Sharia-based insurance is governed by:

  • Law 40/2014 regarding Insurance;
  • the Ministry of Finance Regulation concerning the Basic Principles of Sharia-Based Insurance and Reinsurance Business Implementation (18/PMK.010/2010); and
  • the Ministry of Finance Regulation concerning the Financial Health of Insurance Business and Reinsurance Business using Islamic Principles (11/PMK.010/2011).

Sharia-based insurance

Pursuant to Article 1(3) of Law 40/2014 regarding Insurance, a 'Sharia principle' is a ruling on a point of Islamic law by the National Islamic Council, Indonesia's recognised Sharia authority. The law also defines 'Sharia-based insurance' as a set of Sharia principle-based agreements between a Sharia insurer and a policyholder that are intended to benefit the insurer and policyholder and protect the policyholder through the provision of:

  • reimbursement for any losses, damages, costs, lost profits or legal responsibility following an uncertain event; and
  • payment based on the death or life of the policyholder, the amount of which has been established and/or is based on fund management results.

Permitted business

Under Article 3 of Law 40/2014 regarding Insurance, Sharia insurers can conduct certain types of business only.

General Sharia insurers can conduct the following business, where is it based on Sharia principles:

  • health insurance and personal accident insurance business; and
  • reinsurance business for other general Sharia insurers.

Sharia life insurers can conduct the following business, where is it based on Sharia principles:

  • annuity business;
  • health insurance business; and
  • personal accident insurance business.

Sharia reinsurers can conduct reinsurance business, where is it based on Sharia principles.

Basic Sharia principles

Under Article 2 of Ministry of Finance Regulation 18/PMK.010/2010, the following Sharia principles apply in Sharia-based insurance relationships:

  • The insurer and the participant must agree to help and protect each other.
  • The participant must contribute to the tabarru' fund.(1)
  • The insurer must act as manager of the tabarru' fund.
  • The principles of fairness, bona fide, parity, public interest and universality must be adhered to.
  • The insurance cannot involve any prohibited elements, such as risk, gambling, interest, mistreatment, bribery or disobedience.

Supervision of Sharia insurers

As stated in Article 16(1) of Ministry of Finance Regulation 18/PMK.010/2010, Sharia insurers are supervised by the Islamic Supervisory Board, which comprises one or more Sharia experts appointed by its shareholders' general meeting based on the Indonesian Council of Religious Scholars' recommendation. The board must report on such supervision to the Financial Services Authority.

Conventional insurers versus Sharia insurers

According to the elucidation of Law 40/2014 regarding Insurance, the main difference between conventional and Sharia insurers is how they manage risks: conventional insurers apply the risk transfer method, whereas Sharia insurers apply the risk sharing method.

For further information on this topic please contact Brian Audyanto at Hermawan Juniarto by telephone (+62 21 2995 9057) or email ([email protected]). The Hermawan Juniarto website can be accessed at


(1) A fund based on the concept of tabarru' (ie, to donate, contribute, or give away). It is a collection of funds originating from the participant contributions and must be used in accordance with the agreed tabarru' contract.

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