Digital transformation and IFRS 17 accounting issues in Takaful industry

Abstract

Undoubtedly, accounting issue would be a critical challenge for takaful industry in the Muslim world. This chapter examines how digital transformation poses a threat to accounting issue of takaful industry in Indonesia. The chapter finds analysing survey data that digital transformation in the takaful industry is much slower than the conventional insurance. One of the critical reasons highlighted in the chapter is the lack of insurtech ecosystem in most Muslim countries including Indonesia. The small size of the industry may have contributed to the lack of appetite to invest in the IT system to embrace the insurtech opportunity. The chapter further shows that takaful industry in Indonesia faces a greater uncertainty stemming from the adoption of International Financial Reporting Standard (IFRS) 17, which must be implemented by 2025. Since takaful operators in Indonesia are mostly the wing of conventional insurance companies, a different system for the takaful wing will complicate the implementation of IFRS 17. The chapter also points out some strategies as remedies for this problem.