Consolidating Indonesia Insurance Industry

A third of the total number of insurance companies in Indonesia (excluding Shariah business units or windows) have a capital of less than IDR250bn ($16m). They are unlikely to meet new minimum capital requirements by the deadline of 2026, and so will likely be involved in M&As.

Financial Services Authority (OJK) accordingly is incentivising more M&As for existing and new companies that want to enter the Indonesian market since depending solely on organic growth to meet the new requirements seems impossible.

This action is in the right direction because it is better to have bigger companies competing against each other than taking on market share of the smaller players. Having few large players is also easier to regulate.

In 2023, the OJK issued a regulation imposing higher minimum capital requirements to incentivise smaller players to either consolidate or be sold to larger companies to create better efficiency and scalability.

A struggling insurance industry - Currently, there are 148 insurance companies (conventional and Shariah) comprising of 58 life insurers, 78 general insurers, eight reinsurance, and four non-commercial/social insurers (i.e. BPJS).

Despite the large number of insurers, insurance penetration in Indonesia has decreased steadily from 3.03% in 2019 to 2.64% in 2023. A number of factors caused this including the economic slowdown caused by the COVID-19 pandemic, poor investment governance, and accepting riskier business.

Minimum Capital Requirement For Insurance Companies
Type	Current (since 2016)	First stage by 2026	Second stage by 2028
Figures in IDR bn			KPPE 1	KPPE 2
Conventional insurance	150	250	500	1,000
Conventional reinsurance	300	500	1,000	2,000
Takaful	100	100	200	500
Retakaful	175	200	400	1,000

There is still much upside potential for the industry in the long-term, but in order to unlock value, M&A or consolidation is needed to scale up and grow efficiently.