Heliyon 9 (2023) e16605

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Heliyon
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Research article

Determinants of sharia life insurance productivity in Indonesia

Puji Sucia Sukmaningrum a, *, Achsania Hendratmi a, Syadiyah binti Abdul Shukor b,
Mutiara Ramadhani Putri a, Rosin Putra Gusti a
a
Faculty of Economics and Business, Universitas Airlangga, Indonesia
b
Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia

A R T I C L E I N F O A B S T R A C T

Keywords: This study examines the productivity and factors influencing the productivity of Sharia-compliant
Sharia insurance life insurance businesses in Indonesia over six years, from 2014 to 2019. A Two-Stage Malmquist
Takaful Productivity Index was utilized. The first stage examined productivity using the Malmquist
Life insurance
Productivity Index (MPI) method, while the second used the panel data regression method to
Productivity
Total factor productivity
identify the factors influencing productivity. This research can give insurance management an
Two-Stage Malmquist Productivity Index overview of its productivity levels and the factors affecting productivity. According to the results
of the MPI, Islamic life insurance businesses in Indonesia have not yet achieved productivity. The
insignificance of technological advancements causes it. The variables of solvency, interest rate,
inflation, currency rate, and production index substantially impact Sharia-compliant life insur­
ance companies’ productivity. Businesses must be aware of the elements that influence their level
of production.

1. Introduction

Sharia insurance is a financial institution that, by Sharia principles, provides risk management services [1]. Assisting participants is
the guiding premise of Sharia insurance risk management [2]. Insurance is a financial industry that plays a vital part in human ex­
istence but is subservient to fundamental requirements. The first is via Transfer Risk, Risk-Based Pricing, etc. In addition, the insurance
function can stimulate a nation’s economy and promote the growth of industry participants and businesses [3]. In Indonesia, there are
typically three varieties of sharia insurance: Sharia Life Insurance, Sharia General Insurance, and Sharia Reinsurance.
Life insurance is a type of insurance that provides services for managing risks related to a person’s life or demise [1]. Sharia in­
surance will devote much of tabarru’s assets to high-risk situations. Thus, it is essential to provide adequate money to meet claims [4].
Collecting Tabarru’s funds in a specific account, referred to as the pool of ‘Tabarru’ participant funds, and ’Tabarru’s funds will
instantly become the group’s assets [5]. Public understanding of the significance of self-protection contributes to the development of
the life insurance industry. Sharia life insurance firms will continue to expand because they provide the public with a sense of con­
fidence regarding the availability of participant funds in anticipation of future risks [4].
In 2019, Indonesia’s Islamic insurance market share was 3.31%, with a penetration rate of 0.113%. It indicates that the market
share and penetration are still low, which is counterintuitive given that the majority of the population in Indonesia is Muslim. This
study focuses on organizations that provide Sharia-compliant insurance, a necessity for customers who shun non-halal finance.
Consumers will choose Sharia life insurance over conventional insurance since it does not include Gharar (uncertainty), Maisir

* Corresponding author.
E-mail address: puji.sucia@feb.unair.ac.id (P.S. Sukmaningrum).

https://doi.org/10.1016/j.heliyon.2023.e16605
Received 4 December 2022; Received in revised form 21 May 2023; Accepted 22 May 2023
Available online 24 May 2023
2405-8440/© 2023 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
P.S. Sukmaningrum et al. Heliyon 9 (2023) e16605

(gambling), and Riba (interest) (interest). Thus, expanding the quality of Islamic life insurance firms is essential and may be
accomplished by boosting the Company’s performance [6].
Productivity is the most critical determinant of a company’s crucial performance and one of the measures used to measure its
competitiveness [7]. Excellent productivity is achieved when output improves while Input remains constant [8]. In addition to
assessing productivity, firms must determine which variables affect productivity.
Past research has focused on the performance and efficiency of Islamic insurance businesses [2]. And [3] compare the effectiveness
of Sharia and conventional Indonesian life insurance businesses. Using the two-stage data envelopment analysis method [9]. [4,10]
explore the efficiency and factors that influence the efficiency of the Sharia insurance business. In addition, some study examines the
effectiveness of Takaful firms in Indonesia [11], Bangladesh [12] and Middle East North Africa (MENA), and the Southeast East Asian
(ASEAN) regions [13]. The research studied the productivity of Islamic insurance businesses in Indonesia [3], Malaysia [14], and India
[15].
Prior research has only measured efficiency and productivity. This study fills the void by evaluating productivity using the MPI and
determinants of Sharia Insurance performance that can influence productivity in Indonesia. This study employed a two-stage
Malmquist Productivity Index methodology to determine the degree of corporate productivity and the variables that affect it.
Initially, productivity was measured using the Malmquist Productivity Index (MPI) technique. This indicator measures firm pro­
ductivity to disclose efficiency and technology levels [16]. In addition, it can be used as a periodic tool for analyzing performance
change [17]. The second stage consisted of testing the factors that influence changes in production. In addition to determining the
degree of productivity, this is a vital stage. Because the empirical findings addressing the factor determinants or determinants
impacting changes in productivity will give the relevant parties great and correct information and assistance (Kamarudin et al., 2017).
In addition, productivity determinants will be evaluated using panel data regression. This study also examined the influence of seven
variables on productivity changes: size, leverage, solvency, inflation, interest rates, production index, and exchange rates.
Islamic life insurance productivity in Indonesia is favorably correlated with company size. Larger companies are typically more
productive than medium or small businesses [18,19]. Meanwhile [20], discovered a negative correlation between leverage and ef­
ficiency in the non-life insurance market in South Africa. Similarly, there is a negative correlation between inflation and productivity
since higher inflation reduces business income. In addition, between 2016 and 2018, interest rates harmed the investment returns of
Sharia insurance businesses in Indonesia [21]. In addition, [22] uncovered a significant correlation between the exchange rate and
investment in Islamic life insurance firms.
The research focuses on the new era so that the outcomes might reflect current affairs. The research period is from 2014 to 2019
because there was a pandemic of COVID-19 in 2020. The influence of Covid-19 can destabilize the Indonesian economy, leading to a
global economic downturn and a decline in the financial sector’s performance This study utilizes the period preceding the pandemic to
obtain the most accurate results regarding efficacy and prevent biased outcomes. To be able to concentrate on this, this research aims
to:

1. Evaluating the value of Total Factor Productivity Change (TFPCH), Technological Change (TECHCH), Efficiency Change (EFFCH),
Pure Technical Change (PTECH), and Scale Efficiency Change (SECH) in Indonesian Islamic life insurance
2. To determine the factors that influence productivity in Sharia life insurance firms

This research benefits Sharia insurance firms as a factor to consider when managing resources for best performance. In addition,
businesses must prioritize productivity and concentrate on growth-influencing elements. Seldom is research conducted on the pro­
ductivity of Islamic commercial banks and the factors that influence it. Seldom is research conducted on the effectiveness of Sharia
Insurance and the elements that govern it. Consequently, this study issue can be investigated further.
The remainder of this paper consists of five sections. The literature review section provides an overview of sharia insurance,
productivity, MPI, and hypothesis. The third section includes research methodology, data sources, and empirical models. The
following part will discuss the findings and analysis, which describes the results and analyzes each problem formulation. The rest
discusses conclusions and research suggestions.

2. Literature review

Indonesia is a country that has the largest Muslim population in the world, or nearly 13% of the total world Muslim population. It is

Tabel 1
The Sharia insurance companies in Indonesia for the period 2015–2019.
Description 2015 2016 2017 2018 2019

Sharia Life Insurance Companies 5 6 7 7 7

Sharia Non-Life Insurance Companies 3 4 5 5 5
Sharia Reinsurance Companies 0 1 1 1 1
Sharia Unit of Life Insurance Companies 19 21 23 23 23
Sharia Unit of Non-Life Insurance Companies 24 24 25 24 24
Sharia Unit of Reinsurance Companies 3 2 2 2 2
Total 54 58 63 62 62

Source: The Financial Services Authority (2019)

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estimated that there are 231 million Muslims, or 86.7% of Indonesia’s population. Indonesia is one of Southeast Asia’s most significant
contributors to the gross contribution of sharia insurance. It implies that the premium growth of Sharia insurance businesses in
Indonesia is increasing and consolidating its position in the Indonesian insurance market.
Sharia life insurance companies in Indonesia are experiencing expansion and the global expansion of Sharia insurance. The
development of Sharia-compliant life insurance firms and business units is encouraged.
The number of Sharia insurance businesses in business units and full-fledged Sharia insurance companies increased between 2015
and 2019, as shown in Table 1. In 2019, the number of full-fledged Sharia life insurance firms climbed to seven, while the number of
life insurance companies with Sharia units increased to 23.

2.1. Sharia Insurance

According to Indonesian law No. 2 of 1992, insurance is a contract between two or more parties. By collecting insurance premiums,
the insurer ties themselves to the insured. They compensate the insured for loss, damage, loss of anticipated profits, and legal liability
to third parties. Moreover, Sharia Insurance intends to safeguard and assist multiple individuals through investments. Assets and
tabarru’ Funds offer risk reimbursement by Islamic law (Fatwa No. 21/DSN-MUI/X/2001).
In brief, the essence of Islamic insurance is mutual protection and assistance (ta’awun). In addition to the contract, Sharia and
conventional insurance differ in fund ownership, premiums, risks, investments, claims, and profits [2]. The tabarru’ fund collects all
contributions from participants in Islamic insurance. The purpose of Tabarru’s finances is to cover the risks of every Islamic insurance
participant [23]. In addition, any individual possessing sharia insurance can be a guarantor of virtue for every human potential in
society by cultivating unique advantages [3].

2.2. Productivity

One of how businesses can maximize their operational resources is by increasing their productivity. Productivity increase can
accelerate firm performance, competitive pricing, service quality enhancement, and resource allocation expansion (Filippaki et al.,
2009). The Firm will benefit from increased productivity since it can save money on its operations. These cost savings will further help
the Company improve its profitability [7].

2.3. Two-Stage Malmquist Productivity Index

The research uses a two-stage approach. The first stage measures the productivity level of Islamic insurance companies using the
Malmquist Productivity Index (MPI). The second stage is to measure the influence of internal variables on productivity.
The first Stage, The Malmquist Productivity Index (MPI), measures the amount of productivity of a business or organization. Sten
Malmquist established the Malmquist Index in 1953. Hence, Caves, Christensen, and Diewert (CCD) created the Malmquist Index in
1982 [16,18,24,25]. The Malmquist index is based on the production function idea, which estimates the maximal production function
with limited Input. The construction of the index includes different results: efficiency change, technological change, pure efficiency
change, economic scale change, and total factor productivity (TFP) change [26].
The straightforward definition of productivity is the ratio of Output to Input. The criterion for productivity relates to the added
value of outputs [27]. In addition, productivity is defined as the ratio of total output to the average of equal inputs. Simultaneously,
labor productivity, which calculates the whole production per unit of labor, and total factor productivity, which measures the per unit
output of the total Input, are two effective alternatives [3]. This relationship is represented as the ratio of the output index to the sum of
all input indices. If the ratio increases, it indicates that more output can be produced with a certain number of inputs or that more work
can be produced with fewer inputs [3]. Table 2 explains the input and outcome variables used in this investigation.

2.4. Determinant variables

In this instance, firm size refers to the size of the insurance company and is one of the factors defining the effectiveness of an Islamic
insurance company. The smaller the Company, the greater the likelihood it will be more efficient at utilizing Input to generate more
Output [12]. Big companies typically have superior resources, cheaper transaction costs, and excellent resistance to competition and
economic shock. In other words, large firms or firms with substantial assets are typically more efficient [28]. Thus, the approximate

Tabel 2
Input and output variables.
Variables Formula

Equity Total Capital Provided in Financial Report

Total Expenses Overall Operating Costs + Total Insurance Expenses
Total Investment Investments made by the Company in total
Total profit Business earnings plus a surplus of the tabarru’s fund
Total Investment Income Investment-related revenue earned by the Company

Source [2].

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formula for bank size is the natural logarithm of total assets:

Size = ln(TotalAsset) (1)

H1. Firm size has a strongly favorable effect on Sharia life insurance productivity in Indonesia.
Financial leverage rise raises insurance businesses’ risk exposure [29]. To a certain point, growth in leverage is advantageous to the
Company, but beyond that point, it increases the likelihood of financial issues [30]. High force makes it difficult for insurance
companies to meet capital needs cheaply [15]. [20] revealed a negative correlation between power and efficiency in the non-life
insurance market in South Africa. The equation for the leverage ratio is as follows:
TotalDebt
Leverage = (2)
TotalAsset

H2. Leverage has a substantial favorable effect on the level of Sharia life insurance productivity in Indonesia.
The solvency ratio assesses an insurance company’s ability to discover sources of funds to finance its operations or as a tool for
identifying insurance wealth to determine insurance management’s efficiency. This ratio assesses the Firm’s ability to meet its long-
term liabilities in liquidation [9]. In the insurance industry, the solvency ratio is one of the most important indications of a company’s
health. Insurance is a somewhat unpredictable yet predictable industry. It is because participants in Sharia life insurance can submit
claims at any moment, and the insurance firm must pay them. Thus, this ratio is essential so that participants and other interested
parties have confidence that the insurance company can pay for their rights [31].
The formula for the solvency ratio is as follows:
Total Solvency Rate
Solvency = (3)
(Total funds needed to anticipate the risk of loss which may
arise due to deviations in asset management)

H3. The solvency ratio has a substantial favorable effect on the level of Sharia life insurance productivity in Indonesia.
Inflation is a globally prevalent monetary phenomenon. Increased inflation will result in a decline in the Company’s revenue. Under
Tabaru’s fund administration, participant claims, and insurance management charges increase. Suppose the participant’s share added
by the insurance administration expense exceeds the insurance income, or there is a tabarru’ underwriting fund shortfall. In that case,
it will impact the Company’s revenue. As the profit-sharing received is smaller than in the previous situation, a participant’s confi­
dence in the Company will fall if the income decreases [22]. The data on inflation is collected from Bank Indonesia.
H4. Inflation has a substantially favorable effect on Indonesia’s Sharia life insurance productivity.
According to the findings of a study on Sharia insurance firms in Indonesia in 2016–2018, interest rates had a considerable negative
impact on the investment returns of Sharia insurance companies 2016–2018 [21]. The interest rate is one of the macroeconomic
variables that investors consider when allocating capital. Changes in interest rates can influence the return variability of an invest­
ment. As the cost of capital rises with an increase in the interest rate, the public’s motivation to invest will diminish [21]. This study
makes use of the BI rate as its interest rate. The interest rate information is collected from Bank Indonesia.
H5. Interest rate substantially affects the Sharia life insurance productivity in Indonesia.
The production index is a volume index developed to assess a country’s industrial production’s monthly, quarterly, and yearly
growth [32]. This index is often designed to measure the rise and fall of production outcomes [33]. The production index can be
approximated using Gross Domestic Product Growth (GDP). Moreover, economic growth will improve investment portfolio returns,
influencing the profitability of insurance businesses. Also, the increase in profitability will enhance the effectiveness of insurance
businesses [34,35]. Bank Indonesia provides the production index information.
H6. Production Index has a substantial favorable effect on Sharia life insurance productivity in Indonesia.
According to Ref. [36], the exchange rate represents the amount of domestic money necessary to purchase one unit of foreign
currency. Theoretically, the impact of changes in exchange rates on investments is unpredictable. Moreover, a short-term decline in the
rupiah’s currency rate will restrict domestic absorption investment. A more substantial rupiah exchange rate will increase prices
generally and reduce domestic demand, causing businesses to reduce their capital allocation for investment [22]. The exchange rate
information is derived from Bank Indonesia.
H7. The currency rate has a substantial favorable effect on Sharia life insurance productivity in Indonesia.

3. Methodology

3.1. Data

This study utilized secondary data in the form of financial statements of Sharia life insurance firms in Indonesia for the years

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2014–2019, which can be found on the websites of each post-audit Company.

3.2. Sample

The samples were determined using the technique of purposive sampling. The required sample criteria consisted of Sharia life
insurance businesses with complete positive data relating to the variables employed between 2014 and 2019. Ten Islamic life insurance
companies served as examples for this study in Indonesia.

3.3. Method

The quantitative approach used two research methods—the non-parametric and the parametric method—. The Malmquist Pro­
ductivity Index (MPI) was utilized as the non-parametric tool to quantify the level of productivity of Islamic life insurance businesses in
Indonesia. In testing the Malmquist index, the study used an output orientation based on the premise that Islamic life insurance firms
desire to obtain numerous outputs for a fixed input [7,18,25]. In addition, the intermediation approach was chosen because it
accurately describes the natural role of financial institutions [37].
This study’s parametric model utilized panel data regression with the Eviews 9 tool. This method is believed to reduce the number
of errors in the study as it evaluates the factors influencing changes in the productivity of Indonesian Islamic life insurance businesses.
The panel data consisted of cross-sectional and time-series data from 2014 to 2019.
This study utilized capital, total expenditure, and total investment as input variables. In contrast, the total profit and investment
income functioned as output variables. The Malmquist index was applied to the five factors to determine the level of productivity of
Islamic insurance businesses in Indonesia and Malaysia. After that, additional testing was conducted to determine TECHCH, PTECH,
and SECH.

3.4. Malmquist Productivity Index

This study measured productivity by assessing the change in Total Factor Productivity Change (TFPCH) value. TFPCH comprises
Technological Change (TECHCH), which demonstrates the application of technology and innovation, and EFFCH, which reflects the
Company’s effectiveness (maximizing the output that can be generated with the Input it has). In the meantime, EFFCH is comprised of
Pure Technical Efficiency Change (PTECH), which demonstrates the organizational operation capability of the companies, and Scale
Efficiency Change (SECH), which reflects the condition of the companies in the most efficient position [18,38,39]. [25,38] describe the
link between these indices in the graph below (see Fig. 1):
The preceding image illustrates the relationship between the components of the Malmquist index [18,38]. provide the following
description of the Malmquist index:

1. TFPCH is the final value determining whether a Decision-Making Unit (DMU) will experience a productivity improvement or
reduction.
2. TECHCH is a production process indicator that measures the utilization of technology and innovation.
3. EFFCH indicates the Company’s capacity to optimize output from various accessible inputs.
4. PTECH is a measure of the Company’s operational management capability.

The Malmquist index examined total factor productivity and its components. A business is deemed productive if its TFP exceeds one
(1). The following are formulations of productivity [38,40]:

Fig. 1. Interaction of Performance Indices

Source: Fukuyama (1995); Kamarudin et al. (2017).

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[ )]
( ) Dt+1 (xt+1 , yt+1 ) Dto (xt , yt )
Mo xt+1 , yt+1 , xt , yt = o t t t X X t+1 ½ (4)
Do (x , y ) Do (xt , yt )

Notes:
Mo = Malmquist Index (MI).
Do = Distance function.
xt = The current time input.
xt + 1 = Input for the following period.
yt = output of the current time.
yt + 1 = Output of the subsequent interval.
According to Fukuyama (1995) and George Assaf, Barros, & Matousek (2011) According to:
MI = EC X TC (5)
Notes:
MI = Variation in total output.
EC = Variation in overall efficiency.
TC = Technical change between t1 and t2.
MI > 1 Enhanced efficiency.
MI < 1 Productivity reduction.
MI = 1 Production is at a standstill.
Where:

Dt+1
0 (x
t+1 t+1
,y )
EC = t
(6)
D0 (xt , yt )
[ )]
Dt0 (xt , yt )
TC = X t+1 ˆ
(½) (7)
D0 (xt , yt )

Total productivity or Total Factor Productivity (TFP) is the concurrent relationship between several inputs and outputs. The ratio of
the output index to the aggregate input index expresses this relationship. If the ratio rises, it suggests that more work is created with a
given amount of inputs or that several outputs can be generated with fewer inputs [41].

3.5. Panel data regressision

The objective of this panel data regression research was to evaluate the productivity of Indonesian Sharia Life Insurance Com­
panies. This study utilized several independent variables, time-series data, and cross-sectional information. Hence panel data
regression was favored. Panel data combines time series data with cross-sectional data. Typically, time series data consists of a single
object that spans numerous periods. Cross-data consists of multiple things and data for a given period. The regression model describes
the variable link between financial and non-financial factors and Indonesian Sharia life insurance product development. This is how
the estimating model might be written:
TF = βi + TFPCHit = βi + β1 lnSizeit + β2 Leverageit + β3 Solvancyit + β4 Inflationit + β5 InterestRateit + β6 PIit + β7 lnExchangeRateit + e
(8)
Notes:
TFPCH: Sharia Life Insurance Productivity Level
β: Coefficients’ vector
i: cross-section
t: time series
e: error variable.

4. Data result

4.1. Productivity of Indonesian Sharia Life Insurance Companies

During the research period, the productivity of Islamic life insurance businesses in Indonesia fluctuated. Between 2014 and 2017,
Indonesian Sharia life insurance businesses operated inefficiently. The lowest productivity occurred in 2017–2018, accounting for a
− 27.3% decrease (0.727). This occurrence was brought about by a reduction in the utilization of technology as an innovative product
and service by Sharia life insurance businesses (TECHCH score less than one). In contrast, Sharia life insurance businesses in Indonesia
could operate productively in 2018–2019 and attained the highest productivity value during the study period, 32.6%. (1326). Table 3
depicts the increase in technological change indicators.
As demonstrated by the TFPCH score of 1, there was an overall decline in the productivity of Islamic life insurance businesses in
Indonesia. PT AXA Financial Indonesia is the most productive Sharia-compliant life insurer. It is indicated by the Company’s

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achievement of one to three times over the research period. Moreover, PT AXA Financial Indonesia’s productivity in 2014–2015 was
150.8%.
PT Great Eastern Indonesia Life has the lowest productivity value among Sharia insurance companies. In 2014–2015 and
2017–2018, the company’s lowest unproductivity rates were 73,2% and 60,5%, respectively. PT Great Eastern Life became the
Indonesian insurance firm with the lowest productivity value.
Factors Influencing the Productivity of Sharia Life Insurance Companies in Indonesia.
Based on the model test, a standard effect model with the Total Factor Productivity Change (TFPCH) variable as the dependent
variable was obtained in Table 4.
According to the given regression equation, the influence of the independent variables on the constant variable is 122,4598. When
size, leverage, solvency, inflation, interest rates, PI, and Exchange Rate are stable or zero, TFPCH’s output will increase by 122,4598
units. The R-Squared value in the results of the preceding observation is 0.6111, indicating that the size, leverage, solvency, inflation,
interest rates, PI, and lnExchangeRate variables have a simultaneous impact of 6.11% on the productivity of Islamic life insurance in
Indonesia.

4.2. Size’s influence on productivity

The t-statistic probability of the size variable is 0.4032. It indicates that the size variable has little impact on the TFPCH variable. In
addition, the findings of this study indicate that the size of an Indonesian Sharia insurance company has little bearing on its
productivity.

4.3. Impact of capitalization on productivity

The t-statistic probability value for the leverage variable is 0.4603. It specifies that the impact of the leverage variable on the
TFPCH variable is negligible. Additionally, high debt will increase the insurance company’s expenses, which will be deducted before
the imposition of company tax. Therefore, the tax must be reduced, and the remaining profit must be surplus. The greater the
Company’s reliance on corporate debt, the higher its profitability [42].

4.4. Effect of financial stability on productivity

The t-statistic probability value for the solvency variable is 0.0121 at a significance level of 0.05. It specifies that the solvency
variable influences the TFPCH variable significantly. Solvency has a positive impact on business output. The coefficient of the solvency
variable is 4.90E-06, which indicates that a change of approximately 1 unit will increase to 4.90E-06 units in the TFPCH variable.
The solvency ratio measures an insurance company’s ability to find sources of funds to finance its activities or as a measurement
tool to identify insurance wealth to determine insurance management. This ratio measures the ability of a company to liquidate its
long-term obligations. The higher the solvency ratio, the greater the risk and the possibility of profit-making. When expanding, Islamic
life insurance companies require debt as additional capital. Therefore, the high solvency ratio can also boost Islamic life insurance
productivity in Indonesia [9].
A solvency ratio measures an insurer’s financial health and is commonly interpreted as an insurer’s ability to pay claims. Thus, the
higher the ratio, the better the insurer’s financial health. Insureds who are willing to pay a premium for safety may prefer these in­
surers, which can have a positive impact on the insurer’s profitability [43].

4.5. Inflation’s impact on productivity

The inflation variable has a significance level of 0.05 and a t-statistic probability value of 0.0000. It describes how the inflation
variable influences the TFPCH variable significantly. The inflation variable coefficient is − 0.469843, so a change of 1 unit will result in

Table 3
Observations on Indonesian sharia life insurance companies by the MPI from 2014 to 2019.
No Companies 2014–2015 2015–2016 2016–2017 2017–2018 2018–2019

1 PT AIA Financial 0.653 2.471 1.022 0.774 1.387

2 PT Asuransi Allianz Life Indonesia 0.880 0.762 0.874 0.846 1.735
3 PT Asuransi Jiwa Manulife Indoenesia 0.977 0.723 1.070 0.733 1.441
4 PT Asuransi Jiwa Syariah Al-Amin 0.868 0.890 0.843 0.916 1.048
5 PT Asuransi Takaful Keluarga 0.979 0.868 0.924 0.955 1.200
6 PT AXA Financial Indonesia 2.508 0.792 1.080 0.625 1.543
7 PT BNI Life Insurance 0.971 0.913 0.875 0.493 1.568
8 PT Great Eastern Life 0.268 1.335 1.129 0.395 1.463
9 PT Panin Dai-Ichi Life 0.899 1.181 0.700 0.830 0.989
10 PT Prudential Life Assurance 0.934 0.666 0.740 0.973 1.103
Mean 0.875 0.978 0.915 0.727 1.326

Source: DEAP 2.1 processed data

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Table 4
Panel data regression results.
Variable Coefficient Std. Error t-Statistic Prob.

C 122.4598 10.81618 11.32191 0.0000

Ln Size 0.014306 0.016976 0.842725 0.4032
Leverage − 0.001029 0.001383 − 0.743872 0.4603
Solvency 4.90E-06 1.89E-06 2.599795 0.0121
Inflation − 0.469843 0.028786 − 16.32165 0.0000
Interest rate 0.167739 0.034804 4.819494 0.0000
PI 0.027677 0.003871 7.150692 0.0000
In Exchange rate − 13.12051 1.199408 − 10.93916 0.0000
R-squared 0.611134
Prob (F-statistic) 0.000000

The equation for the regression model is as follows:

MPI = 122.4598 + 0.014306lnSizeit – 0.001029Leverageit + 4.90E-06Solvencyit – 0.469843Inflationit + 0.167739Interestrateit + 0.027677PIit –
13.12051Exchangerateit + e.
Source: Processed Eviews 9

a decrease of up to − 0.469843 units for the TFPCH variable. The income of Islamic life insurance companies will decrease if inflation is
high. Following tabaru’s fund management, participant claims and insurance management expenses increase. The company’s revenue
will be affected if these factors are more significant than insurance income or a deficit in underwriting tabarru funds. If the company’s
income decreases, participants and investors will have less faith in the business because they will receive less profit-sharing than
before. Moreover, high inflation will increase the risk of Sharia life insurance companies, resulting in a decline in the Company’s
productivity [22].

4.6. The effect of interest rate on productivity

The t-statistic probability value for the interest rate variable is 0.0000 with a significance level of 0.05. It describes how the interest
rate variable significantly affects the variable of TFPCH. Moreover, the interest rate variable has a coefficient value of 0.167739 which
means that if there is a change of 1 unit, the TFPCH variable will rise by 0.167739 units.
The interest rate is one of the most critical factors for insurance companies, as it reflects the return on investment funds the
company will receive. The higher interest rate will increase the insurance company’s profitability and enhance the benefits for pol­
icyholders. In other words, an increase in interest rates will increase the demand for insurance services. The greater the demand for
insurance, the more productive the insurer will be [44].

4.7. The effect of the production index on productivity

The t-statistic probability value for the PI variable is 0.0000 with a significance level of 0.05. It shows that the PI variable sub­
stantially affects the TFPCH variable. The PI variable has a coefficient value of 0.027677, which indicates that a change of 1 unit will
increase to 0.027677 units for the TFPCH variable.
The Gross Domestic Product can be a proxy for the Production Index (GDP). GDP is a measure of a nation’s economic growth.
Additionally, GDP describes a nation’s financial state during a given period. Because it is reflected in GDP growth, an excellent
economic environment will stimulate investment return. Investment return is directly proportional to changes in GDP. The increase in
a country’s GDP will stimulate investment activities, such as investments in Sharia life insurance and other companies that act as
investors. Consequently, Islamic life insurance firms have become more productive [22,45].

4.8. Impact of currency exchange rate on productivity

The exchange rate variable has a significance level of 0.05 and a t-statistic probability value of 0.0000. It describes how the ex­
change rate variable influences the TFPCH variable significantly. The coefficient of the exchange rate variable is − 13.12051, which
indicates that for every 1 unit change in the exchange rate variable, the TFPCH variable will decrease by − 13.12051 units.
The consistent fluctuation of the rupiah exchange rate against foreign currencies will significantly impact the domestic investment
climate [21]. Theoretically, the impact of changes in the exchange rate on investment is uncertain. The strong rupiah exchange rate
will increase prices and, consequently, reduce domestic demand, causing businesses to reduce their investment capital allocation. It
renders Sharia life insurance companies ineffective [22].

5. Conclusion

The objective of measuring the productivity of Islamic life insurance companies in Indonesia was to determine the level of pro­
ductivity attained by each company to boost its competitiveness in the Islamic financial industry, particularly the Sharia insurance
sector. Considering the relatively small market share of Sharia-compliant life insurance in Indonesia, sharia-compliant life insurance

8
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companies must operate efficiently. In addition, Sharia life insurance productivity determinants were analyzed to determine which
factors can influence the productivity increase of Sharia life insurance companies. By focusing on these factors, it is anticipated that the
productivity of Islamic life insurance companies will excel in terms of their competitiveness.
The findings of this study indicate that the TFPCH trend of Islamic companies in Indonesia fluctuated throughout the research
period. Nonetheless, Islamic life insurance companies in Indonesia cannot generally operate profitably because the TFPCH value is
negative. To be productive, sharia-compliant life insurance companies in Indonesia can begin utilizing rapid technological ad­
vancements and introducing new ideas. Therefore, businesses are anticipated to become more advanced and productive by estab­
lishing innovation in the technology sector.
This study also indicates that the internal and external variables influencing the productivity of Islamic life insurance companies in
Indonesia are solvency, inflation, interest rate, production index, and exchange rate. In light of this, the management of Islamic life
insurance companies in Indonesia must focus on these factors to boost company productivity.
This research contributes to numerous empirical and stakeholder literature. For Indonesia’s Sharia life insurance industry to remain
competitive, regulators can produce regulations. Second, for businesses in determining the productivity-enhancing potential of
company resources. Thirdly, for the general public, this study will serve as a source of information for those interested in productivity
analysis and the growth of the Sharia life insurance industry.
In addition, regulators must pay attention to macroeconomic variables to maintain stability and foster a competitive environment
for the Islamic insurance industry. This study utilized only internal variables. It is a preliminary study for academics and researchers,
and there are numerous opportunities for future research to explore or employ additional research variables. Future researchers are
advised to use the recommended macro variables for this research.

Author contribution statement

Puji Sucia Sukmaningrum: Conceived and designing the analysis; Wrote the paper.
Achsania Hendratmi and Syadiyah binti Abdul Shukor: Analyzed and interpreted the data; Wrote the paper.
Mutiara Ramadhani and Rosin Putra Gusti: Contributed analysis tools or data; wrote the paper.

Data availability statement

Data included in article/supp. material/referenced in article.

Additional information

No additional information is available for this paper.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to
influence the work reported in this paper.

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