Takaful, an Introduction

Brief Explanation

Takaful means a scheme based on brotherhood, solidarity and mutual assistance which provides for mutual financial aid and assistance to the participants in case of need whereby the participants mutually agree to contribute for that purpose (Takaful Act 1984, article 2), for short it is an Islamic Insurance, which still bring sharia principles within which are the main differences with the conventional insurance. It’s been practiced for about 1400 years, historians believe that Muslim of Mecca and Medina has started a kind of mutual insurance, and it developed again with trade between Arabs and Asians which require a great time and length that increase the risk of robbery and loss.

Problems Within Indonesian Insurance Company

Still related with my previous post about insurance, if I had talked about the threats that insurance companies must face, now I’m going to talk about the insurance companies itself.

There are several problems that Indonesian Insurance Company have, those are :

Over Supply

The insurance market in Indonesia actually is not as big as expected. So there is an oversupply in the market. There are 40 life insurance companies and 92 common insurance companies in Indonesia, but none of them have significant market share, even with the market leader. AIG Life (life insurance) only have 13.76% and Jasindo (common insurance) only have 13.3% (2005 data).

Indonesia's Insurance Threats

Indonesia is a potential market for insurance, since It has billions of people and relative high growing economics. But why the insurance doesn’t grow as it expected.

I browse to the net, follow the lecturing, done some discussions with my friends, and here are the reasons that I got :

Religion and Belief

Indonesian society has strong belief and religion, they believe if the disaster get on them, it’s because of their failure or disobeying the God, if you get insured means that you don’t believe on God’s protection, and it’s a taboo to talk about disaster (it would be difficult to explain the insurance to them)

Education

They felt they have educated enough about insurance, and all they know in generally is : “If I don’t have a trouble, I don’t get the money. My life is almost trouble free, why should I get insured? It’s just wasting my money!”

Financial Perspective

Prior to previous reason, they haven’t realize insurance as an investment, “If you want to invest, why don’t you buy a house, land or jewelry?” Those still a good investment methods, but not liquid enough.

Financial Condition

It’s all about the ability and the stability. We must have the ability to buy the policy and stabilty to pay the premiums consistently. I’m not sure about the number, but I think many Indonesians don’t have either the ability, stability or both. As long as I see, the insurance buyers in Indonesia are from the middle up economic level and forth, in fact there are many Indonesian people living below the poverty line.

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Anton Hermansyah