Sharia insurance thriving, premium grows by 40% annually
Sharia insurance thriving, premium grows by 40% annually
Fitri Wulandari, The Jakarta Post, Jakarta
Sharia insurance has gained in popularity here over the past
several years, prompting conventional insurance firms to explore
opportunities in this new sector.
"The trend now is for conventional insurance companies to turn
into sharia insurance companies," Muhammad Syakir Sula, the
chairman of the Association of Sharia Industry, told The Jakarta
Post on the sidelines of last week's National Convention of
Islamic Economic Experts.
The number of sharia insurance firms in the country has grown
from two just two years ago to 20 at present.
The premiums collected by sharia insurance companies still
pales in comparison to traditional insurance firms, accounting
for only 1 percent of the Rp 22.5 trillion collected by the
insurance industry in 2002.
But sharia insurance premiums have grown at a whopping 40
percent annually over the past two years, compared to the average
25 percent premium growth booked by conventional insurance firms,
according to Syakir, who is also marketing director of sharia
insurance firm Takaful Indonesia, the country's first sharia
insurance firm.
Like sharia banks, sharia insurance firms operate according to
Islamic principles, including not charging interest to borrowers
or policyholders, instead employing profit sharing.
M. Zubair, the association's secretary-general, said the
growing sharia insurance sector had received a boost from the
thriving sharia banks. This relates to the practice of sharia
insurance firms requiring policyholders to pay their premiums at
sharia banks. With conventional insurance firms, policyholders
pay their premium directly to the insurance companies.
According to data from Bank Indonesia, as of December 2003,
sharia banks' total assets stood at Rp 7.86 trillion, or 0.69
percent of the total national banking assets. This is expected to
grow to 1 percent by the end of this year and 5 percent by 2011.
Sharia banks' investments stood at Rp 5.73 trillion, or 0.66
percent of national banking investments.
"We are optimistic the premiums of sharia insurance will grow
to 5 percent of the total national insurance premiums within five
years," Zubair said.
Zubair said sharia insurance firms served customers,
particularly Muslims, who wanted to invest and follow the rules
of their religion at the same time.
Indonesia has the largest Muslim population in the world, with
Muslims making up nearly 90 percent of the population of 203
million.
Syakir said people were also interested in sharia insurance
because it protected against the negative spread and lower
interest rates suffered by many conventional firms.
The central bank has been aggressively cutting its benchmark
interest rate over the past year to push banks to lower their
lending rates for the corporate sector. The lower benchmark rate
has pushed down the rates on bank time deposits.
Many life insurance firms, which invest in these time
deposits, now find that the returns they promised policyholders
are higher than the interest revenue from the deposits.
"Such a thing would not happen in sharia insurance because we
share the profits with policyholders," Syakir explained.
Insurance expert Angger P. Yuwono said the movement of
conventional insurance companies into sharia insurance was
spurred by the need to diversify their products.
"Sharia insurance can supplement insurance products so that
companies are able to reach a wider market," Angger, who also
sits on the advisory board of the Indonesia Life Insurance
Association, told the Post.
Angger said some life insurance companies had become insolvent
due to the mismanagement of their investments. However, he denied
that this was mainly because of investing in bank deposits,
saying the proportion of investments in time deposit was down to
30 percent from 90 percent 10 years ago.
"Sharia insurance is an opportunity to penetrate a market
where the majority of people are Muslims. It will grow but will
not be booming," Angger said.