Answer
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
An Islamic bank may renew expired insurance on a financed asset and debit the customer’s account after appropriate reminders and warnings, provided insurance is required by the financing contract. The bank must use Takaful for the renewal, even if it costs more than conventional insurance, and disclose this possibility in the warning letter.
Responding to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance & Economics at the Faculty of Economics and Management, Istanbul Sabahattin Zaim University, Turkey, states:
As long as the asset or the collateral is mentioned and required in the financing contract, its continuation is part of fulfilling the contract requirement. Accordingly, if the customer fails to fulfill this condition, you may, after appropriate reminders and warnings, renew the insurance protection on behalf of the customer and debit his account for the amount paid, in addition to the actual cost incurred by the Bank for the reminder, warning, and actual renewal of the insurance contract. This includes the out-of-pocket cost of the staff time used for this purpose, in addition to any amount paid out, if any.
Additionally, when making the renewal, the Bank must only use Takaful, even if it is more expensive than the insurance the customer chose at the time of the contract, if the latter is not Takaful.
However, in the warning letter, the Bank must mention this last point about using only Takaful, even if it is at a rate higher than the rate the customer paid for insurance when he bought it.
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Almighty Allah knows best.
