Indonesia Life Insurance Challenges

For insurance companies, wealth management in Indonesia presents one of the biggest opportunities across Asia. With an expanding middle class and small-to-medium business community, combined with relatively limited penetration to date, annual growth rates for most providers are in the low double-digits – and nearing 20% for some.

Further, more affluent and HNW individuals are realising the need for all kinds of insurance.

There are several key ways to enhance and evolve the proposition. These include more focus on the protection, distribution and transfer of wealth, especially since the majority of wealth still gets lost between the first and third generations.

There is also a need for a more global – or at least ASEAN – solution to be provided in Indonesia. This involves, for example more tailored customer servicing models, with a digital interface increasingly required.

Raising the bar

 But however big the potential, a common challenge for insurance companies and distributors alike stems from talent.

Indeed, practitioners tend to agree that the biggest gap in the Indonesian insurance market is probably the quality of advice – which applies to banks as well as agency forces.

A consequence of this shortage of capable and experience individuals to advise customers, is poaching, as firms try to build their businesses. And the fact that the growth in base salaries of around 10% per year is among the highest among many financial institutions (and even some no financial firms), it creates an incentive among agents and advisers to move regularly.

There is also a lot of switching of customers from one bank to the next, based on their search for a particular product, given that there are so many varieties of insurance.

The conversation between the banker and customer, therefore, needs to focus on what they already have and what they want, to ensure they can find the right match to fill the gap.

Yet whether distributors can do this effectively comes back to resolving the talent challenge. It also depends on agents improving the way they offer products – as part of a move from a product-push approach to one led by advisory-based selling. To support this, there need to be more products specifically created for different client segments.

Further, it requires greater awareness among customers that insurance is something they need.

Digital drivers

Indeed, when looking a decade or so in the future, digital is expected to create the biggest impact in terms of distribution, education and penetration more broadly.

For the mass market, with only 50 million or so Indonesians having a bank account, new solutions are needed to service and support the other 125 million people in the country who are potential customers, but are much less accessible.

Beyond human resources, for example, more data and information is also required within the Indonesia landscape, to help customers better understand what they are buying, plus ensure it fits their needs.

For affluent and HNW clients, meanwhile, technology can be leveraged to enhance the simplicity of the product, payment, underwriting and claims processes.

However, despite the potential for growth in digital channels, the agency channel is expected to remain as the mainstay for insurance distribution in Indonesia for the next five to 10 years, followed by bancassurance.

Practitioners doubt whether regulation and developments in relation to consumer behaviour will move quickly enough within this timeframe.

Product development

When looking at which solutions represent the biggest opportunity for insurers in Indonesia, for the time being, the market is dominated by unit-linked plans – often sold with medical cover as the driver.

To develop and broaden the offering, more of a segment-oriented approach is required, with products that fit the capability of the specific distribution channel.

This can be achieved in the private banking and priority segments via needs-based conversations between advisers and clients, followed by product design which is tailored accordingly.

In relation to innovation, Shariah funds also present an opportunity for customers to get 100% exposure to foreign assets. While traditional unit-linked products only allow fund managers to get a maximum to foreign assets of 20%.