IFG business director Pantro Padner Silitonga said on Tuesday that the subsidiary would focus on offering conventional insurance products, including life insurance, health protection and a pension fund, instead of investment-linked products, to minimize future risks.
“As a state-owned insurer, it’s important for us to restore the original insurance business model of protection,” he said.
Earlier this month, the government and House of Representatives agreed to disburse a Rp 22 trillion (US$1.49 billion) state capital injection through PT Bahana Pembangunan Usaha Indonesia (BPUI), now known as IFG, to establish IFG Life and save Jiwasraya. Jiwasraya is embroiled in a corruption and money laundering case following its failure to pay out Rp 18 trillion in matured policies due in May to its policyholders.
The Attorney General’s Office (AGO) accuses Jiwasraya of investment mismanagement when it invested its premium revenue from the JS Saving Plan, one of the company’s unit-linked products, in pump-and-dump stocks.
Hence, IFG Life’s protection model product contrasts with Jiwasraya’s past products that promised high returns. Jiwasraya’s JS Saving Plan offered a return of between 9 and 13 percent, almost twice the return of 5 percent to 7 percent offered by time deposits.
The Financial Services Authority (OJK) data from 2018 confirmed that investment-linked products, such as unit-linked or endowment products, accounted for about 90 percent of Indonesia’s life insurance industry’s gross written premiums.
However, Pantro said he believed IFG Life would was able to compete with other life insurers in the country with the company’s protection-oriented products. “We’ve seen increasing awareness for health protection since the COVID-19 pandemic hit, so we believe we can even be a pioneer in providing protection in the country,” he said.
The new life insurer aimed to attract customers with affordable premiums and planned to partner with the Health Care and Social Security Agency (BPJS Kesehatan) to ensure better services, he said.
Pantro also stated that IFG Life would prioritize investment in low-risk assets, such as money market or fixed income assets, before investing in the equity market, to ensure that the company can manage its assets prudently. “We don’t want to repeat mistakes of the past,” he said. “From now on, our assets will be managed to match our liabilities to prevent default.”
IFG Life also expects to utilize the state-owned enterprises (SOEs) ecosystem to market its products during its early days of operations. Pantro said the company would use the business-to-business (B2B) scheme with other SOEs by providing group policies for their employees before expanding to the general public.
However, experts criticized the new life insurance firm’s strategy. Institute of Development on Economics and Finance (Indef) economist Bhima Yudhistira said selling insurance products to other SOEs would only worsen the competition among state-owned insurance firms. “This goes against the spirit of the insurance holding itself, which is to maximize the insurance industry’s potential in Indonesia,” he said. Instead, Bhima suggested that IFG should immediately sell its products to the general public due to the low life insurance penetration in the country.
The life insurance industry penetration stands at 1.1 percent of gross domestic product (GDP) as of July 2020, according to OJK data. Insurance expert Irvan Rahardjo echoed that sentiment, saying IFG Life should eye millennials as clients through digitalization, because many state-owned financial firms already had their own life insurance firms.
Meanwhile, Center on Reform of Economics (Core) Indonesia economist Piter Abdullah said the company should focus on maintaining good governance to avoid repeating Jiwasraya’s mistakes. “Jiwasraya’s main mistake was reckless fund management that wasn’t based on good governance,” he said.
“IFG Life should not be against investment-linked products. What they should do is put good governance forward and have no tolerance in any sort of procedural violations.”
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