Market Attractiveness and Future Prospects of the Indonesian Takaful Insurance Industry
(MENAFN Press) Indonesia is emerging as a significant takaful industry, overtaking several of the Cooperation Council for the Arab States of the Gulf (GCC) countries in terms of both growth rate in gross written premiums generated.
The industry grew from from IDR1.3 trillion (US145.2 million) in 2007 to IDR4.6 trillion (US524.2 million) in 2011, registering a CAGR of 36.29%.
Relatively low penetration rates coupled with strong macroeconomic fundamentals, favorable demographics and an improved regulatory framework has contributed to the dynamic growth of the industry.
The increasing presence of both domestic and international takaful insurance companies also supported the industry's overall growth during the review period (2007’2011).
Industry outlook remains positive for all life, non-life and personal accident and health insurance businesses. However, the life, or family takaful segment, is expected to lead the industry over the forecast period (2012’2016).
Rising levels of per capita income, increasing consumer confidence, strong marketing and product strategies are expected to have a positive impact on the industry.
Strong macroeconomic fundamentals and favorable demographics
Indonesia recorded economic growth during the review period, a situation which is expected to continue over the forecast period.
The country's GDP at current prices grew at a CAGR of 17.09% and according to a forecast by the International Monetary Fund (IMF) GDP is projected to grow at a CAGR of 15.08% over the forecast period.
It is expected that this growth in the economy will further increase business confidence and establish higher foreign capital inflows, which will subsequently have an impact on the country's financial services sector.
It is expected that Indonesia's strong economic growth will contribute to support the growth of the takaful insurance industry over the forecast period.
In addition, the nation's Muslim population totals approximately 239 million people and accounts for more than 86% of the total population.
As takaful insurance is primarily targeted at Muslims, Indonesia offers tremendous growth prospects over the forecast period.
Despite being the country with largest Muslim population in the world, insurance penetration rates are less than 2%, which can be attributed to the limited awareness of takaful insurance products and the differences between Sharia and conventional insurance.
However, if public awareness is raised the country could emerge as the global financial centre for takaful insurance.
Family takaful is expected to remain the dominant segment
The life, or family takaful, segment is the dominate segment in Indonesia's takaful industry.
This is evident from the fact that the segment's gross written premiums accounted for 84.6% of the total generated by the industry in 2011.
In comparison, the non-life, and personal accident and health insurance segments collectively accounted for 15.4%. Family takaful in particular is identified as the key growth driver as it offers consumers an alternative investment with greater financial returns than general takaful products.
Some of the family takaful products offered by insurers are being purchased by the non-Muslim population due to their reasonable pricing structure and high returns.
Products include savings, retirement and critical illness protection.
The family takaful segment has become lucrative for domestic companies and consequently foreign companies are strengthening their market presence to take advantage of this situation.
For example, AIA Financial, Manulife and Prudential are some of the global competitors with a strong market presence. Low penetration rates coupled with strong macroeconomic fundamentals and large number of family takaful insurance products will be the key growth drivers.
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