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Optimizing Sharia Insurance in Post Pandemic Era: Innovation and Digital

Transformation

Prof. Bambang Brodjonegoro

CLoser Look to Sharia Insurance

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Sharia Insurance is an insurance based on sharia principles with regard to mutual assistance (ta’awuni) and mutual protection (takaful) between the participants through a collection of fund (Dana Tabarru’) managed under sharia principles to deal with certain risks.

According to OJK, as of December 2020, the total of full pledge sharia insurance operated in Indonesia are 13, include life sharia insurance (7), general sharia insurance (5), reinsurance sharia (1).

Sharia Insurance increased in market share by 1,21%, from 3,32% in September 2019 into 4,53% in 2020 (OJK, 2020). The asset management become the most important aspect in economy that still full with uncertainty due to COVID-19 pandemic.

Opportunity and Challenges inSharia Industry in Indonesia

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Increasing in the proportion of muslim millenials (50-60 million) that realize the importance of sharia investment.

Increasing the demand of moslem in 10 big cities in Indonesia, whereas on average, 73% of the people is interested on having shariah insurance (Karim Consulting, 2021).

In the next three years, the potential of sharia life insurance is predicted to increase by Rp 9,6 Trillion - Rp. 10 Trillion. 81% is coming from moslem and 19% is coming from non-moslem (Lembaga Survei Kadence, 2020).

The sharia industry get the domino effect from other syariah services such Public Housing Savings (TAPERA), JAMSOSTEK and the merger of islamic banks (BSI).

Increasing in digitalization in sharia finance can be the momentum of sharia insurance industry to sell more efficient and effective product to the market.

The potential for sharia insurance also comes from Sukuk as well as government project that is paid with sharia instrument.

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Sharia Financial Industry in Indonesia

Market share sharia finance

In 2020, sharia banking performance showed positive

growth amid COVID-19 pandemic so the market share increase to

6,48% As of December 2020, the total asset of sharia finance

(not include sharia bond) was Rp 1,801 Trillion

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Biggest contributors IKNB sectors:1. Sharia insurance2. Sharia Credit

Guarantee Indonesia (JAMKRINDO)

3. Sharia Financing Institutions

Total Aset: Rp113,15 trillionMarket Share: 4,38%

Sharia Insurance

Sharia PensionFund

ShariaFunding

Sharia Credit

Guarantee

13● 7 Sharia life

insurance● 5 Sharia

General Insurance

● 1 Sharia reinsurance

Total Aset

43,02 TTotal Aset

22,85 TTotal Aset

7,06 T

4● 3 Sharia

Employer Pension Fund

● 1 Sharia Financial Institution Pension Fund

9● 5 Shariah

Financing● 4 Shariah

Venture Capital

10Fintech Sharia

Total Aset

39,66 TTotal Aset

59 M

The Development of Non Bank Sharia Financial Industry (IKNB)

5● 2 Sharia

Guarantee● 3 Sharia

Pawnshop

Fintech Sharia

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The Effect of COVID-19 on Global Insurance Industry

On average, the loss of

global insurance industry

is 35%, from the market

capitalization after the

pandemic hit

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Source: Data Statistik OJK

The significant decrease happened on the result of investment, along with the downgrade of capital market in 2020.

Sharia lifeinsurance

Sharia generalinsurance

Shariareinsurance

Dec-19 Des-20 Dec-19 Des-20 Dec-19 Des-20

Asset37.487 36.317 5.903 6.014 2.063 2.109

Bruto Contribution13.922 14.845 1.825 1.617 957 882

Bruto Claim9.176 11.441 726 641 703 840

Investment34.327 31.677 4.031 4.106 1.488 1.556

Result of Investment1.849 288 243 259 101 109

The Effect of COVID-19 on Sharia Insurance Industry in Indonesia

(in Rp billion)

In general, sharia insurance industry record growth contribution along 2020, in the middle of economic pressure due to COVID-19 pandemic. Other indicators such as asset and investment occurred a deceleration.

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Challenges Sharia Industryduring COVID - 19 Pandemic

Pricing/ Underwriting

Customer Support Operations

Claim Operations Loss estimation/ Actuarial reserving

Marketing

Legal

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● The extension of the delivery of the periodic report● Fit and proper test through video conference.

● Asset quality and funding restructuration

● The calculation of pension fund program ● The implementation of life cycle fund for the pension fund

● The calculation of solvency rate

Valid as of March 30, 2020

Notes:

● The implementation of countercyclical policy needs pay attention on the principle carefulness,

management risk and good corporate governance.

● For Non Banking Financial Institution that adopted sharia, the countercyclical policy has to be

based on sharia principle.Source: OJK, 2020

Countercyclical Policy of The Effect of COVID-19 Pandemic on Non Bank Financial Institutions (LJKNB) (According to POJK No. 14 Year 2020)

Financial Industry

Financial Institutions

Pension Fund

Insurance (Including Sharia)

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Mitigating The Impact Of Covid-19 Pandemic Non Bank Financial Service (Including Sharia Industry)

Existing Way Forward

Countercyclical policy for Non

Bank Financial Institutions

(LJKNB) for sharia industry

Adjusting premi calculation (loss

estimation). Giving discretion on

the delay of premi payment

Strengthening internal policy

that focuses on solvency,

solvability, and cashflow

Strengthening

Digital System

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Increasing the education and sharia insurance literacy to religious and non religious community

Spread the awareness of sharia insurance through pop culture media.

Increasing of the sharia reinsurance capacity

This is very important because all the insurance company and insurance business (life and

general) unit will manage its risk through sharia insurance.

Advancing digitalization on sharia insurance product (Insuretech)

To provide access to sharia insurance service, which are more efficient and accurate. For example,

through digital application to open sharia insurance polis, sharia insurance tele consultation, the use

of artificial intelligence, dan other digital service.

Advices for The Development of Sharia Insurance in The Future