Total general and family takaful contributions rose by 2% and 10% to IDR2.8tn ($202m) and IDR13.9tn in 2019, respectively (2018: 4% and 14%), compared with 16% and 1%, respectively, for their conventional counterparts, according to Fitch Ratings.
Family takaful growth has been outpacing conventional life insurance, which stagnated in 2018-2019, dragged down by the sluggish performance of bancassurance, a major premium contributor, the rating agency said in its ‘Indonesia Takaful Dashboard: 2020’ report.
Fitch expects premium growth to be sustained in Islamic insurance business, mirroring Indonesia’s economic development.
Relaxed foreign ownership rules
Fitch believes the government’s amendment of a 2018 foreign shareholding rule in January 2020 will make it easier for insurers to carry out a mandated spin-off of their shariah units by 2024.
Indonesian insurers were previously required to adhere to a shareholding ratio of 80:20, preventing a foreign shareholder from owning more than the 80% cap. The amendment allows an insurer to spin off its Islamic insurance unit, exempting the unit from the statutory 80% foreign ownership cap.
Government support a key driver
The government published the Indonesia Islamic Economic Masterplan 2019-2024 in May 2019 as a guide for the development of the Islamic economic sector. The agency expects the takaful industry to benefit from the concrete guidelines of the masterplan for the development of the broader shariah ecosystem.
Government support is also crucial to smoothening the IFRS 17 transition as takaful operators remain uncertain over the interpretation and application of the rules to their business.
Low penetration amid favourable demographics
Indonesia has very low insurance and shariah business penetration. Its life insurance penetration was 1.5% in 2018, which was much lower than that in other emerging Asian markets such as India where penetration was 2.7%. The lack of consumer awareness and understanding of takaful products constrain sector expansion.
Regulatory efforts to drive outlook
Fitch expects the takaful segment to continue building on its presence and market share within Indonesia’s insurance landscape. Regulatory tightening may hamper near-term growth, but will be beneficial for the sound development of the industry over the longer term. Meaningful advancements on the regulatory front and efforts to drive demand and awareness will be crucial towards facilitating the development of this nascent segment. M