Indonesia's Sharia Insurance Industry on the Cusp of Transformation

Regulatory Mandate for Spin-off

The Financial Services Authority (OJK) has mandated that all insurance and reinsurance companies must complete the spin-off of their Sharia Business Units (UUS) by the end of 2026, as stipulated in POJK 11/2023 Article 9 ¹

Industry Reactions to the Spin-off Requirement

Industry players have mixed views on the impending spin-off. PT Asuransi Jiwa Syariah Jasa Mitra Abadi Tbk (JMAS), or JMA Syariah, notes that while the spin-off will lead to increased operational costs and competitive pressure in the short term, it also presents opportunities for companies with strong capital, governance, and distribution strategies to expand their market share through consolidation and business scale enhancement ¹

Similarly, PT Asuransi Jasindo Syariah expects the spin-off regulation to reshape the industry structure. While there will be an adjustment phase in terms of capital, governance, and business strategy in the short term, the company believes that by 2026-2027, the industry will become more robust, focused, and competitive ³

OJK's Perspective on the Future of Sharia Insurance

The OJK remains optimistic about the future of the Sharia insurance industry post spin-off. The head of OJK's Insurance, Pension Fund, and Guarantee Oversight, Ogi Prastomiyono, stated that the industry's prospects will brighten as the spin-off requirement is fulfilled ²

Implications for the Industry

The mandatory spin-off is expected to have several key implications for the Sharia insurance industry:

1. Short-term challenges: Increased operational costs and competitive pressures as companies establish separate entities.
2. Long-term benefits: Enhanced focus on Sharia business, improved stakeholder confidence, and increased competitiveness.
3. Market consolidation: Potential for stronger players to acquire smaller entities, leading to a more consolidated industry landscape.
4. Growth opportunities: Companies with robust capital and distribution networks are likely to expand their market presence.

Conclusion

The OJK's mandate for insurance companies to spin off their Sharia business units by end-2026 is set to transform Indonesia's Sharia insurance industry. While the transition may pose short-term challenges, industry stakeholders and regulators alike foresee significant long-term benefits, including a more competitive and robust Sharia insurance market.