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Indonesian 'takaful' market beckons

Published on Friday, 21 Jun 2013
Jakarta has been seeing the entry of big global players eager to tap into the country’s burgeoning Islamic finance market.
Photo: Bloomberg

Asuransi Allianz Life Indonesia plans to double its share of the takaful, or Islamic insurance, market in five years as it joins insurer Sun Life Financial Indonesia in forming partnerships to tap Muslim wealth.

Asuransi Allianz, a unit of Europe's largest insurance company, made an agreement with HSBC Holdings this year to offer its services, vice-president director Handojo Kusuma said in Jakarta on May 28. Meanwhile, Sun Life will seek to boost business in rural areas via telemarketing campaigns and bank alliances, according to president director Bert Paterson.

Three years of economic growth above 6 per cent and increasing awareness of the need for insurance provides potential for Indonesia's relatively untapped takaful sector, Fitch Ratings said in a June 4 report. Market share may climb to 7.9 per cent in five years, from 3.9 per cent currently, said Kiswati Soeryoko, head of shariah and corporate communications at Asuransi.

"If we compare the market size with the insurance industry as a whole, the market share is still very small, but that is precisely where we see a very large opportunity," Soeryoko said. "What supports growth is the economy, driven by the rising middle class."

The number of Indonesian consumers with more than US$200 a month at their disposal is set to double to 141 million by 2020, according to a March report from Massachusetts-based Boston Consulting Group. The nation's insurance market is relatively "underpenetrated" and the growing middle class, along with a resilient economy, offer potential, Fitch said.

Islamic insurance assets in Indonesia, which has the world's biggest Muslim population at 216 million, increased an average 53 per cent in the last five years to 11.4 trillion rupiah (HK$8.6 billion), finance ministry data shows. Malaysia, home to 17.4 million adherents of the faith, saw average growth of 15.9 per cent from 2009-2012 to 19 billion ringgit (HK$46 billion), according to central bank figures.

Shariah-compliant insurance is based on the Koranic principle of mutual assistance. Policy-holders contribute a sum of money to a common pool managed by the company, which is then used to pay for claims. Any surplus is returned to customers.

Amanie Advisors, a Malaysian Islamic finance consultancy, said it will be difficult to reach Indonesian consumers as they are spread across a wide geographical area. The vast potential market does, however, present an avenue for insurers to expand.

"Takaful has a long way to go to establish itself in Indonesia," said Baiza Bain, the Kuala Lumpur-based managing director at Amanie. "It requires a lot of education to see how takaful is different."

Falling sales of shariah-compliant bonds may also limit investments for insurers. Worldwide issuance of sukuk, which pay returns on assets to comply with the Koran's ban on interest, dropped 9.2 per cent in 2013 to US$18.7 billion from a year earlier, data compiled by Bloomberg shows.

Islamic securities delivered losses of 0.4 per cent this year, according to HSBC, while emerging-market notes lost 6.2 per cent, JPMorgan Chase's EMBI Global Index shows.

Non-Shariah-compliant insurers, such as Japan's Dai-ichi Life Insurance Company, are also seeking to tap into Indonesia's potential growth.

The middle to upper-end of the low-income groups tend to be more conservative in choosing insurance and they tend to favour takaful products rather than conventional offerings, Sun Life's Paterson said.

Life insurance premiums in Indonesia accounted for 1.1 per cent of the nation's gross domestic product in 2011, compared with 3.3 per cent in Malaysia, according to a February report by Towers Watson, a New York-based consultancy. Indonesia's GDP amounted to US$850 billion in 2011, World Bank data shows.

"The under-penetration of the insurance market in Indonesia is very attractive, especially for other foreign investors coming from a more mature market," said Cheryl Evangeline, Jakarta-based insurance analyst with Fitch Ratings Indonesia. Bloomberg

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