The adoption of shariah parametric weather index insurance remains in its early stages in Indonesia when compared to traditional takaful and conventional parametric insurance models, Zurich General Takaful Indonesia (Zurich Syariah) president director Hilman Simanjuntak has said.
This is against the broader backdrop of overall takaful penetration in Indonesia of less than 5%.
Recognising that Indonesia is among the world's top coffee-producing and exporting countries, Zurich Syariah launched its Shariah Parametric Weather Index Insurance product in 2022. The policy was the first type of weather protection product for coffee farmers in Indonesia that is also based on Shariah principles. According to Zurich Syariah, through the provision of affordable insurance protection against extreme weather conditions, the policy is expected to address financial vulnerabilities. It also signals more inclusive insurance for millions of coffee farmers.
Explaining the introduction of the product, Mr Hilman said that most farms are located in remote mountainous areas covered by rainforest, which makes conventional, on-the-ground site inspections by claims handlers difficult and time-consuming.
Indonesia's coffee plantations covered a total area of around 1.27m ha at the end of 2023. Mr Hilman said that only around 11,000 ha were covered by this parametric takaful.
Adoption is hindered by limited awareness of the importance of insurance and limited access to banking facilities.
Mr Hilman said, “At Zurich Syariah, we believe that by fostering collaboration between regulators, communities and industry players, and by strengthening public literacy of innovative shariah-based solutions, shariah parametric weather index insurance can play a vital role in building community resilience, especially in areas with extreme weather?.”
Education and publicity
Zurich Syariah has been taking a series of actions to promote shariah parametric weather index insurance.
Mr Hilman, speaking to Middle East Insurance Review, pointed out that Zurich Syariah engages directly with local leaders and cooperatives to build trust and explain the values and mechanics of such policies “in a manner that is both culturally respectful and aligned with shariah principles”.
Zurich Syariah is also preparing flyers and other materials, such as videos, to be distributed to farmers.
Representatives of farmer groups have also been trained to explain and publicise the takaful parametric policy, he said. These representatives reach out to group members, recruit enumerators and conduct regular educational sessions with farmer groups and cooperatives.
Mr Hilman also said that complex insurance concepts are simplified into relatable and real-life scenarios, especially for rural and underserved populations such as smallholder farmers and informal workers.
“Recognising that digital literacy can be a barrier, we use both traditional channels, such as face-to-face forums and community gatherings, as well as digital tools where appropriate, partnering with agritech startups,” he said.
In addition, Mr Hilman said, “We are actively educating farmers on the importance of having a bank account and the various conveniences that come with it. We are also exploring partnerships with FinTech providers, e-wallet platforms and local cooperatives to enable secure, shariah-compliant transactions – even for those without traditional bank accounts.
“Our goal is to empower communities with the knowledge to make informed decisions while reinforcing the values of mutual protection, transparency and fairness that are central to the takaful model.”