This survey was also conducted in Malaysia and Indonesia, the two biggest Takaful markets in Southeast Asia, with contributions of over US$1 billion and US$350 million respectively in 2010. Therefore some questions, specific to Takaful products and services, were included for Muslims from these two countries participating in the survey.
Takaful-specific survey findings
In both markets, only a small portion of the respondents have bought Islamic insurance products, with Malaysia showing a higher ownership rate than Indonesia (16% versus 1%). An overwhelming majority of respondents (Malaysia: 70%, Indonesia: 95%) either do not know about, or have limited knowledge of, these products.
Interestingly, despite the low penetration rates and levels of understanding, a large majority of respondents in both markets perceive Islamic insurance products positively. Overall, 70% of the respondents believe that purchasing Islamic insurance products will benefit them in the future, and 65% believe that these products are more transparent and ethical than conventional insurance products.
In addition, while 49% of the respondents say it does not matter whether they buy an Islamic insurance or a conventional insurance product, 20% disagree.
Let us look at the survey results in more detail.
Lack of knowledge: Discovering a need to provide consumer education
The Takaful ownership rates of 16% in Malaysia and 1% in Indonesia correspond with the latest market share figures for both countries (such as Malaysia: 7% for General Takaful and 16% for Family Takaful; Indonesia: 3%).
It is striking to see that 95% of Muslim respondents in Indonesia have either limited or no knowledge of Islamic insurance. Surprisingly in Malaysia, where Takaful has been established for over 20 years, only 30% of the respondents have a good knowledge of Islamic insurance or own Takaful products.
This indicates a clear need for consumer education, as there is good growth potential simply through increasing people’s awareness of Islamic insurance in both countries.
Purchase of Islamic insurance is seen as beneficial: Providing a strong foundation for good growth
Potential growth is underscored by the fact that the majority of respondents in both countries (Malaysia: 82%; Indonesia: 59%) believe that purchasing Takaful products will benefit them in the future. This positive attitude towards Islamic insurance products is a good basis for potential growth in Malaysia and Indonesia.
Takaful products are deemed as more ethical and transparent: Reinforcing inherent advantage compared to conventional insurance
The foundation for potential growth is further strengthened by the fact that Takaful insurance appears to have a better image than conventional insurance. Despite having a limited knowledge of Islamic insurance, the majority in Malaysia (75%) and Indonesia (56%) still believe that Takaful insurance products are more ethical and transparent than conventional insurance products.
Takaful operators should take advantage of this positive perception, and market these benefits more aggressively. At the same time, this can be a challenge for companies that sell both Takaful and conventional products, as they may not want competition between the two.
Furthermore, the Takaful industry will need to take care to perform according to these perceived expectations, both on a company as well as on an industry level.
Buying behavior not necessarily in line with perceived advantages of Takaful
It is interesting to see that despite the perceived advantages of Takaful highlighted in the previous two sections, more than 40% of the Muslim respondents do not care whether they buy a conventional insurance or Takaful product.
One reason for this could be a lack of knowledge. Other considerations, such as product suitability, value for money and the financial soundness and reputation of insurers, can play an important role in the decision-making process of consumers.
Conclusion
The perceived benefits and advantages, compared to conventional insurance offerings, put the Takaful industry in a good position to grow its business further, and to maintain its past five-year growth rates of over 20%.
However, in order to achieve Takaful’s full potential, further consumer education is of paramount importance. Working to increase awareness of Islamic insurance should not only be the task of individual operators, but also of the whole industry. The Takaful associations of Malaysia (MTA) and Indonesia should be the major drivers in the promotion of Islamic insurance. For instance, they could organize high-profile media campaigns on behalf of the entire industry, like creating television advertisements and hiring celebrities to endorse Takaful products.
According to the survey, turning to agents is still the preferred channel to conclude transactions. Therefore, it is necessary to ensure that agents are well trained, and in a position to explain the advantages of Takaful products to potential customers. In Malaysia, the internet is often used as a source of financial information. Takaful operators will have to improve their corporate websites to take advantage of this, as many websites currently provide rudimentary information only. Social media also plays an increasingly important role, especially for Generation-Y consumers, whom the Takaful industry has to cater to.
In Indonesia, television is the most preferred channel for getting financial information. Therefore, the Takaful industry should use this medium more actively.
The Takaful industry should also be more aggressive in promoting the value proposition of offering ethical and transparent products, as this is aligned to the demands of Takaful’s target consumers of 20 to 40 year olds.
According to the survey, the buying decision is based on product suitability, value for money, and the financial soundness and reputation of insurers.
Hence, the most important criteria is that the product offered matches consumer needs. In both countries, the majority of respondents are worried about not being able to pay their medical expenses and about getting seriously ill. Many do not have sufficient medical or health insurance. This is obviously an area where Takaful operators should get more involved.
The Takaful industry in Malaysia and Indonesia is poised for further growth, given its positive image among the Muslim population. However, in order to take full advantage of potential opportunities, there is a need for intensive consumer education and innovative products to meet urgent customer needs, such as medical or health insurance and personal financial planning for retirement.
Marcel Omar Papp is the director and head of Swiss Re Retakaful in Malaysia. He can be contacted at
[email protected]
.