will be more expensive than the

conventional one because the number of clients

is still low. But, as the number of policyholders

increases, we can reduce the prices especially

because blockchain and smart contracts reduce

charges in the long term (fewer intermediaries,

more automation).

- Rapidity: For Blockchain-based insurance,

especially while using cryptocurrency, the delay

is much shorter than the usual insurance periods.

If for example the transfer of money abroad

requires several hours, thanks to blockchain

technology, it only takes a few minutes to

generate a block and therefore a transaction.

More than that, thanks to smart contracts,

conditions are verified automatically via oracles,

[17]. Those oracles check conditions in databases

and use sensors. So, reimbursements are made in

a very short time, [3].

- Transparency: Many people complain about the

ambiguity of activities of the insurance sector.

We suggest a model where investments of the

company and a history of refunds are available at

any time for the customer. Those aspects do not

exist in conventional companies.

- Conformity: Depending on their faith or religion,

policyholders may be interested or not in the

Shariah Compliance of the company they choose.

Takaful investments make sure to avoid

investments in sectors considered illicit (Alcohol,

lottery…) through a Shariah board that controls

the whole process.

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- Reputation: At the beginning, we assume that the

reputation of conventional insurance is better

than the new one because the latest is still

unknown to customers. To be objective, we give

our insurance 5/10, which is the average. This

rating will surely evolve during the simulation.

- Proximity: We consider that conventional

companies are initially more numerous than the

insurance companies we suggest, which is logical

because it is the beginning. Depending on their

success, their number will increase gradually.

2.4.3 Data Related to Covid-19

In the second part of the simulations, we simulate

insurance companies during a pandemic crisis. We

selected as an example the recent Coronavirus

pandemic.

We suppose that insurance companies

indemnify policyholders who suffered from

financial losses during this period. We have chosen

to simulate the virus expansion in society, as long as

the sanitary situation gets harder, the economic

situation gets harder too.

For this purpose, we need some data related to

the virus expansion, such as the propagation modes,

the immunity duration, and the vaccination process.

All the needed information is easily accessible via

the World Health Organization reports but also on

the website of the Minister of Health in Morocco.

3 Key Concepts

In this part, we are going to explain some concepts

related to insurance based on Waqf and blockchain.

The aim is to clarify the main aspects of the model

of insurance that we will simulate later.

3.1 Some Definitions

In the following paragraphs, we give some brief

definitions to key concepts that are important to

understand the insurance model suggested.

3.1.1 Blockchain & Smart Contracts

Blockchain is a chain of blocks made by computer

codes. Each block contains specific data and other

information related to the previous block, and it is

encrypted. To save new data, it should be grouped

in a block that will be validated by « miners » who

will analyze the whole blockchain.

One of the most important characteristics of

blockchain is that it allows value transmission

without a central intermediary. Indeed, the internet

can also allow data sharing, [18], but we should

know that it is just copy-sharing. Thus, it could not

be applied to valuable things such as money. For

instance, when you send a file to someone, you still

have it on your laptop, the receiver is getting just a

copy. This problem also known as «the double

spending problem» is solved by blockchain

technology. The main application that results from

this concept is Bitcoin, the most famous

decentralized cryptocurrency. To sum up, we can

say that blockchain is a technology for storage and

data transmission that is extremely secure and

decentralized.

A smart contract is a kind of computer program

automatically executed when conditions to be

checked are met. The concept exists many years

before the emergence of blockchain. But, it is only

when these contracts are implemented in blockchain

platforms (such as Ethereum), that they can reveal

their full potential.

3.1.2 Takaful

Takaful, translated as “solidarity” from Arabic, is a

type of cooperative insurance, used in Muslim

communities, where policyholders are considered as

participants. Takaful aims to financially support

each other from a covered loss. Takaful differs from

conventional insurance in many fields. Riba (usury)

and gharar (uncertainty) are not tolerated. Moreover,

investments in some illicit sectors are not allowed.

There are many types of Takaful insurance,

depending on the nature of the contract linking

policyholders and the company’s managers. The

most common ways are the Wakalah model, the

Mudarabah model, and Waqf Takaful. Hybrid

models also exist, combining more than one type of

contract. In the Wakalah model, managers take a

fixed percentage of the premiums paid initially by

policyholders. In the Mudarabah model, managers

invest the money and benefit from a percentage

depending on the return.

For Waqf model, is based on the principle of

Waqf, explained in the next section.

3.1.3 Waqf

Waqf is not a new concept in the Islamic world. For

a long time, many donations considered Waqf have

contributed efficiently to helping needy people all

over the globe. Due to its specific characteristics,

Waqf is a strong way of giving charity and

sustainably establishing solidarity.

Waqf is a dedication of property given by a

Muslim person, to charitable purposes for an

unlimited period of time. The donation is

irrevocable and the usufruct is permanently

dedicated to the benefit of mankind. The waqf may

be related to real estate, machinery, books, stocks

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and shares, or even cash. The purpose of waqf may

concern many fields such as health care, schooling,

or financial help for needy people.

One of the most important conditions for the

legitimacy of waqf is perpetuity, to obtain long-

lasting profits. Thus, it is generally applied to non-

perishable goods that can create benefits without

consuming the good itself, such as agricultural

lands. Waqf for a limited time is unknown and not

recognized by the Shariah.

In the next part, we are going to explore the

integration of Waqf into our insurance model.

3.2 Main Characteristics of the Suggested

Model

The main characteristics of our insurance model can

be summed up in the following aspects.

3.2.1 Solidarity and Social Impact

After introducing some definitions of Waqf, we

notice that it will be interesting to combine the

principle of Takaful with the concept of Waqf. Both

of them have the same goal, which is implementing

mutual aid in society. More than that, in the Islamic

model of insurance, premiums given by

policyholders are considered donations. Thus, it is

more suitable to give those donations to the waqf

fund instead of considering premiums as donations

and Mudarabah capital at the same time, which is

not very relevant.

For those reasons, we choose to adopt a Waqf

Takaful model because it reflects more the sense of

solidarity by helping needy people and extending

financial aid to other categories of needy people

even if not policyholders. This model is going to be

very helpful, especially during the time of crisis,

when the economic and social situation becomes

critical.

3.2.2 Rapidity and Transparency

We suggest a model of insurance based on

Blockchain, a new and innovative technology,

which is a combination of already existing

technologies such as cryptographic hash, digital

signature, and distributed consensus mechanism,

[7]. The interesting thing about blockchain is that it

creates faith and transparency. Indeed, many

customers have lost trust in many financial

institutions, this technology can be the proof of a

new period of full transparency. Thus, it will enable

organizations to focus on more important things

such as improving their services and creating

innovative products. As for smart contracts

combined with blockchain, they are very efficient

for making processes faster and cheaper. Without

any intermediary, actions are automatically executed

if the terms of the virtual contract are fulfilled, [19].

No transaction costs are needed and no manual

verification is required, as long as oracles are

efficient in verifying the related conditions

We suggest a modern model of Takaful using a

consortium blockchain and smart contracts, [14]. In

this platform, a transaction validation process is

maintained by a limited

number of servers, representing the company's

trusted nodes (managers), and the contract is

fulfilled automatically, [7]. To enhance the benefit

of transparency, reading rights may be granted to

participants for certain data related to contracts,

claims, and refunds.

This kind of company will mainly acquire the

following advantages. First, transparency; access to

the history of refunds and current investments, [1].

Second, rapidity; automatic reimbursement based on

smart contracts (oracles, sensors), and instant

payment with cryptocurrency, [7]. Third, profit

sharing, the contract allows policyholders to benefit

from a percentage made on the base of investments’

gains. In Takaful, there is also risk sharing and

solidarity in case of crisis.

In this model, we can opt for the use of

cryptocurrency; when the conditions are met and the

customer has to be paid, he can be automatically

paid in cryptocurrency by a simple transaction

executing a line of smart contract code that will

increment his wallet with a specific sum, [19].

In a nutshell, the model we suggest is based on

Waqf, but also uses the latest technologies such as

blockchain and smart contract,s [1], the goal is to

obtain insurance that is innovative, transparent,

shariah compliant, with social impact and resilient

to a crisis such as pandemics discussed in our paper.

4 Simulations during Normal Time

We would like to know if the model suggested

before is going to be well accepted in a society

where there are only conventional insurance

companies, such as Morocco. We suppose that

agents are going to choose one insurance or another

depending on the decision-making matrix.

4.1 The Decision Matrix: A Simple and

Efficient Tool for Decision-Making

One of the simplest decision-making tools is the

decision matrix. It enables an individual or a group

of people, to choose the best alternative depending

on specific criteria. A decision matrix is a list of

values in columns and rows that allows us to

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visually compare possible solutions by weighing

variables based on their importance. We assume that

policyholders choose either conventional insurance

or smart insurance (the suggested model) depending

on six main criteria. We have selected these criteria

from the survey mentioned before.

[𝒄𝒐𝒔.𝒓𝒂𝒑. 𝒕𝒓𝒂𝒏𝒔. 𝒓𝒆𝒑. 𝒄𝒐𝒏𝒇. 𝒑𝒓𝒐𝒙.

𝒔𝒎𝒂𝒓𝒕 𝟔 𝟕 𝟖 𝟓 𝟕 𝟑

𝒄𝒐𝒏𝒗 𝟖 𝟔 𝟒 𝟕 𝟒 𝟖 ]

Fig. 1: The initial decision matrix

Figure 1 represent the decision matrix, where:

cos, rap, trans, rep, conf, prox, respectively refer to

the notations of cost, rapidity, transparency,

reputation, conformity, and proximity related to

each company. The justification of the rating and

more details about these parameters are given in the

following paragraph.

The ratings are related to the matrix of decision

at the beginning of the simulation, these ratings are

going to evolve. Adding to this, policyholders are

going to give weights to the columns according to

the importance given to each criterion for them.

The weights of the decision matrix depend on the

type of the policyholder (age, religiosity, wealth).

From these attributes, we obtain many types of

policyholders 33 =27, which reflects the diversity of

the agents interacting in our model and makes it

closer to reality. For example, a person who is

(young, religious, or poor) will give importance to

the criteria of rapidity, Shariah compliance, and

cost, more than other aspects.

4.2 Explaining the Algorithm

As long as we are dealing with a complex system,

we consider that policyholders make decisions not

only depending on the result of the decision matrix

but also depending on the choice of the people

geographically close to them. For example, if the

number of neighbors who are choosing conventional

insurance is higher than that of smart insurance

clients, we will add one point to the total

corresponding to the row of conventional insurance

and vice versa.

To make our simulation closer to the logical

thinking of normal individuals, we do not rely only

on the result of the decision matrix, but we also add

some points related to the natural thinking of a

policyholder living in a society, to select the final

decision of each person:

- Interaction & imitation: people are not living in

separated islands; they are living in a community,

and that’s why we make use of a multi-agent

model. The effect of neighbors cannot be

neglected; people are permanently influenced by

their environment. A policyholder in a complex

system does not react only on his own and is

partially interested in the choices of people who

are close to him.

- Changing choice: To make the model more

realistic, an agent does not change its choice

instantly when mathematically the result of the

decision matrix changes by one or two points.

The difference between the results of the two

alternatives should be big enough to make a

policyholder abandon his initial choice.

- Random choices: We should say that choice is

not always made by a fully rational decision

especially when the results of conventional

insurance and smart insurance are close enough.

That is why, in some cases, we attribute random

choices to be closer to realistic results.

- Loyalty factor: clients remain loyal sometimes to

their insurance company even if a better choice is

available in the market. Loyalty factor differs

from one person to another but exists in every

customer's behavior, maybe for elderly people

more than young people.

4.3 Scenarios Simulations & Interpretation

We will start running the simulations in the software

of multi-agent-based simulation Netlogo.

Policyholders have to choose between two main

types of companies existing in their environment.

Individuals are interacting with each other and

companies are evolving.

4.3.1 Scenario 1: Basic Scenario

We simulate the behavior of policyholders during a

long period, and simulate the number of clients that

are going to choose the new insurance and those

who will remain with the classical companies,

depending on the decision matrix mentioned earlier.

Fig. 2: Results of scenario n°1 from Netlogo

___ Number of clients of Smart Insurance

___ Number of clients of Conventional insurance

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In Figure 2, representing the evolution of clients

over time, we distinguish three main parts in the

graph

- First period: The number of clients in

conventional insurance is growing steadily with

an almost constant slope, while smart insurance

customers are increasing at a very slow pace over

time. It is the period of emergence of smart

insurance, which is still a new product in the

market. Adding to this, it can be said that this is

because the majority of policyholders who

choose the proximity criterion will tend to

choose conventional insurance, which is more

recurrent in number.

- Second period: The reputation of smart insurance

is improving and more and more people are

trying it. Adding to this, surplus sharing is

making prices of smart insurances cheaper

because even if the policyholder pays for

example 60 as a premium, he gets 10 at the end

of the year, which means that the cost rating will

improve in the decision matrix.

- Third period: Smart insurance is getting better

and better reputation, they are also getting closer

to customers because the number of agencies is

getting higher, while the number of clients in

conventional insurance becomes low. We

assumed that policyholders change their choices

according to rational criteria and the influence of

neighbors, but also depending on their loyalty to

their service provider. To some extent, there is a

kind of attachment to the old product that hinders

the switch to the new one. Actually, in this stage,

the number of clients in conventional insurance

becomes more or less constant, containing

mainly clients who are not interested in change

and remain in their companies out of habit, not

for its efficiency.

4.3.2 Scenario 2: Facing a Competitive Context

The first scenario was not realistic enough, because

conventional insurance cannot just sit idly by and

look at the smart insurance flourishing without

reacting.

In this scenario, we assume that conventional

insurance will react by integrating many

improvements. Conventional insurance can

implement smart contracts to increase the rapidity

level. They may reduce costs to attract more clients

and to compensate for the effect of surplus sharing

in the smart insurance. To be more competitive, they

can also integrate the transparency aspect by

reducing their opacity and giving more access to

data to policyholders.

Concisely, the already existing insurance companies

are not going to remain the same while the new

companies are involving the latest technologies.

Conventional companies will probably imitate

gradually our innovative insurance by integrating

blockchain and being more transparent to be more

competitive.

In the case of competition, the results that we

obtain through simulation are presented in Figure 3.

Fig. 3: Results of scenario n°2 from Netlogo

____ Number of clients of Smart Insurance

____ Number of clients of Conventional insurance

When we take into consideration the effect of

interaction between people, loyalty, and

competition, we notice the following evolution. In

the beginning, conventional insurance will lose

some of its clients with the emergence of smart

insurance but will keep loyal customers. Then, by

integrating the advantages of rapidity, transparency,

and attractive premiums, they will evolve with a

constant slope. The smart insurance will increase in

a parallel way. We noticed that conventional

insurance has gone beyond smart insurance, which

makes sense because it has henceforth the same

advantages plus loyal clients. In this case, the

Shariah compliance criteria will be the main

difference between the two types.

According to the previous results, we can say

that the suggested insurance based on blockchain

will surely attract a lot of clients even if the loyalty

factor may slow down the process. In this case, if

conventional companies do not react, they will

disappear. Thus, to survive, conventional insurance

should improve, and give the same advantages as

smart insurance (rapidity, transparency, and

competitive prices). If so, conventional insurance

will be able to compete with smart insurance, which

means that, smart insurance will have to innovate

more to attract more clients. On the other hand, our

smart insurance will have a great success in

societies where the global average of religiosity is

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high because the criterion of shariah compliance

will be more important.

We can say that implementing this new

insurance is not only going to satisfy customers, but

is also going to motivate conventional insurance

companies to improve their services to be more

competitive in the market.

After evaluating insurance companies’ services

during normal times, in the next part, we will try to

explore what will happen during the time of crisis.

5 Simulations in the Pandemic

Context

The purpose of this part is to explore the impact of

Coronavirus on the insurance sector and then

demonstrate that Waqf Takaful based on blockchain

is more suitable in times of crisis. In the first part,

we explain the context before moving to simulations

and results discussion.

5.1 Coronavirus Pandemic and Insurance

Companies

On 31 December 2019, the WHO China Country

Office noticed cases of pneumonia of unknown

cause detected in Wuhan. Day after day, the virus

continues spreading in China first, then in other

countries. From the first time it was reported, the

virus has been reported to spread rapidly among

people. It has also resulted in the death of thousands

of persons and is still killing people all over the

world. In the coming sections, we will explain what

is coronavirus and its impact on the economy and

insurance.

5.1.1 About Coronavirus: Emergence and Spread

Coronavirus or COVID-19 is a respiratory disease

that initially originates from animal sources but

hence transmitted from person to person. The virus

is transmitted mainly when the sick person comes

into close contact with another. This is particularly

the case when the patient coughs or sneezes.

Another possible cause is touching infected surfaces

or objects and then pushing the virus into the body

through the eyes, nose, or mouth.

According to the World Health Organization,

most people infected with the COVID-19 virus will

experience mild to moderate respiratory illness and

recover without requiring special treatment. Older

people, and those with underlying medical problems

like cardiovascular disease, diabetes, chronic

respiratory disease, and cancer are more likely to

develop serious illness. Recently, many vaccines

were found to protect from COVID-19, such as

AstraZeneca, pFizer, Sinopharm, Moderna...

However, the efficiency differs from one vaccine to

another and some side effects are still under study.

Adding to this, many of those vaccines need to be

taken every six or four months. Many persons are

affected by coronavirus even if they are vaccinated.

But, it seems that the majority of them are not

dangerous cases.

5.1.2 The Impact of Coronavirus on Insurance

Companies

The coronavirus pandemic had a huge impact on

many sectors due to some restrictions implemented

by governments to stop virus expansion such as total

lockdown of nations, a ban on travel, public

gatherings, and closure of offices. In the following

paragraphs, we will discover some aspects related to

the impact on insurance sectors.

Even for short-period lockdowns, the pandemic

caused lowering interest rates and increased credit

risks. Due to reduced economic activity, premiums

have reduced and are expected to reduce further

until the end of the year. Profits have been

significantly reduced because more claims are being

paid out than premiums collected over the period.

Some companies had to lay off employees thus

reducing productivity. Budgets of companies have

also increased due to more spending on social

responsibility to help the government fight the

pandemic. Due to the volatility in the financial

markets, investment income has significantly

dropped low with reduced interest rates, [20].

Regarding life insurance, as long as the number

of deaths caused by the coronavirus continues to

increase, the number of reimbursements to be paid

is also increasing day after day, [3]. It is known that,

before charging premiums, the insurance company

takes into consideration some factors such as age,

and general health status... But, the coronavirus

pandemic was not expected. Of course, pandemic

cases are generally excluded from insurance

contracts and are considered as force majeure.

Nevertheless, insurers of life and health policies

might not have properly explained to their clients

how insurance does not cover pandemics, and since

COVID-19 is a novel virus, customers and insurers

will disagree as to where to accurately place the

pandemic within the insured and non-insured

diseases category of health insurance. This issue can

cause lots of arguments between insurers and their

clients.

As for health insurance, the number of claims

health insurance companies have to pay out, has

skyrocketed, [21]. Adding to this, the collected

premiums decreased because many clients have lost

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their jobs, thus, their employers no more pay

premiums for them, [12].

During the partial lockdown, travel insurers

stopped sales since there were no travelers. There

were also more refunds due to cancellation of travel

policy as a result of unutilized travel days as the

insured cannot use their annual travel plans. Most

aviation passengers insist that insurers should refund

the premiums they paid since there is a travel ban.

Some customers complained that recovering losses,

especially from airlines and travel agencies has been

difficult as insurers have challenged validating

claims, [14].

More than that, many insurance services were

influenced by reduced economic activity such as

marine cargo insurance. Insurers indemnify the

cargo owners and/or the financiers such as banks

against financial loss as a result of physical loss,

damage, expenses incurred, or liability from the

transportation process. Due to Coronavirus

restrictions, cargo owners faced delays in the

delivery of cargo, in unloading of cargo, damage to

goods (perishable goods), reduction in the quality or

value of goods, increased loan interest, etc. Marine

cargo is just an example; a similar impact is noticed

in several insurance products.

Business owners all over the country have also

called in to demand claims for interruption of

businesses, [13]. On business interruption claims,

some insurers are arguing that the interruption of

business was brief and does not qualify for claims.

In the context of these challenges, some insurers

have started laying off workers and switching full-

time employees to part-time work.

For all these reasons, we need to think about a

new form of insurance that can be more flexible and

efficient not only in a normal context but also

during crises and particularly during pandemics,

because insurance is supposed to support people in

difficult times.

5.2 Multi-agent-based Simulation during the

Pandemic Context

In the following paragraphs, we will make use of the

software multi-agent-based simulation Netlogo to

simulate the environment of insurance companies

and policyholders. We have chosen Netlogo because

it reflects the interaction between people, [22],

which is suitable for virus expansion, but also

because it is a good framework to model insurance

companies’ activities in a dynamic population, in

different contexts.

5.2.1 Explaining the Algorithm

Using a multi-agent-based simulation software, we

launch the simulation that starts with the appearance

of the first case of Coronavirus. From the first case

of COVID-19, the virus starts spreading among the

population through the interaction between people.

This interaction is easily simulated with Netlogo.

We have selected two main ways of virus

transmission. The first way is obvious; it is when a

sick person gets in touch with a healthy one. The

person gets sick if he is not immune. That immunity

is acquired either through a vaccine or a recent

recovery from the virus. The other way of

transmission is touching infected surfaces, we

supposed that the surface contains the virus for

about four to five days after contamination. This

way is also simple to simulate with Netlogo,

supposing that patches crossed by sick people

become infected surfaces, able to contaminate

healthy people in a certain period. Figure 4

summarizes the algorithm of virus spread.

Fig. 4: Algorithm of virus spread

As long as the virus continues spreading, the

economic situation becomes difficult, and

unemployment rates increase. This conclusion is

easily provable as long as the critical pandemic

stage causes lockdowns and other restrictions that

cause many economic difficulties. In this case,

many people start facing critical financial situations

and losing their jobs. A part of those people is going

to be reimbursed depending on their situation and

depending on the kind of the existing insurance

company.

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5.2.2 Simulations

In the following part, we have chosen three main

scenarios to start the simulation. In each scenario,

we simulate one kind of insurance company. The

first one concerns conventional insurance, which

simply indemnifies policyholders facing critical

financial situations. In the second scenario, we focus

on Takaful insurance, which is an Islamic insurance

that is supposed to be based on the principle of

solidarity and mutual aid. The third scenario is

about Waqf Takaful based on blockchain, which is

supposed to help, not only policyholders but also

other categories of needy people in the society.

- Scenario 1

As we explained earlier in the algorithm scheme, we

launch the first simulation using the previous

hypothesis and conditions. The first scenario is

related to conventional companies. We examine the

amount of people who will benefit from financial

aid in case of losing their jobs during the pandemic

crisis.

As long as there are some random parameters

related to the way people interact between them, it is

more relevant to run the simulation several times, to

make sure that the results obtained are homogenous

and significant. After proceeding to a small

sensitivity analysis, we notice that our results are

not very scattered. On average 10.8 % of the

population is reimbursed. All those reimbursements

concern only policyholders as long as it is not social

insurance. Now, let’s switch to the next scenario and

notice the difference that may occur between

conventional insurance and Islamic insurance in the

pandemic context.

- Scenario 2

In the second scenario, we simulate an environment

where all insurance companies are Takaful

insurance companies. We simulate in the context of

pandemics. In the same way, the spread of the virus

causes lockdowns, and loss of jobs, and low

incomes.

We ran the simulation many times according to the

previous hypothesis. On average, we found that 10

% of people are reimbursed after suffering from the

financial crisis. Obviously, in this case, too, all those

people are already affiliated with insurance.

- Scenario 3

The following screenshot is extracted from the

software NetLogo.

Fig. 5: Screenshot from Netlogo

In Figure 5, agents in blue represent

policyholders being reimbursed because of the

crisis. In pink, we represent needy people benefiting

from the Waqf Takaful fund.

We should mention that the conditions to

benefit from financial aid are stricter for people who

are not affiliated with any insurance. Only people

who are in very critical situations are reimbursed

and the compensation is less than the compensation

of policyholders. This assumption is made to

encourage people to contribute to the insurance

companies' funds. If we give the same amount under

the same conditions to both policyholders and non-

policyholders, later, only a few people will pay

premiums.

We launched the simulations many times, in the

same way that we did for scenario 1 and scenario 2

and we obtained the following results: On average,

13.8 % of the population is reimbursed to face the

pandemic damages.

Among the people who have benefited from the

aid: 80% are affiliated with the insurance and 20%

are not affiliated with any insurance.

5.2.3 Results Discussion

Table 1 sums up the main results obtained in the

simulations of the three scenarios explained earlier.

Table 1. Comparison between scenarios

It is well known that Takaful is based on

solidarity, premiums are considered as Tabaru’, the

fond belongs to policyholders and there is a surplus

sharing when it is possible. But with all those

parameters, there is no real social impact on the

population when the crisis occurs.

We notice that, even if Takaful insurance and

conventional insurance have different principles and

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operate in different ways, in the end, we find that

they have the same impact on society during the

period of pandemic. This can be explained by the

fact that both of them indemnify only people who

are already affiliated with insurance, while the

others, even if they are in critical situations, don’t

benefit from any social aid.

For those reasons, we consider the third type of

insurance which is Waqf Takaful, it is a Takaful

with a social vocation that integrates the needy

people in the reimbursement process, even if they

have not subscribed to insurance. Thus, it has a

stronger social impact as we can see in the third

scenario.

We notice that Waqf Takaful insurance covers a

wider range of beneficiaries than the other types and

allows the inclusion of different categories of

society in the compensation process. It concretizes

the real meaning of Takaful which literally means

solidarity.

6 Conclusion

To conclude, this work aimed to build a new model

of insurance companies, evaluate it in a mixed

environment, and demonstrate that it is well

accepted by policyholders and that it has a strong

social impact, especially during the pandemic crisis.

This paper presents the approach of our Netlogo

simulation, the steps to be followed as well as

required data, simulations, and results are discussed,

and many conclusions are explained.

The aim of integrating blockchain is to make

insurance services, modern, rapid, and efficient. The

criterion of transparency aims to build a new area of

trust between insurance and clients, smart contracts

are going to make reimbursement fast and automatic

without any problem. In general, blockchain also

means digitalization which is a good point when we

need social distancing to reduce virus spread.

According to our study, we noticed that the

results of the Takaful model and that of

conventional insurance, in terms of people’s

compensation and social impact, are quite similar.

The main difference then remains the Shariah

compliance of the product. Hence the interest of

examining the Waqf Takaful model with a social

vocation is more suitable with maqasid Shariaa, and

underlines the idea of solidarity, especially during

crisis.

In general, the pandemic context requires many

actions for insurance companies to survive and

avoid future crises. Thus, we suggest the following

recommendations.

First, early engagement with the client is very

important to win the trust and understand the

potential impacts of the pandemic. Insurance

companies should also keep an accurate trace of

cause and effect to understand every situation. As

losses accrue, the ability to keep an accurately

documented trail to prove the direct causal link

between the insured peril and financial losses is very

critical. Insurance companies should also be open,

and learn from the experiences of other countries

during pandemics.

Insurance companies should also be more

flexible in contribution payments and reduce certain

fees because many policyholders are suffering from

financial losses. As for social distancing, companies

should implement structures to simplify telework

and think about the digitalization of claim

management. We also recommend governments to

reduce

taxes for the most affected companies and help

in building strategies to resist the crisis.

Lastly, insurers should establish a risk

management team to assess how quickly and

effectively they were able to respond to crises

during the pandemic period. They should also

determine any additional steps that may need to be

taken to adapt to their organizations and make them

more resilient if faced with future pandemics like

the type of COVID-19.

While the pandemic persists, insurers must learn

to give up-to-date and truthful information to their

clients; they must be proactive rather than reactive

in their response and be prepared at all times for

worst-case scenarios. They must continue to relate

with clients in a positive working environment to

maintain their trust.

We also recommend companies learn from this

experience and be ready for such unexpected events.

We can say that coronavirus, is a great opportunity

to improve our existing models, accelerate

digitalization in all sectors, and be prepared for any

unusual event without being destabilized.

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Volume 21, 2024

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Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

The authors equally contributed to the present

research, at all stages from the formulation of the

problem to the final findings and solution.

Sources of Funding for Research Presented in a

Scientific Article or Scientific Article Itself

No funding was received for conducting this study.

Conflict of Interest

The authors have no conflicts of interest to declare.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.en

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