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📋 '''Conventional insurance''' refers to the standard model of risk transfer in which a [[Definition:Policyholder | policyholder]] pays a [[Definition:Premium | premium]] to an [[Definition:Insurance carrier | insurer]], which in return promises to indemnify the policyholder against specified losses, with the insurer bearing the [[Definition:Underwriting risk | underwriting risk]] and retaining any profit or absorbing any shortfall from the pool of premiums collected. The term is most frequently invoked to distinguish this traditional, shareholder- or mutual-owned indemnity model from alternative structures such as [[Definition:Takaful | takaful]] (Islamic insurance), [[Definition:Peer-to-peer insurance | peer-to-peer insurance]], [[Definition:Parametric insurance | parametric insurance]], or [[Definition:Captive insurance company | captive]] arrangements. In markets across the Middle East, Southeast Asia, and North Africa — where [[Definition:Takaful | takaful]] has substantial market share — the distinction between conventional and Sharia-compliant insurance is a foundational regulatory and commercial classification.

🔄 Under the conventional model, the insurer collects premiums into a general fund, invests those funds in an [[Definition:Investment portfolio | investment portfolio]], pays [[Definition:Claim | claims]] as they arise, sets aside [[Definition:Reserves | reserves]] for future obligations, and retains any remaining surplus as profit for shareholders (in a [[Definition:Stock insurer | stock company]]) or distributes it to members (in a [[Definition:Mutual insurance company | mutual]]). The insurer assumes full [[Definition:Risk transfer | risk transfer]] from the policyholder, and the contractual relationship is governed by the principle of [[Definition:Indemnity | indemnity]] — the insured cannot profit from a loss but is restored to the financial position they occupied before the covered event. [[Definition:Reinsurance | Reinsurance]] markets, [[Definition:Actuarial science | actuarial pricing]], [[Definition:Loss ratio | loss ratio]] management, and [[Definition:Regulatory capital | regulatory capital]] requirements under regimes like [[Definition:Solvency II | Solvency II]], the [[Definition:Risk-based capital (RBC) | RBC framework]] in the United States, and [[Definition:C-ROSS | C-ROSS]] in China all operate on the assumption of this conventional structure as the baseline.

🌍 Understanding what makes insurance "conventional" matters most in jurisdictions where regulators explicitly license conventional and non-conventional insurers under separate frameworks. In Malaysia, for instance, the Financial Services Act 2013 governs conventional insurers while the Islamic Financial Services Act 2013 governs [[Definition:Takaful | takaful]] operators — each with distinct capital adequacy, governance, and product approval requirements. Similarly, Saudi Arabia's cooperative insurance model occupies a hybrid position that regulators have shaped to align with Sharia principles while borrowing structural elements from conventional risk pooling. For global insurers and [[Definition:Reinsurance | reinsurers]] operating across both conventional and takaful markets, maintaining parallel operational capabilities and compliant fund structures is a significant strategic and compliance undertaking. The continued growth of alternative risk transfer mechanisms, including [[Definition:Insurance-linked security (ILS) | ILS]] and [[Definition:Parametric insurance | parametric products]], also pushes the boundaries of what "conventional" encompasses, as the industry evolves beyond pure indemnity-based models.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Takaful]]
* [[Definition:Indemnity]]
* [[Definition:Risk transfer]]
* [[Definition:Mutual insurance company]]
* [[Definition:Parametric insurance]]
* [[Definition:Stock insurer]]
{{Div col end}}

Definition:Conventional insurance - Revision history

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