Interview: Tim Shields
To what extent is the insurance sector engaged in a “war for talent” and how can this be mitigated?
TIM SHIELDS: The financial sector, and particularly the insurance industry, has experienced phenomenal growth in the last few years. This is clear from the sector’s double-digit growth and the bullish entrance of new companies, both domestic and international, into the market. In 2011, Indonesia’s non-life insurance penetration was only 0.6% of GDP compared with neighbouring markets such as Singapore (1.5%) and Malaysia (1.8%). At the end of 2013 the figure was still under 1%, so potential remains enormous. The industry’s biggest challenge has thus become sourcing adequate human resources. While at the top management level the landscape is fairly well served, lower ranks have evident shortages. The key is to invest in the training and education of staff so that they can meet the standards now required of successful players. These demands stem both from unrelenting competition in the market and from the incoming Customer Protection Law, although the law is likely to apply more to smaller, local players. Graduate training programmes will be crucial to this educational nurturing and must start from the moment young professionals enter the workplace. English-language skills must also improve as Indonesia becomes more of a diverse marketplace. If insurance companies are willing to commit to their staff, the talent will come to us.
What will be the immediate effects of higher capital requirements on insurance, and how could consolidations and mergers be seen as a positive thing?
SHIELDS: General insurance would benefit from having a smaller pool of higher-capitalised players, as this would help render claims and service provision more uniform. Insurance is all about being able to pay the correct claims in a timely manner, no matter their size. The bottom third of the sector will be increasingly tested by such regulations, which will force smaller players to either merge or dissolve. Life insurance is better regulated because it is larger and longer established. The general sector must now try to rise to that level. Too many small players in a marketplace drives prices down, and this, by reducing margins, limits the services companies can deliver.
What lessons can the younger and still-developing general sector learn from the larger and older life sector, and where is there the most opportunity?
SHIELDS: Over the last few years, the life sector has stayed ahead of the general sector in product innovation, service quality and distribution. Such stellar development was further supported by adequacy of capital and a sufficient supply of talent. The principal lesson to be learnt is that success is strongly linked to establishing distribution levels across many different channels. As for opportunity, one critical and now hotly contested area is multi finance. Another, for the future, will be micro insurance as the government seeks to offload responsibility in this area to the private sector. A third is liability cover. Big industries in Indonesia understand risk management, and as companies expand internationally and executives and business teams travel more abroad, spaces will open for more penetration.
How can penetration into small and medium-sized enterprises (SMEs) be improved and deepened?
SHIELDS: Indonesia has a big potential SME market, as about 41m players made up nearly 58% of GDP in 2012. Only a very small number, however, make the conscientious choice to insure their businesses and property. There are a number of inherent barriers to penetration, such as the relatively low number of bank branches that distribute SME insurance, and a lack of awareness among SMEs as to the benefits of protecting their assets. There is still lots of room for building awareness, and branch networks are just one way of doing so. The key factors for tapping into SMEs, though, are a wide network of product distribution channels, innovation of new products and affordable premiums.
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