Indonesia P2P Lending Platform

Institutional investors such as banks and investment management firms are increasingly deploying funds in peer-to-peer lending platforms in Indonesia, as they hunt for higher returns amid lackluster and uncertain equity markets.

The key factors driving institutional capital into this fast-growing space are huge demand from Indonesia's largely under-banked population and higher returns they can get from borrowers. As of January 2020, there were a total of 164 P2P companies registered with market regulator Financial Services Authority (OJK), nearly doubling from 88 at the end of December 2018.

P2P platforms are attractive because they offer easy access not just to lenders but also those seeking to invest their money.

Apart from individual investors, P2P players have started registering more interest from institutional entities. Akseleran, an SME-focused lending platform in Indonesia, for example, said that 35% of its lenders are institutional investors by the end of last year. Akseleran closed an oversubscribed $8.55 million Series A funding led by Beenext late last year.

OJK started regulating P2P lending at the end of 2016. Its data showed that the number of P2P lender accounts rose 192% to 605,935 by December 2019 from a year ago. Of those, 82.5% were located in Java Island.

74% of Indonesia's mid- and small-sized enterprises do not have access to funding. Triodos Investment Management and Bank Central Asia were institutional investors that distributed loans through Modalku.

P2P are helping our "unbankable & underbanked clients" to grow the business. As their businesses are growing, they will then potentially, eventually migrate into the banking system, they will graduate into the banking system.

Indeed, aside from higher investment returns, institutional investors also look to P2P lending platforms as new distribution channels to connect with micro-, medium- and small-sized enterprises. 

For individual investors, participating or lending through a P2P platform can allow them returns of up to 10%, substantially higher than the prevailing bank deposit interest rate hovering around the sub-7% region.

Others said that P2P lending is on the rise as investment options in the country dry up. This was in part exacerbated by a scandal involving state-owned life insurance Jiwasraya. Due to financial mismanagement, Jiwasraya recorded a default on its JS Saving Plan, an event that dampened public investor confidence in the market.

However, P2P is still a nascent industry compared with the stock market in terms of risks associated with its operations. When the P2P industry says its default rate is low, we don't know if that's the real number. 

Akseleran agreed that the main challenge was to keep the default rate low. This will depend on the credit assessment capability from the P2P lending players. From August 2019, Akseleran implemented credit insurance for almost 80% of its loans, protecting 85% of lenders' principal in the event of default.

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.

Insurance Sales Scam

Stealing your premiums - An agent pockets your insurance premiums instead of sending it to the insurer. Crooked agents may steal your premiums to support their business, feed a gambling or drug habit, or buy luxury goods such as cars or jewelry.

Selling phony insurance - An agent or company rep sells you fake coverage from a phony insurance company. Or the agent sells you bogus coverage using a legitimate company's name, or a name that's similar to a legitimate insurer. You might receive an official-looking policy or proof of insurance that's worthless. You could lose thousands of dollars if you suffer a loss and don't have a real policy to pay your claim.

Selling coverage you don't want or need - Maybe the coverage is real, but it's expensive, unnecessary, and your current policy may already cover that risk. Three examples:

• Churning: Dishonest agents might convince people to use the built-up value of their current whole life policy to buy a "better" policy even though their present life coverage is perfectly suitable. The agent gets a nice commission, but you must start building up cash value all over again.

• Sliding: An agent or insurer slips you extra coverage you didn't ask for, but do pay for. This can easily add $100, $200 or more to your premium. The agent cheerfully says it's simply part of a "package," or doesn't tell you about the coverage at all. Motor club memberships, accidental death coverage and guaranteed renewable life insurance are three policies that crooked agents sometimes sell to unwitting policyholders.

• Twisting: An agent may urge you to change policies prematurely by "twisting" the truth about the downside. If you have an illness, injury or other medical condition, for example, will that "affordable" new health policy refuse to cover it because it's a pre-existing condition?

Worthless investments. You may be urged to invest in insurance-like instruments. One is viaticals, which are investments in life policies taken out on sick or terminally ill people. Viaticals can be a legitimate investment, but some can also be phony or misleading. Another scam is promissory notes, in which agents promise quick, high and certain returns for investing in promissory notes supposedly backed by insurance. Often the promissory notes don't exist, they're just a sham to steal your money.

Chatbots, "Please Buy Something"

Brokers and agents have nothing to fear from artificial intelligence – according to Accenture, the combination of AI and human ingenuity will help brokers solve complex challenges, develop new products and services, and break into or create new markets.

In fact, the company reported that 79% of insurance executives agree that AI will revolutionize the way they interact with customers. Any worries about technology replacing brokers is thus unfounded, especially when it comes to the application of AI in chatbots.

Technology is supposed to supplement employees in their roles, so whenever people fear chatbots and AI, they think that there’s going to be a system that will replace them. In reality, it’s supporting them. You can’t be available to talk 24 hours a day, but a chatbot can – you can’t be available while you’re having a lunch meeting; you can’t be available while you’re talking to an existing client; you can’t be available when you’re selling to a new client. Those are all opportunities where a chatbot can help you, but in the end, it still requires an agent to be involved.

Consumers today, added Rixford, like using technology, yet when they’re ready to buy insurance, they more often than not prefer to speak directly with an agent or broker.

The chatbots available on the market right now are also much better than those that were available to agencies a few years ago.

They’re able to be more and more efficient, and allow the agents to focus more on the selling portion, instead of the pre-sale where you’re actually asking questions – is this the right fit, and what coverages do I need? All that can be driven by the chatbot.

An effective chatbot will integrate with an agency’s existing systems, and will offer insights on multiple disparate systems, such as rating platforms, marketing platforms, and agency management platforms. On the other hand, a chatbot that goes into an agency ‘blind’ will know nothing about the end consumer, and won’t offer the agency the same benefits.

Does their agency need a chatbot. With some chatbots, whenever you get into complex commercial or complex types of insurance, their maturity is not there and they effectively are just an inefficient contact form. It’s much easier for someone to go to a website, fill in a name, number, email address, and their product interest than it is to have a text message conversation with the chatbot. That’s one area where chatbots are not effective for agencies – whenever they’re not mature in the lines of businesses that the agency sells.

AI Disrupting Life Insurance Industry

Consumer-centric applications for artificial intelligence (AI) and automation are helping to stamp out the public perception that these technologies will only benefit businesses and negatively impact jobs and hiring. The conversation from human replacement to human efficiency has become more mainstream as we see AI applications in healthcare, social media, mass transportation, financial industries and many more.

Recent advancements have helped to overhaul mundane and outdated processes and provide advanced data analysis and enhanced or, “augmented,” intelligence to support not just companies, but individual employees and consumers.

In 2018 and 2019, AI was tapped to disrupt and improve multiple industries, and was the prime target for VC funding with investments well into the billions. In 2020, the following are just several of the industries likely to see advances using AI and machine learning.

Life insurance is a $615 billion dollar industry stuck in the past with legacy companies dominating the market. However, change is coming quickly. The insurtech industry saw record investments in 2019 and looking into 2020 expect to see returns on those investments by way of major technology upgrades. With more than 700 insurers in the United States, each offering 20 plus different products, sorting through hundreds of millions of data sets is the only way to identify the best option for a policy that will generate the best return. 

As this would be incredibly taxing and unlikely for a consumer, one often trusts an insurance sales agent to make recommendations, but these are often incredibly biased toward the policies that provide great returns to the agent and their firm. Alternatively, machine learning can be utilized to sort billions of data sets and identify the best possible option based on individual preset parameters.

Where as an agent may be looking at and comparing a handful of options, leaving plenty on the table just based on capacity restrictions, AI programming can iterate this skillset, make it much more efficient, and ensure the consumer has the best options available. Additionally, AI can also protect the human experience with a smart security and purchasing interface, with options that are all well-vetted so consumers can protect their assets and policies.

Other platforms are beginning to emerge to address the lack of transparency in the industry like Mployer Advisor, a Nashville-based company that utilizes AI and real time data blending across numerous public and private sources to rate brokers for corporate healthcare insurance plans. There are perhaps few industries riper for disruption in 2020 than insurance with major overhauls due for outdated practices as big data and AI reshape its foundation.

A Contract Of Upmost Good Faith

A woman lost her husband and sole bread winner last year. A year before his death, he had insured himself for RM100,000. However, the insurance company has rejected her claim saying that her husband had not disclosed that he was suffering from a heart ailment at the time of buying the policy. She has two children to bring up and really needs that money.

A contract of life insurance is based on utmost good faith and it is expected of the consumer buying a policy to disclose all material facts pertaining to his health and answer all the questions in the policy application form, truthfully and honestly. Failure to do so can lead to the insurance company denying the benefits of the policy to the claimant.

However, under the Insurance Act, the insurance company has to prove that (a) the policyholder concealed information that was within his knowledge or that he was aware of what he was concealing and (b) that such information was material or crucial for the policy and had a direct bearing on the risk undertaken by the insurer.

The Insurance Act also gives insurance companies three years to call into question any policy on the basis of suppression of material facts. After the completion of three years from the date of the policy or the commencement of the risk, the insurance company cannot reject a claim on grounds of suppression of material facts. In your friend’s case, from what you say, the policy is only two years old, so that advantage will not be available here.

If the insured was not aware of the pre-existing disease at the time of purchasing the policy or the existing disease had not been detected or diagnosed, then this widow can get the insured amount through the intervention of the court.

Unfortunately, the insured was aware of the health issue and even informed the agent who filled the form about it. However, he did not check what information was filled in and just signed on the dotted line. A policyholder is expected to fill the form himself or herself and even if someone else fills it, one has to read it carefully before signing (except in cases where the purchaser of the policy is illiterate). In the past, courts had upheld the rejection of the claim by the insurance company on grounds of suppression of material facts.

Aviva Withdraws From Indonesia

Earlier today it was reported by Reuters that the British insurance company, Aviva, has said that it will sell its entire stake in joint venture PT Astra Aviva Life to its partner in the operation, and pull completely out of Indonesia. 

Aviva has declined to say how much the sale will raise. The transaction is expected to complete in Q4 2020 and is subject to certain closing conditions. The company said that regulatory approval will be needed in Indonesia, as well as the completion of Bangkok Bank’s acquisition of Permata Bank, Aviva Indonesia’s bancassurance partner. It also said that the shareholders of Bangkok Bank approved the acquisition of Permata Bank on March 05, 2020.

The news follows the review Aviva began of its Asia business in 2019 under new CEO Maurice Tulloch. The insurer said in November that it had decided to keep its Singapore and China operations, but was considering options for its Indonesia, Vietnam and Hong Kong operations.