Moving and changing together

As part of the global economy, the Indonesian insurance industry will be greatly affected by regional conditions. The East Asia region, as part of the Asia-Pacific zone, has high economic growth compared to other regions. Therefore, it is very appropriate to have the EAIC, which was formed in 1962. Indonesia feels proud to be part of the EIAC community.

The Indonesian economy at the end of 2019 experienced growth of 5.02%, a slight decrease compared to the same period the previous year 5.17%, even though gross domestic production rose to IDR15,834tn. The number of insurance companies in 2019 also decreased to 145, while in 2018 there were 154 companies. Insurance broker companies also decreased in 2019, there were 169 companies from 161 companies previously, while reinsurance brokers and loss adjusters were relatively constant.

Insurance penetration has increased in the last three years, reaching 3.03% in 2019. General insurance penetration also increased in 2019 by 0.51%. Insurance density per capita has continued to increase in the last five years. In 2019 it was IDR1,787,313 per capita, likewise general insurance density also continued to increase, in 2019 it was IDR298,507 per capita.

But, Indonesia’s economic growth in 2020 experienced a significant decline both in the first quarter and in the second quarter. COVID-19 pandemic conditions greatly affected Indonesia’s economic growth.

Total gross insurance premiums in 2019 increased compared to the previous year. The increase also occurred in total claims, but was still below the total premium. In 2019 the insurance industry posted a total premium of IDR479tn with total claims of IDR358tn. In 2018 the total premium was IDR433 tn and the total claims was IDR316tn.

As part of this data, an increase also occurred in general insurance, where in 2019 it recorded a gross premium of IDR80tn with claim of IDR36tn. Meanwhile, the previous year with a gross premium of IDR70tn and claims of IDR30tn. The difference between premiums and claims in general insurance is still better than the total insurance industry.

The largest contribution of general insurance premiums in 2019 came from the property, motor vehicle and credit insurance business lines, 67% in total. Market share was dominated by the direct marketing sector, brokers and agents at 75%.

When the COVID-19 pandemic began in the first quarter of 2020, general insurance recorded a premium of IDR19.8tn, only a slight growth of 0.4% compared to the same period last year, while claims were recorded at IDR8.7tn, up 18.6% compared to the previous year. The economic downturn due to COVID-19 also hit the general insurance industry business. Based on data from the Indonesia Financial Services Authority as of June 2020, the premium income collected by general insurance was IDR38tn. This value decreased by 5% year-on-year when compared to June 2019 valued at IDR40tn.

So the general insurance industry needs to make efforts to try to survive and be resilient and change business processes to be more effective and efficient, including:

  • Application of digital information and communication technology
  • Reducing costs that are not directly related to production
  • Improve the competence of human resources
  • Networking for all aspects of the business process, also increasing corporate social responsibility to increase brand image

The Financial Services Authority issued a stimulus policy to maintain the performance and stability of the insurance industry amidst the economic downturn due to the pandemic. This policy was made with the following aspects of consumer protection in mind while maintaining good governance:

  • Calculation of the solvency level, admitted assets in the form of investment for bonds can be valued based on their amortisation (impairment) value
  • Limitations on admitted assets in the form of non-investment for insurance premiums and reinsurance premiums are extended
  • Implementation of the investment-related insurance programme (unit link) can be carried out by marketing without physical meetings, as well as electronic signatures on policyholder statements.

The renewed role of insurers amidst and beyond COVID-19

Looking back, the last EAIC conference, where the topic of disruption was widely discussed, was a preview of what our industry is experiencing today. Never have we seen a greater disruption than what we have in 2020. COVID-19 ushered in an unprecedented time for insurers around the globe and accelerated the changes we have long been anticipating - even debating over - in the years before.

As this year’s theme goes, we are now indeed in ‘A Brave New Decade for Insurance’. While it is unfortunate that the delegates could not convene at the 30th EAIC in Seoul, that does not mean our conversations on the state and the future of our industry should be put on hold.

On behalf of the insurance community of Singapore, I would first like to commend The Korea Life Association and the General Insurance Association of Korea for their efforts in making the necessary arrangements to ensure member cities can still be a part of the event, and that we can all come together to engage in important dialogues safely at a later date. We remain optimistic for EAIC 2022 and look forward to continuing and being part of this biennial tradition.

I would like to also applaud insurers, for stepping up during this difficult time and continuing to put customers’ needs first.

This pandemic may be posing new and unexpected threats, but it has not knocked us down. The industry has displayed agility and has worked hard to adapt to an ever-changing market environment. Singapore’s general insurance market performance in 2019 is an example of this. While posting stable growth last year, the sector paid out more in claims across most segments, and we proactively took action to introduce initiatives that mitigated claims cost inflation. These ensure that we remain well-positioned to manage evolving risks, including those arising from COVID-19.

With the pandemic dramatically changing customers’ behaviour and ability to purchase insurance, we are reminded of our true role as insurers - that is, to keep supporting and enabling customers to rebuild their lives during this crisis through various measures and collaborations within and across industries.

For example, in a joint initiative with the Monetary Authority of Singapore and the Life Insurance Association, we assisted those who have been financially impacted during this time. In the general insurance sector, we offered customers the flexibility to pay their insurance premiums through instalment plans and provided options to reduce insurance cover. We have continued to provide essential insurance services during the lockdown and have prioritised our customers’ health and safety by leveraging technology to minimise inperson interactions.

Both general and life insurers in Singapore have also banded together to extend medical coverage for COVID-19 patients including outpatient telemedicine claims. Additionally, with travel restrictions affecting customers worldwide, general insurers have offered policy adjustment and options for customers who are unable to travel.

Insurance has always played a vital role in helping societies to manage risks. Now more than ever, we need to be united in our commitment - to provide customers with affordable access to protection and to think beyond the crisis to meet their evolving and future needs. With the rise of new norms like remote working, the growing gig economy, cyber risks, travel restrictions, and greater health and safety concerns, welcoming a brave new decade in insurance will demand resilience and a long-term strategy steered towards sustainable growth. It is about continuing the discourse on harnessing the opportunities of disruption so we can enable positive change and impact to the societies that we are a part of.

It is therefore critical for us to collaborate closely through our regional alliances and to participate in knowledge sharing, which will enable us to learn from each other and further advance our industry. After all, this has always been what the EAIC stood for. We remain confident that, together, we will ride out this turbulent period. Until our next congress, keep safe and well.

Incorporating learnings from the 2018-19 Japan CAT events into risk modelling

Ms Margaret Joseph, senior manager – product management with RMS

According to the Insurance Information Institute, Japan is the fourth largest non-life insurance market on the globe. Managing natural catastrophe risk presents a constant challenge for insurers, in a country that has high levels of insured exposure together with a high level of hazard on multiple fronts.

In addition to seismic hazard, Japan has significant insured exposure at risk to typhoons. Positioned in the northern reaches of the world’s most active tropical cyclone (typhoon) basin; the western North Pacific, aspects of Japan’s geography, not least its position, make it susceptible to typhoons.

This risk was highlighted in 2018 and 2019, which saw typhoons in Japan resulting in significant insured loss. The table below shows the paid claims for typhoons Jebi and Trami in 2018, and typhoons Faxai and Hagibis in 2019 from the General Insurance Association of Japan (GIAJ), which represents insurers in the private primary company market in Japan. Total market estimates, however, for insured losses from typhoons in Japan in 2018 approach $20bn, and similarly for typhoons in 2019.

High insured losses in 2018 have also occurred due to non-typhoon flooding in Japan. An event in July 2018 - a stationary frontal system over Japan, caused claims of $1.8bn (GIAJ), with industry players indicating that insured losses could approach $4bn.

RMS has had a typhoon model for Japan for over 25 years. In 2016, we released the RMS Japan Typhoon HD (high-definition) Model, representing a complete model rebuild to update all aspects of typhoon modelling. This included the stochastic track model, hazard and vulnerability modelling, as well as exposure and financial modelling. It was calibrated with over JPY2tn of claims data and collaboration with scientific leaders and industry partners. With significant typhoon and non-typhoon flood loss events in 2018-19, what did we learn and what did we do?

RMS received a significant body of claims from the Japan primary market for typhoon Jebi and worked with companies who submitted claims to aid in the analysis and interpretation. Separately, RMS received claims from the non-typhoon flooding in July 2018, together with claims from non-typhoon events since 2000.

Other data sources related to these events included our detailed field reconnaissance and work undertaken with local academics and engineers in Japan. RMS field reconnaissance visited impacted sites in the immediate aftermath of the 2018 and 2019 events. It can be very challenging but RMS modelers in the field provide details about the peril hazard that cannot solely be ascertained from photographs of the severest damage circulated in the media. Modellers see damage first-hand and review within the context of overall learnings about the event. This commitment to ground truth, not just in the immediate aftermath but over time, to evaluate how rebuilding occurs, is important in evaluating the typhoon and flood risk.

In the months and years following the events, visits continue as we evaluate the damage, repair and restoration. Following Faxai and Hagibis, modellers from our Tokyo office continued to visit areas around Tokyo Bay following on from the initial reconnaissance. A year after Jebi, RMS returned to the Osaka region to conduct field surveys, liaise directly with claims adjusters in companies, and to converse with local engineers and academics interested in model development.

RMS undertook a critical review of the Japan typhoon model released in 2016; of the hazard and of the vulnerability, incorporating all learnings to ensure the model update is well calibrated, to reflect the latest market conditions, as well as building performance relative to typhoon hazard. In addition, a new non-typhoon flood module is included to provide a complete view of flooding in Japan - both typhoon and non-typhoon. Together with the existing typhoon wind component of the model, they constitute the RMS Japan Typhoon and Flood HD model, available on Risk Modeler.

New events bring new learnings, and RMS through the Japan Typhoon and Flood HD model brings to the market the very latest insight.

The silver tsunami

Most of Asia is undergoing a rapid demographic transition which will see the average age increase as the proportion of its population made up of older citizens rises. However, ageing societies have been traditionally viewed negatively – with media outlets branding the phenomenon the ‘silver tsunami’.

One of the negative terms that has been used around ageing societies is the ‘old-age dependency ratio’, essentially the ratio of retired people that need to be supported by the younger working population.

“I particularly dislike the old-age dependency ratio,” said London Business School professor of economics and co-author of the book ‘The 100-Year Life: Living and Working in an Age of Longevity’ Andrew Scott. “It defines being old as 65 … and the notion that people over the age of 65 are dependant is a bit unpleasant, because at some point I was dependant on them, and not everyone under the age of 65 is actually earning.”

He said that it was critical to create a positive narrative around the topic and start to innovate as this is the first time the world has had to plan for 100-year lifespans. With people living healthier for longer, the old-age dependency ratio breaks down as people will be able to contribute many more productive years, instead of just retiring at 65.

About all of life, not just end of life

One crucial aspect of the longevity agenda is that it looks at all of life, and not just end of life. The change in the ageing process means that traditional thinking will not suffice when trying to plan a person’s life cycle.

“The three-stage life of education, career and then retirement cannot be easily stretched out to last 100 years,” said the report. “If we live a 100-year life using the same social norms and behaviours that worked for 70 years, it is unlikely to be a good long life.”

Adjusting to longer lives will require significant changes at an individual and societal level. “We need to redesign life and services,” said Professor Scott. “It changes our notion of careers and work dramatically because if you’re living to 100, you’re probably working until you’re 80.”

Healthcare hurdles

However, the elderly population faces myriad challenges as it grows old in developing markets that lack age-inclusive healthcare systems and insurance mechanisms. Poor access to clinics and hospitals, long distances from households to health services, prohibitive cost of services and a lack of awareness of health conditions of older people are some of issues faced by the elderly in developing countries amidst the lack of universal healthcare coverage and other health insurance mechanisms.

According to HelpAge International’s ‘Global AgeWatch’ insights report, progress in health for older people or the elderly ‘remains deeply unequal and often limited’ noting that they continue to suffer exclusion and face multiple challenges in accessing services despite existing universal protections recognised in the International Covenant on Economic, Social and Cultural Rights by the United Nations.

However, when it comes to finding out the proportion of the elderly utilising insurance as a tool to pay for and to access healthcare, the report states that it is not possible. This is due to the lack of age disaggregation in international datasets on expenditure or access to mandatory or voluntary health insurance.

This has led to insurers coming up with senior-citizen plans in the market that can be obtained without the need for a medical examination but come with certain terms and conditions such as compulsory co-pay and sub-limit on many procedures.

Developing countries in the region have also come up with elderly-specific insurance products such as ‘SUN Senior Care’ from SunLife Philippines, ‘Senior 50+’ from Muang Thai, ‘Senior Universal Life’ from Chubb Vietnam, Bajaj Allianz’s Silver Health plan for senior citizens, Tata AIG’s MediSenior and Apollo Munich’s OptimaSENIOR.

This spells an opportunity for insurers in developing Asian markets to cater to the growing elderly population. More innovative insurance products for senior citizen health care can be expected in the coming years.

COVID-19 update – Japan, Vietnam and Taiwan

Japan has a total number of 76,658 COVID-19 cases as of 16 September with 1465 fatalities and 66,901 recoveries to date. The country experienced a surge in cases from end-July to August with some days seeing over 1000 new cases. However, the country’s COVID-19 death rate continues to remain much lower than other countries with a similar number of active cases.

While significant community transmission of the coronavirus has been observed in capital city Tokyo and other parts of the country, case numbers are now steadily decreasing with most new cases being reported in Tokyo and Osaka.

The country has been coping with the pandemic by enforcing restrictions on public events which limited entry to 5,000 people but now these restrictions will be eased from 19 September.

In July, Tokyo raised its coronavirus alert to “red” following a rise in infections and daily cases have gradually declined. Last Thursday, the Tokyo government dropped alert by one notch from the highest level, paving the way for easing restrictions on night-time activity.

In March, Japan had to postpone the Tokyo Olympics initially scheduled for July 2020 and the event organisers will decide by the end of the year what counter-measures are required to hold the games safely in the time of COVID-19.

Currently, Japan has implemented an entry ban on travellers from 159 countries/regions with exceptions being granted for foreign nationals with Japanese status of residence.

Vietnam has a total number of 1063 cases as of 16 September with 35 fatalities and 931 recoveries to date. The country has reported less than 15 cases per day for the last month.

To curb the spread of the virus, the government imposed a nationwide shutdown during the initial outbreak of the coronavirus in April.

Since April, the country did not report any new local infections for over three months but saw one locally transmitted case on 25 July in the coastal city of Danang

In August, Danang became the epicentre of COVID-19 cases in Vietnam as locally transmitted cases started to spread. The city was placed under strict social distancing orders for two weeks to curb the spread of COVID-19.

Since 1 August , capital city Hanoi was also ordered to close non-essential services. From 16 September, the city allowed bars, clubs, and karaoke to reopen after going 28 days without community transmission of COVID-19.

In terms of travel restrictions, Vietnam has suspended all international flights and prohibited the entry of all foreigners until further notice since late March.

Taiwan has a total number of 500 cases as of 16 September with seven fatalities and 477 recoveries to date. Over 400 of the cases are imported and the island has not reported any locally transmitted case for the last five months since 12 April.

Taiwan is said to be successful in its coronavirus response and took preventative measures to curb the spread of COVID-19, avoiding a full lockdown.

Most face mask requirements and social distancing measures have been relaxed since the early months of the pandemic. However, masks are still required for public transportation.

As of 29 June, foreign travellers with a reason for entering Taiwan beyond regular tourism can apply for permission to enter. Those granted permission will need to show proof of a negative COVID-19 test taken within three days of boarding their flight and selfquarantine for 14 days upon arrival.

*Data has been sourced from the Johns Hopkins Coronavirus Resource Center as well as the World Health Organization.