ABDUL GHONI highlights the potential and challenges of the Takaful industry in Indonesia.
Takaful in Indonesia, which has a population of 240 million of which 88% are Muslims, has the potential to capture 75.3% of the total insurance industry.
But the realization is still far behind the potential. The development of
Takaful has been lagging behind the conventional insurance sector.
There are three key points to consider in order to capture this market:
1. Development of new distribution channels;
2. Development of new products that comply with and match with this market;
3. New approach of marketing communications.
Development of new distribution channels
The existing distribution channels of insurance markets in Indonesia, especially in life business, uses three types of model.
The agency distribution model accounts for 85%; bank portfolio’s 10%; and alternative distribution channels have a share of 5%.
1. Insurance agents
There are about 226,000 insurance agents in Indonesia as of June 2011. Those dedicated to Islamic products cover only 2% and the agents who sell Islamic and conventional products are estimated to reach 30%. The insurance industry must recruit at least 90,000 more agents dedicated to Islamic products.
Recruiting and developing
Takaful agents could take some time. To accelerate the process, the insurance industry could cooperate with organizations such as
Muhammadiyah, Nahdatul Ulama, Persis,
Hidayatullah, etc. For example, Nahdatul Ulama has 40 million members,
Muhammadiyah 29 million and Persis 10 million.
To build a strong business foundation,
Shariah insurers need to develop the professional competency of their personnel, who should be knowledgeable and skillful in both the conventional and Islamic systems. This will enable them to be more creative and innovative in product developments.
2. Banks
The market share of Islamic banks in Indonesia as of June 2011 is about 3.4% with assets worth US$12.1 billion. There are 1,640 Islamic bank branches, which is only 11% of the total number of bank branches.
Bancassurance is one of the effective distribution channels to sell insurance products.
With the limited number of Islamic banks in Indonesia, the distribution of Islamic products to potential customers poses a challenge.
The present solution would be to sell the Islamic products through conventional banks.
3. Alternatives
Alternative distribution channels such as telemarketing, direct marketing, broker and other financial institutions are still dominated by sales of conventional products. We need to develop a direct marketing channel for Takaful products to reach millions of potential customers.
To capture the potential of the
Takaful market in Indonesia, the industry must build a new distribution channel, because the current channel is designed for conventional products.
4. Development of Takaful products
Total insurance premiums in Indonesia in 2010 were approximately US$12.5 billion with 70% from life business and 30% from general/reinsurance business.
Unit-linked products contributed 60% of total life insurance business and traditional products only 40%.
In-depth research must be conducted to find products that comply and match the Islamic finance market needs.
The
Takaful market is different from the conventional one. It requires product profiling to market to each segment of the society.
Currently
Takaful products are mainly the result of repackaging conventional insurance products and do not strictly comply with the existing Islamic market. There are many conventional products that are not
Shariah compliant.
New approach of marketing Takaful products
When marketing
Takaful products, marketers are still promoting the non-permissibility of traditional insurance.
Marketers should instead be putting greater emphasis on the inherent values in
Takaful such as justice, mutual assistance, cooperation, trust and transparency.
Conclusion
To become a market leader in Indonesia, the
Takaful industry must build a new distribution channel.
Abdul Ghoni is the director of Buana Lintas Persada, Syariah Insurance Broker and he can be contacted at
[email protected].