Awaiting Huge Capital Inflow in Sharia Insurance Industry

Indonesia's sharia insurance industry still faces short to medium-term challenges. The global rating agency Fitch Ratings said the challenge stems from the obligation to spin-off the sharia insurance business unit into an independent entity. Only a handful of sharia insurance units have carried out spin-offs, although the deadline for submitting a revised spin-off plan to the Financial Services Authority (OJK) is October 17, 2021. 

The latest Fitch Ratings report noted that most insurance companies would be sluggish in carrying out their sharia unit spin-off obligations in the short term. The spin-off requires higher capital requirements and operating costs from being under the parent entity. On the other hand, profitability and financial viability are still uncertain.

Despite the mounting pressure from spin-off regulations, Fitch estimates that the performance of the Islamic insurance sector will remain stable in 2021-2022. "In the long term, the sharia insurance sector, or takaful insurance, is more prospective in line with increased capital because more insurance companies are prioritizing the Sharia insurance business line," Fitch wrote in its report.