Challenges and Opportunities for Sharia Insurance Development in the Digital Era
Islamic insurance is part of the Islamic financial industry based on sharia principles, such as mutual cooperation and fair risk sharing. In Indonesia, with a majority Muslim population, Islamic insurance has great potential to grow. However, despite the huge potential, Islamic insurance penetration is still relatively low compared to conventional insurance. Advances in digital technology have created significant changes in consumer behavior and business processes in various sectors, including insurance. This digital transformation provides a great opportunity for Islamic insurance to expand its market reach and improve efficiency. However, on the other hand, the industry also faces various challenges that must be overcome in order to compete in the digital era. This article will discuss the challenges and opportunities for the development of Islamic insurance in Indonesia in the digital era.
1.Challenges of Islamic Insurance Development in the Digital Era
a. Low Financial Literacy and Islamic Insurance
One of the main challenges is the low level of financial literacy in Indonesia, especially in understanding the concept of Islamic insurance. According to data from the Financial Services Authority (OJK), the Islamic financial literacy index in Indonesia is only 8.93% in 2022, much lower than conventional financial literacy. The lack of public understanding of the benefits and mechanisms of Islamic insurance is an obstacle to the growth of this industry, especially in attracting consumers who are already familiar with conventional insurance products.
b. Emerging Regulations
Regulations related to Islamic insurance in Indonesia are still in the development stage. Although there are already regulations regarding Islamic insurance operations, updates are still needed to support broader digital transformation. For example, regulations related to the use of financial technology (fintech) in sharia insurance still need to be clarified to ensure its compliance with sharia principles and minimize risks for consumers.
c. Limited Technology Infrastructure
The Islamic insurance industry in Indonesia still faces technological infrastructure limitations, especially in terms of integrating digital technology into operational systems. Many Islamic insurance companies still use manual or semi-manual systems in data processing and customer service. This is a challenge in itself to compete with conventional insurance companies that are more advanced in the adoption of digital technology.
2. Opportunities for Islamic Insurance Development in the Digital Era
a. Market Expansion through Digitalization
Digitalization opens up great opportunities for Islamic insurance to expand the market. With higher internet penetration and smartphone usage in Indonesia, Islamic insurance companies can reach a wider range of consumers, including those in remote areas. Mobile applications and digital platforms enable easier and faster access to Islamic insurance products, thereby expanding the customer base.
b. Operational Efficiency with Technology
Digital technology enables Islamic insurance companies to improve operational efficiency. The use of technologies such as artificial intelligence (AI) and big data can help in risk analysis, claims management, and more targeted premium setting. In addition, blockchain technology can also be used to ensure transparency and security of transactions, in accordance with sharia principles.
c. Product and Service Innovation
The digital era provides opportunities for Islamic insurance companies to develop new, more innovative products and services. For example, digital-based microinsurance products that can reach low-income segments of society or those that have not been served by traditional insurance products. Services such as insurance claims that can be processed automatically through digital applications can also improve customer experience and trust in the industry.
The digital era brings both challenges and opportunities for the Islamic insurance industry in Indonesia. While the industry faces various obstacles such as low financial literacy, suboptimal regulations, and technological limitations, digitalization also offers great opportunities to expand the market, improve operational efficiency, and develop more innovative products. To capitalize on these opportunities, Islamic insurance companies need to adapt quickly to changes in technology and consumer trends. In addition, stronger regulatory support and broader Islamic financial education programs are also needed for the industry to grow sustainably.
References :
Financial Services Authority (OJK). (2022). “Report on Islamic Financial Literacy and Inclusion Index in Indonesia.”
Bank Indonesia. (2021). “Use of Financial Technology in the Islamic Finance Industry.”
Darsono, A. (2023). “Technology Challenges in Indonesia’s Sharia Insurance Industry.” Journal of Islamic Finance.
Azwar, M. (2022). “Digitalization and Innovation in the Islamic Insurance Sector.” Sharia Economics Journal.
Hasan, I. (2023). “Blockchain in Islamic Insurance: Potential and Challenges.” Islamic Finance Review.
OJK (2023). “Development of Islamic Insurance Products and Services in the Digital Era.”
