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Oct 2024

Healthcare inflation and low private cover widen Indonesian protection gap

Source: Asia Insurance Review | Oct 2024

The life insurance industry in Indonesia has evolved in response to the increasing and diverse needs of customers, particularly for health insurance. As the cost of healthcare rises, customers need additional health protection from private insurers. Allianz Life Indonesia’s Mr Alexander Grenz shares insights.
By Reva Ganesan
 
 
The life insurance industry in Indonesia has experienced highs and lows.
 
Allianz Life Indonesia country manager and president director Alexander Grenz said he has observed increased awareness of the importance of life insurance in Indonesia and growing market potential.
 
“According to the most recent data from Indonesia Financial Services Authority (OJK), financial literacy in Indonesia has now reached over 65% and we see this as a promising market that will also drive growth in insurance. This growing market is further supported by Indonesia’s economic growth, which has created a larger pool of potential customers that can be channelled into life insurance products,” Mr Grenz said.
 
Government support through the OJK has also set important regulations, which are designed to ensure that insurance companies operate in a manner that protects consumers, maintain market stability and promote the overall health of the insurance sector in Indonesia, he said.
 
Despite this, he said challenges remain for industry players such as the protection gap, low insurance penetration rates in Indonesia which is still at 2.7% (OJK & ASEAN Insurance Surveillance Report, 2022) and consumer trust issues.
 
Growing focus on shariah-based insurance
Alongside life and general insurance coverage, one notable development in recent years is the growing focus on shariah-based insurance, which complements the existing protection offering.
 
“The rising popularity of halal lifestyles has prompted insurance providers to offer coverage that aligns with the values and principles that meet the shariah regulations,” he said.
 
“Overall, the Indonesian life insurance market has evolved to become more inclusive and responsive to the needs of a diverse people, reflecting broader societal changes and the increasing demand for a more diverse financial solution,” he said.
 
Persistent protection gap
Although the financial literacy in Indonesia has now reached over 65% according to OJK, for insurance there is still a protection gap that needs to be addressed.
 
Mr Grenz said some of the notable challenges for insurers include:
  • Perception of insurance as non-essential; there is a prevailing mindset that insurance is not a primary need. This is caused, among others things, by limited income and low financial literacy, especially of insurance.
  • Insurance perceived as a luxury; there is a common view that insurance is only for those who are more affluent and can allocate their budget towards protection. However, insurance is more crucial for individuals in the middle- to lower-income segments due to its role in enhancing financial security in the face of unforeseen risks.
  • Challenges specific to shariah-related insurance; this relates to concerns about the ‘halal-ness’ of shariah insurance products and the perception that shariah insurance is not even allowed for Muslims. This can limit the appeal and adoption of shariah-compliant insurance products.
Potential risks impacting future development
“One major concern is the rising cost of healthcare and the lack of health protection the public has, especially from private insurance companies which can widen the protection gap.
 
“This issue highlights the need for both the regulator and the insurance industry to work together to meet the protection needs of the people … by supporting the regulations that will benefit the customers the most by simplifying the process. Rapid regulatory changes can influence the trends in the insurance market and affect the services provided to the customers,” he said.
 
Targeting the middle-class segment
Insurers are keenly aware of the opportunities presented by the relatively low insurance penetration in Indonesia, which serves as a key driver for industry growth.
 
“One significant opportunity is to target the middle segment of the market. This group needs to be more aware of the benefits of insurance, as it is crucial for maintaining financial wellbeing amidst economic uncertainties. The demand for long-term protection remains substantial in Indonesia and to address this, innovative products such as unit-linked and health insurance solutions are important,” he said. A 
 
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