Insurance sector's low penetration and rapid expansion indicate sizeable potential in Indonesia

With strong premiums growth in recent years, a liberal investment environment and a low penetration rate, Indonesia’s insurance sector is poised for a period of rapid expansion. A slight market slowdown in 2013-14 – due in large part to regional economic volatility – appears to have reversed course in the first half of 2016, with positive implications for the country’s insurers, particularly its major players.

As of June 2015 – the most recent date for which data was available – Indonesia was home to 129 policy underwriters, including 50 life insurers and 79 non-life insurers. Additionally, at this time the market was made up of five reinsurance companies, 161 insurance brokers and 35 reinsurance brokers. Under a new insurance law that was introduced by the Financial Services Authority (OJK) at the end of 2014, market consolidation will likely take place over the course of the coming decade, even as penetration continues to grow, driven in large part by the life segment, which accounted for more than 60% of gross written premiums (GWPs) in the first half of 2015, according to data from KPMG, a global professional services firm. “On the corporate side the recent economic slowdown has challenging for local insurers,” Hardjanto Sudjana, senior vice president of placement services at Marsh Indonesia, the local office of the international brokerage house, told OBG. “That said, the industry has seen steady growth recently, despite the downward pressures.”

Changes Afoot 

Indeed, for many players 2014-15 was challenging only as compared to previous years, many of which recorded double-digit expansion rates. Yet the industry does face a number of challenges. In a series of recently introduced insurance-focused policies, the OJK has tightened controls on foreign ownership rules, which have historically been extremely liberal in Indonesia. Foreign-affiliated players, which currently account for the bulk of GWPs across most segments, will likely remain in a dominant position for the foreseeable future, but may be required to meet new government-mandated requirements.

At the same time, the potential for market consolidation presents a wide range of hurdles and uncertainties for existing and new potential players alike. Distribution, for instance, represents a key issue in Indonesia, where the population is spread across a large and complex geographical area, namely more than 13,000 islands, many of which are quite remote. Bancassurance – whereby insurers sell policies via existing bank branch networks – is on the rise in Indonesia, and will likely play an increasingly important role in the sector in the coming years. Financial technology (fintech) is also expected to play a key role in insurance distribution, although these products and services were still beginning to roll out in 2016.


Insurance in various forms has been available in Indonesia since the colonial period, when a number of leading Dutch firms operated in the country. In 1992 the government passed a legislative framework for the insurance industry through to the end of 2014, when the OJK introduced the new insurance law. The modern insurance sector developed rapidly beginning in the 1980s and 1990s, particularly following the 1997 Asian financial crisis and the restructuring of the country’s financial sector in the early 2000s. Since 2006 both the life and non-life segments have seen rapid expansion. In 2010 the industry wrote Rp125trn ($9.1bn) worth of GWPs, which represented life insurance penetration (life premiums as a percentage of GDP) of 1.2%, according to KPMG. In the same period, non-life segments such as reinsurance, property and casualty segments had a joint market penetration of 0.5%.

Until early 2013, the insurance sector was regulated by the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), which fell under the jurisdiction of the Ministry of Finance. Bapepam-LK was also responsible for overseeing the nation’s capital markets sector (see Capital Markets chapter). In 2011 the government formally established the OJK, in an effort to consolidate and streamline the nation’s financial regulatory framework. The new authority took over regulatory functions for the insurance industry in January 2013. Since then the OJK has been a decidedly more proactive regulator than its predecessor, introducing a significant number of major new initiatives and policies. In addition to the new insurance law, which was rolled out in 2014, the authority fixed tariff rates for a wide range of risks in 2015, including those related to motor coverage, property, aircraft and natural disasters. Other areas that have been impacted by new rules introduced by the OJK include bancassurance, reinsurance, fintech and Islamic insurance, among others.

Regulatory Framework 

Perhaps the most comprehensive change introduced by the OJK is the New Insurance Law, which replaced Law No. 2 of 1992 as the backbone of the nation’s insurance sector regulatory framework. The new law introduced a handful of major changes to the industry.

For instance, in terms of ownership, the new law requires all insurers and insurance-related firms be owned either directly by an Indonesian individual or legal entity that is wholly owned (directly or indirectly) by an Indonesian individual. This rule precludes complex ownership structures, whereby a foreign entity or individual would establish an Indonesian holding company with which to purchase an insurer, thereby effectively enabling 100% foreign ownership. Most sector players have expressed optimism for these changes. Although regulations still need improvement, especially on issues surrounding clarity, there have been sustained efforts and obvious will from the regulator to enhance the framework.

Furthermore, under the new rule a party may only be a controlling shareholder of one insurance firm in each of a number of categories, including general insurers, life insurers, reinsurers, and the sharia-compliant versions of each of these categories. This rule, which was enacted in an effort to combat monopoly ownership, could eventually lead to a round of mergers and acquisitions, which is a long-term goal of the OJK. Another key change in the new insurance law relates to Islamic insurance. Under the new law, sharia-compliant underwriters are required to be separated or spun off into standalone operators by 2024.

As noted recently in a policy review on Indonesia issued by Practical Law, a Thomson-Reuters-affiliated legal publication, due to the new law, “an increase in restructurings of insurance and reinsurance companies is expected, particularly to meet the requirements on local shareholding, the single-presence policy and separation of sharia units”. More broadly, the 2014 law organised the sector into two major components, namely the insurance business itself, which includes insurance and reinsurance companies (both conventional and sharia-compliant) brokerage firms, and loss adjusters; and other insurance-related businesses, which includes actuary consultants, public accountants, appraisers and other related professions. “The new insurance law does not present any real challenges to the industry, and will probably strengthen it over the long term,” Hardjanto told OBG. “We expect it to lead to market consolidation, which is almost certainly a positive thing.”

Life Segment 

Like many of its neighbours in south-east Asia, Indonesia’s life insurance segment is dominated by investment-linked products (ILPs). Indeed, protection policies are generally sold only as secondary riders to primary investment products. Consequently, the performance of the nation’s life insurance industry closely tracks that of the Indonesian Stock Exchange (IDX). This is widely considered to be simultaneously a long-term challenge and a short- to medium-term growth driver. By selling life insurance products primarily as investments, Indonesian insurance agents and brokers have managed to generate rapid expansion across the industry in recent years, due largely to strong growth on the capital markets. At the same time, public understanding of the benefits of protection insurance products has been hindered somewhat by the sector’s traditional focus on ILPs, a factor that has the potential to limit long-term uptake. “Boosting awareness of the value of protection products is one of the biggest challenges currently facing the insurance sector,” Djoko Kurnijanto, the director of the international division at the OJK, told OBG. “Penetration is still quite low in both the life and non-life segments.”

In recent years the life segment has seen rapid expansion. From 2010 to the end of 2014 the value of life GWPs increased by nearly 55%, from Rp75trn ($5.5bn) to Rp116trn ($8.5bn), according to data from KPMG. The segment performed particularly well from the beginning of 2010 to the end of 2012, when life premiums posted a compound annual growth rate (CAGR) of 17.7%. Meanwhile, the CAGR at the IDX from 2010 through mid-2013 was 22%. In 2013 the stock exchange was relatively flat, which put downward pressure on the life insurance segment. By 2014 both the capital markets and life GWPs improved somewhat, with the latter posting growth of 8.1%. This figure was considered to be slow growth by most local players. In 2015 the sector recovered slightly. According to KPMG, the life segment was expected to expand by 15.5% in total, topping out at more than Rp130trn ($9.5bn) GWPs. A number of developments relating to the growth of new distribution channels – particularly bancassurance – are widely thought to be driving sector growth in 2016.

Key Life Players 

The life segment is dominated by foreign-affiliated players. Indonesia’s insurance legal framework has traditionally set foreign ownership limits at 80%, and the 2014 law did not alter this figure. According to KPMG, the country’s top-10 largest life insurers accounted for 75% of life GWPs in 2014. The single largest underwriter at the end of 2015, meanwhile, was PT Prudential Life Assurance, which boasted total GWPs of Rp28trn ($2bn) over the course of the year. In 2014 the bank’s total premium revenues represented around 22.6% of total life segment premiums during the period. This latter figure is up from 19.7% in 2013. Prudential, which was established in the country in 1995, making it one of the older firms in the insurance sector, is also Indonesia’s most profitable insurer. The company is controlled by the UK-based insurer Prudential, which has been active in Asia for more than 90 years and continues to operate today across a wide variety of southeast Asian markets.

Prudential Indonesia’s position as a leader in life insurance provision can be chalked up in large part to the firm’s investment in sales. The company oversees the single largest agency force in the sector, with more than 237,000 agents in operation at the end of 2014, which was equal to half the number of total licensed insurance agents in the nation at the time. Prudential also maintains links with more than 380 independent marketing offices spread across the country’s wide geographical area. It also maintains a major asset management operation, overseeing assets under management of Rp56.4trn ($4.1bn) at the end of 2014. According to KPMG, some 99% of Prudential Indonesia’s GWPs came from ILPs. The company is also the single largest sharia-compliant underwriter in the country, controlling around half the market for Islamic premiums in 2014.

Allianz Indonesia Life was the country’s second-largest life insurance provider in the country, with total GWPs of Rp11trn ($803m) at the end of 2015. Allianz is the local affiliate of the German-based multinational underwriter of the same name. Unlike Prudential, Allianz’s business is based largely on micro-insurance policies. Indeed, the firm boasted more than 6m policyholders at end-2014 – significantly more than Prudential’s 2.4m, for instance, and more than any other local player. The company has invested heavily in bancassurance in recent years. As of the end of 2015 Allianz Indonesia had established relationships with seven local lenders, including HSBC, Bank Ekonomi and Bank BTPN, among others. According to KPMG, Allianz boasted total assets of Rp38trn ($2.8bn) at the end of 2015.

Other Firms 

One of the largest bancassurance players in the country at the moment is Manulife Indonesia, which was the third-largest life underwriter as measured by 2015 GWPs, with Rp10trn ($730m). A subsidiary of the Canadian financial multinational Manulife, the company had ties to 13 banks at the end of 2015, including Bank Danamon, Citibank, the Bank of China and ANZ. Manulife has been active in Indonesia since 1985, and boasts more than 2.3m policyholders. Like Prudential, the majority of its premiums come from ILPs.

Other major life segment players include the privately held firm Jiwasraya, with Rp10trn ($730m) in GWPs at the end of 2015 and Rp26trn ($1.9bn) in total assets for the same period; AIA Financial, which is linked to the Hong Kong-based AIA Group and boasted GWPs of Rp8trn ($584m) in 2015 and assets of Rp37trn ($2.7bn); and AXA Mandiri, an affiliate of the French financial services firm AXA Group, with Rp8trn ($584trn) in 2015 premiums and Rp22trn ($1.6bn) in assets. AIA, which was affiliated with the New York-based multinational AIG until 2010, focuses the bulk of its business activities on ILPs. It was also the second-largest sharia-compliant underwriter in Indonesia in 2014, after Prudential. Meanwhile, AXA Mandiri, which is majority-owned by the Indonesian lender Bank Mandiri, was the nation’s fastest-growing underwriter in 2014, according to KPMG data. Boasting around 3m policyholders at the end of 2014, the firm has built up its business primarily by focusing on the bancassurance segment. AXA Mandiri has a natural link to its parent bank, which is one of Indonesia’s largest lenders. Other major life underwriters include Indolife Pensiontama, Adisarana Wanaartha, Sinarmas MSIG and Panin Dai-ichi.

General Coverage 

As of the end of 2014 the non-life segment posted GWPs of approximately Rp46trn ($3.4bn), up from Rp41trn ($3bn) in 2013. Like the life insurance segment, the non-life business has grown rapidly in recent years. Indeed, the market was worth just Rp29trn ($2.1bn) as recently as 2010. According to KPMG forecasts, GWPs were expected to rise to around Rp51trn ($3.7bn) in 2015. The non-life segment is highly fragmented, with more than 80 players competing for less than half of the total insurance premium value. Unlike the life segment, the top 10 non-life providers made up just over 50% of total non-life premiums in 2014. The largest components of the non-life segment are the motor segment and property-related policies, both of which brought in GWPs of around Rp13.3trn ($970.9m) in 2015. The sector has posted considerable growth in recent years, boasting a CAGR of around 12.1% for the 2010-14 period, driven primarily by a rise in sales of passenger cars and increased property prices.

As in the life segment, bancassurance is on the rise for non-life policy distribution, though independent agents – including finance companies and car dealers, among others – have continued to serve as the primary distribution channel. The corporate market, which accounts for the bulk of non-life GWPs, is primarily dominated by a handful of major international brokers like Marsh. “The personal, or retail, market is small in Indonesia, and it’s particularly small for us and other big foreign-affiliated brokerage houses,” Hardjanto told OBG. “International firms do not have much reach here in this area. It is hard to compete with the large branch networks of the local firms.”


While traditionally motor premiums have accounted for a considerable percentage of the annual growth of the non-life insurance segment in Indonesia, as of late 2015 motor policy subscriptions had slowed somewhat. This can be attributed in part to the nation’s ongoing slow economic growth, which has caused some people to hold off on large purchases, such as automobiles. Indeed, as reported by KPMG, car sales faltered in 2014 and in the first three quarters of 2015 as compared to previous years. Another key limiting issue with regard to the future growth of motor GWPs is that Indonesia does not have a compulsory third-party liability (TPL) insurance requirement, making it the only country in ASEAN to not require TPL coverage. Consequently, the ongoing growth of motor premiums relies to a large part on vehicle sales financiers, many of which require borrowers to obtain some kind of motor insurance coverage before a loan can be approved. The majority of vehicle sales in Indonesia make use of financing of some kind or another.

In 2014 motor GWPs were worth Rp10.8trn ($788.4m), down some 5.43% on the previous year, according to KPMG. This fall was likely due to both a decrease in vehicle sales and a decline in coverage retention rates. The OJK has indicated that over the long-term it plans to institute compulsory motor coverage requirements of some kind or another, though details have yet to be announced and some local players remain sceptical. Given the regional financial sector integration effort – known as the ASEAN Economic Community (AEC) – that is currently under way across the ASEAN countries, Indonesia may be compelled to institute a compulsory motor TPL requirement by 2020, the year by which the AEC is expected to be fully implemented. “The AEC can have a positive impact in improving insurance regulation, with Indonesia having the opportunity of taking advantage of more mature regulatory frameworks like Malaysia or Singapore,” Tham Chee Kong, president director of Tokio Marine Life Insurance, told OBG.

Other Non-Life Markets 

The property segment is concentrated heavily on the commercial side, with commercial property policies covering a wide range of risks, including fire. A significant percentage of the property segment is controlled by firms with links to major domestic or multinational conglomerates that often have links to real estate developers or property management companies. For instance, Asuransi Sinar Mas, Indonesia’s largest property insurer as of the end of 2014, is owned by the Sinar Mas Group, one of Indonesia’s most well-known conglomerates, which operates one of the largest property developers in the country. “Infrastructure development is very much on the rise in Indonesia at the moment,” said Hardjanto. “We expect this to be a key growth driver for some time to come, so long as the government continues to invest in new projects.”

Marine, aviation, and cargo and logistics policies made up a relatively small percentage of total GWPs in Indonesia as of end-2015, although this is expected to change in the coming years. According to KPMG, aviation policies, which only made up 0.3% of total premiums in 2014, will likely account for a steadily expanding piece of the market in the coming years, due in part to Indonesia’s rising reputation as a key air transport hub in the region.

Segment Structure 

The non-life segment is made up of three distinct types of company. The first group in this segment are the state-owned underwriters, which tend to focus primarily on providing policies to state-owned companies. For example, the government-controlled non-life insurer Askrida has historically written policies for government vehicles and property holdings, and more recently has expanded to become a major credit insurer.

Meanwhile, Askrindo – another well-known firm – was established as part of a state-led effort to facilitate the expansion of the micro, small and medium-sized enterprises segment of Indonesia’s economy, and is a leading provider of insurance for start-ups and small firms. The company has become a big player in the rapidly expanding microfinance sector. Asuransi Jasa Indonesia, more widely known as Jasindo, insures the country’s national airline Garuda Indonesia, among other state-owned firms, and was the country’s largest non-life insurer by GWPs in 2014, mostly as a result of its activities in the marine, energy and aviation business.

The second grouping consists of conglomerate-linked insurers are firms that have ties to major holding companies or related interests in Indonesia. These companies write policies primarily (often exclusively) for their conglomerate partners. Asuransi Sinar Mas provides coverage for the Sinar Mas Group, for instance, while PT Asuransi Central Asia serves its owner, the Salim Group, which is Indonesia’s second-largest company and a major player in food manufacturing and distribution.

Asuransi Astra, meanwhile, provides coverage for Astra International, the nation’s largest overall diversified conglomerate, with major holdings in the automobile market. As such, Asuransi Astra was the nation’s largest motor insurer in 2014, posting GWPs of Rp2.5trn ($182.5m), well above the premiums posted by the next largest player.

The final group includes foreign joint-venture insurers providing non-life coverage across a wide range of areas, primarily focusing on international firms operating in Indonesia. Asuransi MSIG Indonesia, for instance, is a subsidiary of the Japanese firm Mitsui Sumitomo, and primarily provides property, marine and motor coverage for its parent firm. A range of foreign players are active in the non-life segment.


The health insurance market has changed dramatically since the government launched a new, comprehensive, compulsory universal health care (UHC) programme – known locally as JKN – at the beginning of 2014. Under JKN, the entire population of 260m people are expected to eventually be covered by 2019, which makes it the single largest universal health insurance initiative in the world. JKN requires most Indonesians to pay a fee for coverage from their salary. As of the mid-2016 the monthly fees ranged from Rp25,000 ($1.83) for the bottom rung of coverage, which provides basic services, to Rp80,000 ($5.84) for a higher level of coverage. The state pays the fees to cover the large swathe of society that lives below the poverty line. As of June 2016 the system had been made available to well over 50% of the population, and attracted some 160m subscribers. It has also attracted criticisms of underfunding, slow implementation, and challenges related to overuse in urban centres. Nonetheless, a significant number of people are now covered that were not before, and many reviews have been broadly positive.

While little data exists as to the impact of JKN on the private health insurance segment, many local operators are optimistic about the plan, on the basis that it serves to raise awareness about the benefits of health insurance. The system could eventually lead many Indonesians to turn to the private sector for extra services and additional coverage.

“There are so many people who have benefited from the system,” Irfan Humaidi, a spokesman for the Health Care and Social Security Agency, which manages the JKN system. So long as implementation proceeds apace, the private sector expects to be a key future beneficiary of JKN.

Reinsurance Segment 

Indonesia’s domestic reinsurance market was worth Rp12.55trn ($916.2m) at the end of 2014, which covered around 41% of the total Rp30.6trn ($2.2bn) in reinsurance risk coming out of the country, according to KPMG. The remainder went to ASEAN-based reinsurers (27%), international reinsurers outside of ASEAN (21%), and co-insurance structures (11%). In an effort to boost the percentage of local risk and premiums held onshore, in early 2015 the OJK introduced a series new rules and regulations requiring local underwriters to cede 100% of their life, motor, health, personal accident and a number of other categories of insurance risk to domestic reinsurers, among other requirements. More recently, a spate of new rules were released in early 2016, effectively doubling down on the early 2015 law and laying out a handful of additional requirements, which are similarly meant to encourage selling risk to domestic reinsurers. “Insurance is a global matter, it requires a sharing of risk, particularly because Indonesia is very risk-averse, and the essence of the transfer of risk should be embraced by national regulators,” Swandi Kendy, president director of IBS Group, told OBG.

Until recently Indonesia was home to five reinsurance firms, four of which were owned by the state, while the fifth, Maskapai Reasuransi Indonesia, was publicly listed on the IDX. In 2015 the OJK announced that it planned to eventually merge the government’s state-held reinsurers into a single entity, in an effort to better compete for regional risk and premiums. In June 2016 Reasuransi International Indonesia, which was the country’s largest reinsurer by net premiums in 2014, signed an agreement with Reasuransi Indonesia Utama, another major state-owned reinsurer, to merge their operations. “With total assets of Rp6trn ($438m) after the merger, Indonesia will have a large and sturdy reinsurance company that makes IndonesiaRe the largest reinsurance company in ASEAN,” Frans Sahusilawane, the president director of IndonesiaRe, told local media.


The sector’s fate is closely linked to that of the economy at large. In Indonesia this connection is both cause for short-term concern and, by most accounts, long-term optimism. “Important segments, like infrastructure, marine services and energy have faltered somewhat in recent years due to the downturn in China, cheap oil and other regional and global economic factors,” Hardjanto told OBG. “At the same time, when the economy picks up, the industry expects to do extremely well.” Some hurdles do remain, including issues with skills training. “One of the main challenges in the Indonesian insurance sector remains the lack of well-trained human resources; with the increase of demand, the need to develop skills faster becomes urgent,” Indra Baruna, president director of Adira Insurance, told OBG.

Yet given Indonesia’s strong macroeconomic fundamentals and growing population, relatively untapped insurance uptake and rising incomes ( particularly within the burgeoning middle class) and steadily increasing awareness about the many benefits of insurance, the future looks increasingly bright.

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The Report: Indonesia 2017

Insurance chapter from The Report: Indonesia 2017

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