Indonesia Life Potentials

The domestic insurance industry and financial regulators expect insurers to maintain premium revenue growth and improve investment next year, as volatility in both stock and bond markets had previously affected performance.

The Financial Services Authority (OJK) commissioner for non-banking financial institutions, Firdaus Djaelani, said that the agency projected that the domestic insurance industry would experience an improvement in 2016 thanks to a positive economic growth outlook.

“We have found that, among insurers, there is a general assumption that the previous global uncertainty has started to stabilize and that next year will show an improvement,” Firdaus said recently.In terms of market indices, according to Firdaus, the global condition started to show signs of improvement as there had been a positive reaction toward the recent US Federal Reserve decision to increase its interest rate, the first in almost a decade.

“The financial market is predicted to have calmer reactions ahead so we hope this will have a positive impact on the insurance industry,” he said.Indonesia’s life insurance companies, heavily invested in local financial markets, recorded a 26.3 percent drop in revenue as of September, mostly caused by a 152.7 percent plunge in investment yield. Compared to 103.4 percent and 12.49 percent year-on-year (yoy) decline in the second and first quarters, respectively, the third quarter plunge in investment was the lowest, according to data from the Indonesian Life Insurance Association (AAJI).

Income fell to Rp 89.1 trillion (US$6.54 billion) this September while investment yield dropped to negative Rp 15.91 trillion despite an investment portfolio increase of five percent.Aside from market volatility, AAJI chairman Hendrisman Rahim said that the drop had also been partly the result of a decision by life insurance providers to shift investment to safer, smaller-return assets, such as mutual funds, deposits and property.

“We think that mutual funds will remain the prime placement for investment at least until early next year. The investment situation has yet to show any sign of improvement,” Hendrisman said. Besides affecting investment yield, previous slumps in both the rupiah and stock prices had also had an impact on the solvency of some insurance firms, prompting the OJK to set a series of temporary measures to ease their hardship.

On Aug. 25, the rupiah had weakened to 14,000 against the US dollar for the first time since the 1998 financial crisis, as the Jakarta Composite Index (JCI), the main price indicator on the stock exchange, lost almost four percent.Following on from this, the OJK decided to relax certain regulations, including those set for risk-based minimum capital (MMBR), allowing insurance companies to meet a mere 50 percent of the minimum capital requirement, instead of 100 percent.Firdaus said that the temporary MMBR measure, which expired at the end of 2015, had been expected to help insurance firms improve through a relaxation, as opposed to having obliged them to periodically inject increasing amounts of capital.

Due to an increased number of new joint-venture companies as well as the first phase implementation of the ASEAN Economic Community (AEC), Hendrisman said that the life insurance industry would be faced with some challenges next year, including a rise in competition at both the domestic and regional level. In terms of premium growth, however, he remains optimistic that life insurance companies would show a 20 to 30 percent growth in 2016 due to a year-end target of 500,000 agents, with an aim to boost industry penetration.


Hendrisman said that optimism was based on the country’s demographic bonus and the low penetration of insurance but added that premium growth would probably not be able to exceed 30 percent next year due to the lack of capacity within the industry for penetrating the lower segment of the population.

The country’s life insurance industry recorded a 16.7 percent growth in new premium income to Rp 57.6 trillion for the January-September period this year, a bounce back after having declined by nearly 10 percent last year.

The existing premium income of life insurers’ rose by 15 percent to Rp 43.21 trillion yoy as of September, thereby raising total premium income to Rp 100.80 trillion, a 16 percent increase yoy. Meanwhile, general insurance premium growth is expected to show an increase of between 15 percent and 20 percent in 2016 due to optimism within the industry with regard to the country’s economic outlook next year.Indonesian General Insurance Association (AAUI) chairman Yasril Y. Rasyid said that marine hull insurance would probably contribute the highest growth next year, hinting that this line of business would benefit from the government’s maritime program boost.

However, he said, some challenges would continue to linger as general insurers are predicted to see moderate growth in property insurance, while a negative outlook would continue for vehicle protection products due to a low automotive sales prospect.

“We have room to grow next year as there is an expected increase in economic growth accompanied by strong support from the government in infrastructure as well as policy relaxations, such as a low down-payment for vehicles,” Yasril said.As of September, Indonesia’s general insurance industry booked a 10 percent growth to Rp 42.3 trillion in premium revenue, from Rp 38.5 trillion in the same period last year.

The 10 percent growth had been lower than the 14.8 percent increase for the same period in 2014 due to the country’s sluggish economy, seeing automotive insurance, the industry’s main contributor (29 percent), grow a mere five percent as of September.