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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
19
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