Axco Insurance Information Services (Axco) has released its latest life insurance market report on Indonesia. At an earlier stage of development than other ASEAN member countries in ASEAN, Indonesia continues to report a resilient economic growth at 5 per cent plus year on year and is becoming one of the world’s most attractive markets for life insurance propositions due to a low insurance penetration rate of just under three per cent, a large population, and expanding consumer class.
The market is dominated by a narrow range of individual, regular premium, life insurance savings products, sold predominantly through agency forces and the bancassurance channel. Most domestic insurers are selling traditional participating endowments but they are increasingly entering the Investment-Linked Products (ILPs) to compete with joint venture companies with multinational life insurance partners.
ILPs which offer twin attractions of an investment savings with valued protection benefits are structured as unit-linked products and sales have grown rapidly since being introduced. They overtook traditional endowment sales in 2008 and accounted for 53 per cent of life insurance market written premium in 2016 following a 31 per cent increase in written premium one year before.
There is a growing corporate benefits market that offers insured group life cover with riders which may include total permanent disability (TPD), personal accident (PA) and emergency medical expenses. This may be impacted by the social security reform that is rolled out by the government over a multi-year time horizon and it has weakened demand for private benefits in some areas on account of higher mandatory employer contributions and benefit enhancements.
Leading multinational life insurance companies have flocked to the market in recent years, bringing expertise and resources and helping grow the market from GBP 358 million in 2000 to GBP 9.67 billion in 2017, ranked 24th in the world. The report also notes an increased number of foreign insurance companies entering the market.
Sharia life insurance or takaful is another market niche considered to have potential in this majority Muslim country and it benefits from government support. There are 30 sharia licensees, an increase of six since last reported and 23 of which were life company sharia units. Reports of its progress, however, are mixed. The regulatory states it is growing faster than conventional business, while the industry trade body counters it is not really growing at all. The fine distinctions between conventional and sharia insurance products are also said to be lost on most in a market where few have a clear understanding of life insurance.
Carol Au-Young, Axco’s Global Head of Client Development commented: “The underdeveloped market in Indonesia and growth of its young demographic make it one of the fastest growing life insurance markets in the world and it presents multinational insurance companies with tremendous opportunities to tap the expanding middle class of Indonesia. As life expectancy, income and financial literacy improves in the country, the need for life insurance is increasing.”