The middle class is the largest group in Indonesia’s social pyramid, accounting for 74 million people in 2014 and expected to reach 141 million people in 2020, according to Boston Consulting Group data collected in 2013.
However, the rise of millions of people to the middle class, and out of poverty, is not followed with adequate financial literacy, such as savings habits and the anticipation of future financial needs, the ability to find the right investment opportunity and developing or compounding advantages from financial activity, including the prudence to benefit from health and life insurance from possible finance activities. Of course, there also needs to be greater efforts to increase financial literacy for the lower income group.
The Indonesian FinTech Association reported that only 36 percent of the Indonesian population owns a bank account. McKinsey and Company further found that only 27 percent of Indonesian people keep their money in banks. What about more advanced financial services like insurance? Unfortunately, life insurance penetration is still as low as 2 percent, according to Hendrisman Rahim, chairman of the Indonesian Life Insurance Association.
There are many contributing factors, one of which is the perception among the people that insurance is complicated, with a complex process from buying the insurance product to claiming them. This becomes a burden for people in dealing with insurance.
Digital technology is the new lifestyle for Indonesian people. According to eMarketer data, Indonesia is 7th among countries with the most smartphone users. In 2015, smartphone users reached at least 52.2 million and are expected to rise to 69.4 million this year and 86.6 million in 2017.
Data from the Association of Indonesian Internet Providers (APJII) found that Indonesian internet users are spread across the archipelago, from Sumatra island (15.7 percent), Sulawesi (6.3 percent), Kalimantan (5.8 percent), Bali and West Nusa Tenggara (4.7 percent) and the Moluccas and Papua (2.5 percent). Still, the majority is concentrated in Java at 65 percent. Reflecting on that, internet-based technology can be one way to increase financial inclusion through user-friendly insurance.
Technology can provide a different experience in insurance for both the agent and the costumer. For instance, through technology innovation in life insurer FWD Life, the insurance buying process can be simplified from 16 steps to just six steps, significantly cutting down on processing time. The use of technology, which is familiar to the young generation, also opens up possibilities to reach younger potential customers, which in turn results in greater insurance benefits.
The existence of financial technology (fintech) is an opportunity. In the context of insurance, fintech can help give birth to innovations that can ease the insurance process, changing people’s perception of insurance as well as increasing financial inclusion.
As an example of digital insurance in Indonesia, FWD Life has adopted various technology innovations that include an integrated mobile application allowing agents to approach costumers through different applications for different purposes. FWD Life, which has allocated Rp 500 billion (US$37.6 million) in investment until 2020 to develop digital technology elements in the company’s business, also launched an ecommerce distribution channel to ease customers’ experience in purchasing insurance products.
The Indonesian market, including its insurance business, has become even more promising due to the rapid growth of online transactions, which according to Bank Indonesia (BI) are targeted to reach US$130 billion in 2020, or grow as much as 77.4 percent from $14.8 billion in 2016. Supported by technology developments, “insurtech” can help penetrate the net-savvy market group.
Of course, this opportunity has to be supported through regulations that allow both industries to grow, complementing one another, and providing maximum protection for the Indonesian people.
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