Growth buoyed by a rising economy
Asia Insurance Review recently spoke to Indonesian General Insurance Association (AAUI) executive director Dody Dalimunthe on the state of play in the country’s non-life sector.
The recent performance of the general insurance industry in Indonesia has been positive. While premium growth slowed in 2016 and 2017 on a y-o-y basis, gross premiums of IDR55.6tn ($3.73bn) in 2017 were up 2.3% from the year before. Data from the Indonesian General Insurance Association (AAUI) showed that as of 1H2018, gross premiums reached IDR33.1tn, double-digit growth of 11.2% compared to 1H2017. The number of general insurers has remained constant at 76 since 2015.
The increase in performance is in large part due to parallel growth of the Indonesian economy, which reached 5.27% in the first half of this year. Economic growth had positively influenced motor vehicle and property sales and boosted consumer purchasing power, all having a run-on effect of significantly increasing general insurance premiums.
Property and motor dominate
Property and motor continue to dominate non-life in Indonesia, accounting for over half (IDR17.58tn) of all gross premiums in 1H2018. Reflecting the population’s demand for new vehicles, motor recorded the largest nominal gross premium growth for conventional lines of business.
Almost all business lines recorded positive growth in this period, except for marine hull, energy and engineering. Aviation and satellite premiums saw a massive growth of 188.1% (IDR366.3bn), in part related to coverage for BRISat—a commercial telecommunication satellite launched recently in 2016.
Non-life gross claims in Indonesia for 1H2018 grew 3.3% compared to the same period last year. In terms of challenges, loss ratios decreased from 41.8% in 1H2017 to 38.8% in 1H 2018, but the sector is still experiencing pressures to profitability due to increases in operating costs, said AAUI executive director Dody Dalimunthe. Nonetheless, he expects the good economic performance and the focus of the Indonesian government in developing infrastructure to provide growth opportunities for the sector, particularly in property and engineering lines, he said.
Non-life gross claims in Indonesia for 1H2018 grew 3.3% compared to the same period last year. In terms of challenges, loss ratios decreased from 41.8% in 1H2017 to 38.8% in 1H 2018
Mr Dody Dalimunthe
Indonesian General Insurance Association (AAUI)
Currently, there still exists a property protection gap, in particular against Nat CAT. With Indonesia being Nat CAT-vulnerable, the recent earthquakes on the island of Lombok in July and August have revealed a significant gap between insured and economic losses. The incidents are expected to increase public awareness of insurance.
“AAUI views that efforts should be made to close the protection gap in the future so that recoveries of natural catastrophe are not fully left to the government. AAUI is actively trying to increase education and insurance literacy in vulnerable areas so that the people in such places would realise how important it is to mitigate catastrophe risk through buying insurance,” said Mr Dalimunthe.
The finance ministry is considering a disaster risk insurance and financing scheme that could be included in the state budget in 2019. Until now there is no single legal umbrella covering this issue, and existing pre-disaster financing regulations to date are still sectoral, such as applying to agriculture or fish farming, and state budget allocations for contingency funds have been limited during the last 12 years, amounting to IDR4tn a year at the highest, reported CNN earlier this year.
Besides new opportunities in infrastructure, the Indonesian insurance industry is also currently furthering opportunities in digitalisation, which can potentially enhance its reach and quality of service to consumers, said Mr Dalimunthe. The AAUI found in a recent survey that two-thirds of members have engaged in digital marketing through the utilisation of company websites, digital/mobile applications and aggregators and about the same number have adopted an integrated operation system for their business processes. Four out of 10 of its members have partnered with InsurTech companies.
The AAUI also found that general insurers are also using digital platforms to market microinsurance products to cut distribution costs. “Aside from that, AAUI observes an increasing interest among its members on topics such as automated underwriting, artificial intelligence, blockchain technology and big data,” said Mr Dalimunthe.