Microtakaful in Indonesia:

broadening access to protection

for the poor

Moch. Muchlasin

Director Sharia Non Bank Financial Institution

Otoritas Jasa Keuangan (IFSA)

2

Agenda

Indonesia Insurance industry at a glance

Takaful industry: the growth and its potential

Microtakaful: background and rationale

Microtakaful: the Grand Design

Microtakaful development: the Progress

3

insurance industry at a glance:

the Beginning

Insurance industry in

Indonesia was started in

Dutch Colonial era, with the

establishment of

Nederlandsche Indische

Levenverzekering en

Lijvrente Maatschappij

(NILLMIJ) on 31 Dec 1859

(known as PT Asuransi

Jiwasraya nowadays) NILLMIJ headquarter in Semarang,

Central Java, circa 1860’s

4

Insurance industry at a glance:

Current Development

Since its’ born in mid-19 century, insurance business in

Indonesia was operated based on codex commercial

law (Wetboek van Koophandel voor Indonesie)

enacted in 1847

Indonesian modern insurance era was started in 1992,

with the enactment of the first Insurance Act (Law No.

2, year 1992)

5

Insurance industry at a glance:

Current Development

Since its’ born in mid-19 century, insurance business in

Indonesia was operated based on codex commercial

law (Wetboek van Koophandel voor Indonesie)

enacted in 1847.

Indonesian modern insurance era was started in 1992,

with the enactment of the first Insurance Act (Law No.

2 year 1992)

6

Highlight of Insurance Industry March 2014

Total assets of insurance as of March 2014 is IDR700.8 trillion or only comprise 11% of total financial institutions assets in Indonesia.

Life insurance company dominates insurance industry. Around 45% of total insurance assets are owned by life insurance company

6

78%

6%

11%

3% 2%

Asset of Financial Institutions

Banking

Financecompany

Insurance &takaful

Pension fund

Other financialservices

45%

14% 1%

25%

15%

Assets of Insurance Company

Life Insurance

Non LifeInsurance

Reinsurance

Social Ins. &Worker Security

Civil Servants &Armed ForceInsurance

7

Highlight of Insurance Industry

Insurance penetration is remain low. In 2013, people spending on

insurance premium only 2.1% or GDP. While average annual spending for

insurance premium (density) is only IDR768 thousand

Low insurance penetration indicate huge future potential development.

7

1.82% 1.63% 1.68%

1.79%

2.16% 2.10%

0

0.005

0.01

0.015

0.02

0.025

0

100

200

300

400

500

600

700

800

2008 2009 2010 2011 2012 2013*

DENSITY & PENETRATION OF INSURANCE

Density (Thousands IDR) Penetration

8

Islamic Finance Milestone in Indonesia

ISLAMIC

BANKING

TAKAFUL

ISLAMIC

MULTIFINANCE

ISLAMIC

CAPITAL

MARKET

1992

1994

1997

1999

200

0

2004 2006 2008

1st Islamic Bank

Bank Muamalat

1st Takaful As Takaful Keluarga

1st Mutual Fund Danareksa Syariah

Berimbang

2002 2005 2007

Jakarta Islamic

Index

1st Multifinance

Amanah Finance

Islamic Capital

Market Regulation

1st Retakaful ReIndo Syariah

1st Shariah

Business Unit

Islamic Multifinance

regulation

2003

Takaful Regulation

2011

Islamic

Banking Law

Gov Sukuk Law

1st Gov Sukuk

Sharia Compliance

Securities List

RBC for

Takaful

Office

Channelling

1st Corp. Sukuk Mudharabah Indosat

Islamic Banking

Regulation

9

Takaful market structure

Life / Family Takaful Window Full Fledged Total

Company 17 3 20

Asset 12,75 1,65 14,39

Contribution Q1 2014 1,78 0,12 1,90

Contribution 2013 6,50 0,66 7,16

Non Life Takaful Window Full Fledged Total

Company 23 2 25

Asset 2,93 0,32 3,24

Contribution Q1 2014 0,27 0,05 0,32

Contribution 2013 1,12 0,19 1,30

Retakaful Window

Company 3

Asset 0,8

Contribution Q1 2014 0,1

Contribution 2013 0,4

Asset and

contribution in

Trillions IDR

Takaful industry

Indonesia only

established around

20 years (since 1994)

compared to 150

years in the history of

Indonesian insurance

industry.

Currently, there are

48 takaful operators

in the industry

10

Potential development of takaful

Small takaful market share and relatively higher growth compared to insurance indicates promising potential of takaful growth.

10

2009 2010 2011 2012 2013

Takaful Cont 3.03 3.69 5.08 7.11 8.88

Insurance Prem 106.45 125.12 153.13178.07197.05

Share Takaful 2.8% 2.9% 3.3% 4.0% 4.5%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%

0.00

50.00

100.00

150.00

200.00

250.00

Premium & Contribution (Triliun IDR)

2009 2010 2011 2012 2013

Takaful 4.80 6.97 9.15 13.24 16.66

Insurance 320. 405. 481. 569.3 631.9

MS Takaful 1.5% 1.7% 1.9% 2.3% 2.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

Assets (Trillion IDR)

2009 2010 2011 2012 2013

T Asset 80% 45% 31% 45% 26%

Ins Asset 32% 26% 19% 18% 11%

T Cont 20% 22% 38% 40% 25%

Ins Premium 18% 18% 22% 16% 11%

0%10%20%30%40%50%60%70%80%90%

Insurance Vs Takaful Growth

11

Microtakaful: background and rationale

In 2013, the number of policyholders in Indonesia is only 67 million (10

million individual policyholders and 57 group insurance).

2009 World Bank survey revealed that 32% of Indonesians (± 70

million) do not have adequate saving nor insurance to protect against

risk.

The absence of protection againts financial loss during perils have very

negative on low-income household, it often left those affected-family in

poorer and desparate condition

Significant portion of muslim population need the creation of an

appropriate market for insurance that is comply to the Islamic rules

(Takaful/Microtakaful)

OJK has financial inclusion as part of national strategy for poor

eradication. Microtakaful is one program to broaden access for the

disadvantage populations.

12

Microtakaful Development:

main activities

Developing regulatory framework for microtakaful as

part of Grand Design Development of Microinsurance in

Indonesia.

Support Indonesia Takaful Association in to provide

microtakaful products through survey and basic product

development

Conduct public awarness campaign and education.

Conduct capacity building on microtakaful.

Develop set of regulations that promote microtakaful

13

Microtakaful Definition

“Microtakaful Indonesia is takaful product specifically

provided for low income people which is simple in both

features and administration, easy to get or bought,

affordable and immediate claim payment”.

14

Microtakaful Concept:

Simple, Easy to Get, Affordable, Immediate Pay

Family takaful or general takaful product which is simple and cover

pure risk rather than stuctured complex product: i.e personal accident

v.s unit-linked

Benefit paid in lumpsum, although indemnity might be allowed.

Proof of membership in the form of written policy, certificate, scratch-

card or SMS notification.

Maximum contribution for 3 months coverage is IDR50,000.

Benefit/sum insured capped at IDR50,000,000 max.

Up to 2 types of exclusions: ie suicide or death due to criminal acts.

Takaful policy written in Bahasa Indonesia, 2 pages A4, 11 font.

Maximum 4 claim documents: ie policy, ID card and proof of death

Claim should be paid in 10 days.

15

Microtakaful Grand Design:

Distribution Channels

Mikrotakaful can be sold through:

Individual agent (including branchless-banking agent).

Islamic banks

Islamic microfinance institutions (i.e BMT, sharia coops)

Affinity business (post office outlet, pawnshop outlet, etc).

As intermediaries, distribution channel may also help registration

and application proces, contribution collection and claim payment

based on contract with microtakaful operators.

Sales force in islamic bank, IMFI and other affinity business who

sell microtakaful should attend 2-days basic training on

protection, takaful operation and microtakaful product

knowledge (no need to have costly full agent licencing as in

conventional takaful)

16

Microtakaful Development:

the Progress [1] Blueprint for development

Milestone achieved:

Launching of Grand Design

Development of Microinsurance

Indonesia – 17 Oct 2013

This document serves as

regulatory framework and

reference for takaful players,

regulators and all stakeholders

in developing microtakaful and

microinsurance in Indonesia

17

Microtakaful Development:

the Progress [2]

Capacity Building

Milestone achieved:

Workshop on actuarial of microinsurace:

introduction and pricing, in cooperation

with ILO Microinsurance Facility and

Munich Re Foundation 11 Nov 2013

Hosting on 9th International

Microinsurance Conference in Jakarta

with Microfinance Facility and Munich Re

– 12-14 Nov 2013

Hosting 2014 Microtakaful Conference

Indonesia in Jakarta with GIZ Regulatory

Framework for Pro-poor Insurance (RFPI)

Asia - 25 April 2014

18

Microtakaful Development:

the Progress [3]

Product Development

Milestone Achieved

Currently there are 7 takaful

operators provide

microtakaful products. Those

products are:

• Personal

accident

• property

• credit life • Term life

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Microtakaful Development:

the Progress [4] Product Development (continued)

However, there are still 41 takaful operators (85%

of total operators) that has not provide microtakaful.

OJK conduct survey and study on microtakaful and

microinsurance:

Survey on microinsurance with World Bank : Agustus 2013-Mei 2014

Study on wicrotakaful with GIZ-RFPI Asia : Feb-April 2014

Based on low-income household demand for microtakaful,

Indonesia Takaful Association with OJK is currently working on

standard microtakaful product that can be sold by all takaful

operators

20

Microtakaful Development:

the Progress [5]

Public Awareness Campaign

OJK went to 34 communities

country wide (Aceh, North and

West Sumatra, Java, South

Sulawesi) to study the

microtakaful potensial and

best approach to educate

people on microtakaful

Currently, OJK is working on

brochure, jingle, logo and

marketing communication tools

21

Challenges

Lack of public awareness

Lack of product that meet people needs

Lack of provider experiences on microtakaful

businesses.

There is no specific regulation on microtakaful

Capacity building on microtakaful practices both

for regulators and providers need to be

improved

22

The way forward

Microtakaful development is part of financial inclusion programs.

It should be linked and interconnected with other initiatives on

financial inclusions such as digital payment, branchless banking

etc.

The need for coordinating forum between OJK, associations,

takaful operators and distribution channels as well as

communities is a key for product designing, knowledge sharing,

joint public awareness campaign

The need for coordination among various government agencies to

strengthen financial inclusion initiatives

Thank You