Interview: William Kuan
How do you assess the overall development of the insurance sector? What drives the industry’s growth?
WILLIAM KUAN: There are huge opportunities for insurance growth currently present in the market. Indonesia continues to enjoy very good economic growth, and had a GDP of 6.3% in 2011. Based on recent World Bank reports, it is estimated that Indonesia will grow 6-7% over the next few years. The development of the insurance industry tends to follow economic development. Significantly, the middle class is expanding rapidly, with some estimates forecasting it will number more than 100m people by 2015. At present, it is the middle class segment that fuels the insurance sector. Furthermore, based on data from the Indonesia Life Insurance Association (AAJI), there are only 10m individual life policies in the country. With the rising disposable incomes associated with a growing middle class, which is increasingly more educated about insurance products, there are huge opportunities for the life segment.
What strategies are being used to further penetrate lower-middle and middle segments of the market?
KUAN: Indonesia is an emerging economy, therefore, there is still a largely untapped insurance market. The majority of players in the industry are currently focusing on the middle and upper-middle segments. Nevertheless, the industry has not forgotten about those individuals that fall outside this spectrum. The lower segment of the population is not that well off, financially, and insurance is not typically a top purchase in this group. First, awareness should be created among this segment. To do that, we have been embarking on a few large-scale programmes geared towards financial literacy for small and medium-sized enterprises, entrepreneurial women and micro entrepreneurs. In the past three years nearly 5000 people have been through the programme. This is a consultative approach, and something that the private sector has been working on in conjunction with the Ministry of Finance, the Capital Market and Financial Institution Supervisory Board, the Ministry of Women’s Empowerment and Children Protection, the Ministry of Tourism and Creative Economy and the Ministry of Trade. Immediate results are not expected, but it is good to create awareness. As this segment becomes more educated and wealthier, they will consider spending their disposable income on insurance.
Would tax incentives motivate more customers to take out insurance policies?
KUAN: It has been discussed that individuals obtaining insurance policies might be eligible for tax deductions, which could also incentivise people to declare taxes. However, Indonesia has been struggling to get people to register for taxes. There are discussions now being held at the ministerial level – including the Tax Office, the Ministry of Finance and the regulator – and we hope to see changes to the tax regime in the near future. Such changes must be carefully studied to avoid having a negative effect on the country’s economic cycle, but I am comforted knowing that discussions are being held on this matter. At present only 10-20% of people have tax IDs. Once all of the employed people have proper tax IDs, then one will be able to see the full benefits of having this sort of fiscal subsidy.
How do you assess the potential for sharia-compliant insurance in Indonesia?
KUAN: We see tremendous potential to develop the sharia-compliant insurance segment. Indonesia has the largest Muslim population in the world – 90% of the 240m people are Muslim, so there are easily 210m Muslims – a huge market potential. It is still in its infancy, but great progress has been made over the past few years. There has been visible growth in the takaful (Islamic insurance) space, as well as in sharia-compliant banking. A significant opportunity exists. Today, we are the largest takaful provider in Indonesia. Takaful currently comprises approximately 20% of the total portfolio, and we see that continuing to grow in the future.
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