New law to spur Indonesia???s takaful market

A new law that will transform Indonesia’s takaful market over the next decade has come into force. The traditional practice in Indonesia that allows firms to offer Shari’ah-compliant and conventional insurance products side by side, will slowly be phased out in an attempt to encourage more foreign players into the market, according to a report in the Daily Times.

There were five full-fledged takaful firms and 37 sharia units of conventional firms as of December 2012, the latest month for which data is available. Their combined assets were worth 13.1 trillion rupiah (USD1.1 billion) at that time, data from the regulator showed, representing 2.3 percent of total insurance industry assets.

Firms offering takaful products include Europe’s top insurer Allianz, Britain’s biggest insurer Prudential, Toronto-based Manulife Financial Corporation and French insurer AXA.

The law maintains an 80 percent limit to foreign ownership, which will keep the market open to new players, while closing some loopholes that allowed foreign firms to have full control of their operations.