Fitch Ratings-Jakarta-04 March 2021: The nascent takaful sector in Indonesia is gaining market share with high long-term growth potential due to low life insurance penetration in the country with the world’s largest Muslim population, Fitch Ratings says in a new report.
Fitch expects an improvement in takaful contribution growth and investment yield in 2021, mirroring the Indonesian economy’s expected recovery (2021F: 6.6% growth), rising government support as part of the Islamic Economic Masterplan 2019-2024, and accelerated digitalization. In addition, Fitch expects takaful firms to maintain capitalization levels against a potential spike in claims as the pandemic continues to have an impact on Indonesia.
The takaful sector is steadily gaining ground, with takaful market share reaching 7% of the overall Indonesian insurance market in 11M20, based on new business contributions (11M19: 5.9%). Takaful’s low market share is driven partly by Indonesia’s still developing Islamic finance ecosystem. Indonesian sharia finance market share reached only 9.6%. The three-way bank merger that created Indonesia’s largest Islamic bank, PT Bank Syariah Indonesia Tbk (BB+/Stable), could help raise takaful awareness.
General sharia products experienced a decline in contributions by 10% YoY in 11M20. Similarly, conventional general and life insurance fell by 10% and 9%, respectively, while life sharia products were still in demand with a growth of 10%. Pandemic-related mass movement restrictions contributed to the overall decline along with a fall in the purchasing power to afford insurance products.