Indonesia Relax Foreign Investment Cap

The Indonesian government’s move to relax the foreign investment cap will help infuse capital and address the challenges that domestic life insurers are facing. Indonesian life insurance industry, in terms of gross written premiums (GWP), grew from IDR101.5 trillion (US$8.6 billion) in 2014 to an estimated IDR180.2 trillion (US$12.7 billion) in 2019. This means that Indonesia is one of the fastest growing insurance markets globally.

Favourable demographics and rising middle class population are driving the life insurance industry growth in the country. The industry is expected to grow at a compound annual growth rate (CAGR) of 7% to reach IDR253 trillion (US$17.1 billion) in 2024.

Despite the fast growth rate of the market, Indonesian insurers are facing many challenges. Consumer confidence has suffered a blow due to crises involving state-owned insurers. The country’s fifth-largest insurer, Asuransi Jiwasraya, which has a 5.9% market share, is on the brink of collapse due to alleged fraud and mismanagement and is awaiting government bailout. Other state-owned insurers are also suffering in similar situations.

While the government funding will help solve short-term problems, easier capital access will be helpful for the long-term growth of the industry. As a result, the government relaxed foreign investment restrictions in January 2020. This means that foreign investors, who were previously allowed to own up to 80% in insurers, are now exempt from such a limit. This will enable overseas investors to inject funds in their Indonesian ventures. Regulations require that the foreign insurers must raise capital through a primary issue.

The relaxation of investment restrictions was a long standing demand of incumbent insurers. The domestic life insurance industry is dominated by foreign joint ventures, which have 57% market share. Access to additional capital will bolster their efforts to expand business and strengthen consumer confidence.