Indonesian takaful market gaining ground despite low penetration

The low market share is driven partly by the still-nascent Islamic finance ecosystem.

Indonesia’s takaful industry continues to be nascent but is slowly gaining momentum, with market share reaching 7% of the total insurance market in 11M 2020, according to a Fitch Ratings report.

Life sharia products made up 86% of the takaful market, followed by general sharia products at 14%. The long-term growth potential of the takaful sector is high even with a low life insurance penetration totalling 1.4% in 2019.

General sharia products experienced a decline in contributions by 10% yYoY in 11M 2020. Similarly, conventional general and life insurance fell by 10% and 9%, respectively. Life sharia products were still in demand, with growth of 10%.

The low market share is driven partly by Indonesia’s still developing Islamic finance ecosystem, with the country’s sharia finance market share reaching only 9.6% in H1 2020 which limits the number of customers that seek takaful products.

Limited sukuk issuance also constrains takaful’s investment options, but the three-way bank merger to become PT Bank Syariah Indonesia Tbk could help raise takaful awareness. Around 20% of takaful products in the country are distributed through bancassurance, the report concluded.