Indonesia has low insurance penetration but high profitability – report

Entry of foreign insurers spurring competition and product diversification

Indonesia has low insurance penetration but high profitability – report

Insurance News

By Gabriel Olano

The life insurance market in Indonesia is one of the world’s most attractive for investors due to its low penetration rate, according to a report by Axco Insurance Information Services.

The Indonesian market is at an earlier stage of development compared to many of its ASEAN neighbours, but its resilient economic growth of over 5% annually, alongside its low insurance penetration rate of just below 3%, large population, and expanding consumer class have made it ripe for insurance ventures looking to expand.

According to the report, the market is dominated by a narrow range of products, mostly individual, regular premium, life insurance savings products, sold predominantly through agency forces and the bancassurance channel. While most domestic insurers are selling traditional participating endowments, these firms are increasingly entering Investment-Linked Products (ILPs) to compete with foreign-partnered ventures.

In recent years, global insurance companies have begun expanding into the market, bringing expertise and resources that helped grow the market from £358 million in 2000 to £9.67 billion in 2017, making it the 24th largest in the world.

The report added that Islamic insurance, or takaful, is another niche that has great potential to grow in Indonesia, which has a Muslim-majority population. While the number of takaful operators has increased, reports from different agencies present different results. According to Indonesia’s financial regulator, it is growing faster than conventional insurance, but the industry trade body said it is not growing substantially. The fine distinction between conventional insurance and takaful may be lost to a public where few have a clear understanding of life insurance.

“The underdeveloped market in Indonesia and growth of its young demographic make it one of the fastest growing life insurance markets in the world and it presents multinational insurance companies with tremendous opportunities to tap the expanding middle class of Indonesia,” said Carol Au-Young, Axco’s global head of client development. “As life expectancy, income and financial literacy improves in the country, the need for life insurance is increasing.”



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