Indonesia: Takaful lags due to mirroring of conventional products
Source: Middle East Insurance Review | Jan 2017
A lack of differentiation in product features has the Shariah-compliant insurance industry lagging behind its conventional counterparts, a senior insurance executive has said as he outlined some shortcomings in takaful in Indonesia that also hold lessons for Islamic insurance markets in the Middle East.
FWD Life Indonesia’s Chief of Proposition and Shariah, Mr Ade Bungsu, said that many takaful products are just mirroring conventional products without adding any value, reported The Jakarta Post.
Moreover, despite being dominated by Muslims, Indonesian customers care more about features and investment returns.
“Our market is floating, if conventional [insurance] performs and provides better than Shariah, they will go to conventional. A ‘mirrored’ product will just put you in a ‘red ocean’,” he said at a FWD Life Indonesia Shariah product launch last month in Jakarta.
Mr Ade added that Shariah products could utilise “social features” to differentiate themselves from other products. As Muslims are obliged to make donations in the form of zakat, waqf and sadaqa, Mr Ade said, Muslims want to see whether a product can automatically manage social disbursement.
Based on the Financial Services Authority’s (OJK) latest data, the insurance industry, both conventional and Shariah-based, saw premium income increase by 16.9% y-o-y to IDR141.75 trillion (US$10.5 billion) from January to September. However, new premiums for Islamic insurance increased only 15.8% y-o-y to IDR 8.8 trillion in the same period. The market share of takaful was small, comprising only 6.2% of the total industry.