Improving Insurance Penetration - Indonesia

Indonesia insurance industry is experiencing growth, but the growth of premiums in the conventional insurance sector over the past five years has been relatively modest, averaging only 1.89% per year. As for Sharia insurance contributions, despite its market share remains relatively small compared to conventional insurance premiums.

Low Penetration - Comparing to gross domestic product (GDP), insurance penetration in Indonesia is relatively low amongst ASEAN countries at 1.4%. To illustrate, Singapore;s penetration rate is 12.5%, whilst Malaysia’s and Thailand’s are at 3.8% and 4.6%, respectively.

The biggest barrier to insurance penetration in Indonesia is the geographic landscape. Indonesia is an archipelago with diverse demographics across its many islands, making it cost-inefficient to open branches in different cities.

The non-life or general insurance sector, had a slightly different view. In non-life insurance, asset accumulation is crucial; people would not buy insurance if they have nothing to insure.

Globally, most non-life insurance markets set a high average GDP per capita, around $5,000-$6,000, but Indonesia has not reached that level yet, so there is no expectation on a drastic increase in non-life insurance.

Others  highlighted the low levels of financial literacy and inclusion in Indonesia as a significant reason for the low insurance penetration. Indonesian tends to align Sharia finance in terms of banking, not insurance, and there are still debates among religious scholars about insurance, adding to the challenges to introduce Sharia insurance’s product.

Increase Penetration - It is widely believed that adopting technology will improve the rate of penetration in the insurance sector. Many insurers now start with direct digital channels.

AI can assist in assessments and claims, as practiced by some insurer. But decisions should be made by people. AI can help, but human interaction remains crucial for customers.

Distribution channel depends on the targeted product segment. Online channels are suitable for easy, standardized products, but more complex products need explanation.