Page 1

Indonesia Insurance Country Overview

2013


Table of Contents 1. Macroeconomic Picture ................................................................................................... 3 2. Insurance Market in Indonesia ......................................................................................... 4 2.1 Non-Life Segment ............................................................................................................................ 5

3. Competitive Scenario ....................................................................................................... 6 4. Regulatory Environment .................................................................................................. 7 5. References ....................................................................................................................... 9

2


1. Macroeconomic Picture

Source: IMF

Indonesia, Southeast Asia’s biggest economy, achieved another year of 6%-plus growth in 2012, despite falling exports. Sluggish external demand combined with stronger domestic demand to shift the current account into deficit. Inflation fell to a 12-year low. Growth in gross domestic product (GDP) is forecast to quicken in the next 2 years. Near-term challenges are to manage risks associated with the current account deficit and keep inflation moderate. GDP growth at 6.2% in 2012 was based on robust private consumption and a better performance in fixed-capital investment. Net exports fell, acting as a drag on GDP growth. Private consumption picked up to increase by 5.3%, the strongest pace in 4 years, and it contributed almost half of total GDP growth on the expenditure side. Consumption got a lift from increases in employment and wages as well as lower inflation. Sales of automobiles rose by nearly 25%, even though Bank Indonesia, the central bank, raised minimum down payments on cars and motorcycles. Indonesia has formulated a long-term development plan which spans from 2005 to 2025. It is segmented into 5-year medium-term plans, each with different development priorities. Economic growth is forecast to pick up to 6.3% in 2013 and 6.4% in 2014, underpinned by robust private consumption, the improving investment performance, and a gradual pickup in world trade.

3


2. Insurance Market in Indonesia

Indonesia's life and non-life insurance sectors are in a stable position, underpinned by a developing domestic market, sustainable growth in premiums and strengthening regulatory requirements. In 2012 it had a premium volume of USD15.4 Bn compared to USD13.5 Bn in 2011. Life insurance remains the most exciting segment of the insurance industry with 73% share of the total premium earned in 2012 and posted a 14.38% increase in premium value over 2011. The exponential growth in this sector is a result of the increased levels of education and awareness among the growing middle class. The popularity of the asset class as a platform for savings and investments is another factor influencing sales. This is amplified by the increased sophistication of the types of products available in the market which will see will this upwardly trend continue. Indonesia is one of the markets in which micro insurance is proving very successful; in Allianz for example it is the fastest growing sector of their business as per 2010. While giving low premiums they remain high potential in the country considering the vast rural population, absence of social security coverage and unpredictable weather conditions. Low income consumers are slowly gaining awareness of how to transfer risk through the use of insurance for issues such as natural disasters and specific health cover such as for dengue fever. The Indonesian market is incredibly attractive for the insurance sector. There remains huge untapped potential, with less than 10% of the population holding any form of insurance coverage. The current level of penetration is still low and lags regional peers – for example, penetration is still 2.01% in 2012.

4


2.1 Non-Life Segment Non-Life Insurance by Segment in Indonesia

In Non Life segment motor insurance represents ~30% of the market with property insurance accounting for 27% and personal accident insurance making up 13%. The Indonesian general insurance sector has been developing more slowly than the life insurance sector, yet there is great potential for growth, given the current low penetration in Indonesia at 1.2% when compared with that of Malaysia and Thailand at 4% and 3% respectively. In 2012, motor insurance continues to grow rapidly, due in part to the overall growth in sales of new automobiles based on financing, as well as the Indonesian government's move toward compulsoryinsurance for automobiles and motorcycles to be mandated throughout the ASEAN region. The government has also created a system to cover risks from uninsured motorists, which is funded by a mandatory surcharge on vehicle registrations. In 2012, total automobile insurance premiums collected in Indonesia rose more than 13%, reaching USD$1.23 billion. General insurance coverage within the transportation sector is also expanding rapidly including marine cargo and marine hull insurance as well as aviation: although aviation insurance represented only about 2.8% of the total general premiums collected in 2012, several industry changes are expected to boost the importance of aviation coverage. Indonesia's general insurance sector is changing and reflecting the transformation of the country in terms of business maturity and consumer lifestyles. Opportunities for premium growth, technology development and efficiency-based gains are attracting foreign investors for joint ventures with local firms, yet previous attempts have highlighted the significant challenges posed in adapting corporate cultures to the fragmented Indonesian marketplace. Pressured by the government's timetable for increased capitalization requirements and underwriting standardization in advance of the ASEAN agreement pending for 2015, Indonesia’s medium sized and independent insurance companies still present potentially lucrative opportunities to collaborate with international partners that can offer expertise within technology, marketing, product development and risk management to effectively penetrate the large untapped general insurance market.

5


3. Competitive Scenario Leading Insurance Providers Market share for Top 10 Life insurers 2011

Market share for Top 10 Non-Life insurers 2011

The top 10 life insurers from a total of 46 companies control more than 60% share of net written premium, while top 10 non life insurers from a total of 91 companies account for more than around 53% of net written premium. Going ahead enhanced regulatory requirements, including increased minimum capital requirement to IDR70bn by 2012 and IDR100bn by 2014, should encourage tighter market consolidation .The number of insurers should shrink as smaller and weaker players merge with other companies to meet the new capital requirement or exit the market. The Insurance Bureau at the Regulatory Agency of Market and Financial Institution reported that at the beginning of 2011, there were 14 insurance companies that have failed to meet the requirements out of which 10 are life insurance companies. Over the long term, this should help insurers develop greater risk awareness and improve their ability to manage capital sources. Foreign ownership in the Indonesian market is also expected to increase as growth slows in mature markets such as in the Americas, Japan and Korea. This is further encouraged by Indonesia's foreign ownership limit which, at 80%, is much higher than in other Asian countries. Indonesia is the fourth most populous country in the world, after China, India and the USA. Its population is beginning to experience an improvement in individual wealth that is set to continue. The country has been relatively unscathed by the economic downturn and its government has steadily instituted reforms to the financial services industry. These factors point to a market ripe for expansion. Despite these, however, the market remains small and fragmented, without any one of the established firms exercising a dominant position. Foreign investors also remain cautious in the face of high unemployment levels, the risk of terrorist attacks and a lack of institutional transparency.

6


4. Regulatory Environment Insurance has always been a highly regulated sector in Indonesia given the nature of the industry in managing policyholders’ funds. In 1992, Indonesia enacted a law on insurance (“Law 2/1992”), which remains in effect today. Under the auspices of Law 2/1992, Government Regulation No. 73 of 1992 (“GR 73/1992”) was promulgated. GR 73/1992, among other things, sets a limit of 80 percent for foreign shareholdings in an insurance company in Indonesia. Foreign Investment Restrictions in the Insurance Industry Generally, only licensed insurance companies can insure risks in Indonesia (although there are certain exceptions). To operate in Indonesia, an insurance company must be set up in Indonesia and have obtained a license from the Ministry of Finance (“MOF”). In undertaking insurance business in Indonesia, foreign investors must carefully consider the laws and regulations restricting foreign investment. Foreign investors can only undertake insurance business in Indonesia by setting up a joint venture insurance company. In practice, setting up a joint venture insurance business can be achieved by either establishing a new company or acquiring shares in an existing company. At the time of establishing a joint venture insurance company, participation of the foreign shareholder in the established company cannot exceed 80 percent. An exception to this 80 percent limit was introduced by Government Regulation No. 63 of 1999 (“GR 63/1999”) which allows existing foreign shareholders in insurance companies to increase their shareholdings beyond the 80 percent limit by injecting more capital into the company (resulting in a dilution of the Indonesian shareholdings). This exception was introduced given the requirements for Indonesian insurance companies to increase their capital in order to meet higher Risk Based Capital requirements. New Independent Supervisory Role In November 2011, the Indonesian parliament passed the Financial Services Authority or Otoritas Jasa Keuangan (OJK) Law establishing a new independent government agency known as OJK. The agency will take over the authority and obligation to supervise activities in the financial sector, including insurance, which was previously regulated by The Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), the Ministry of Finance, and Indonesia Deposit Insurance (LPS). OJK’s main objectives are to ensure a transparent financial services sector, create a sustainable and stable economy, and protect consumer and public interests.

7


Establishing an Insurance Company in Indonesia Law 2/1992 provides four legal forms under which insurance business can be carried out, namely: A state-owned limited liability company A co-operative A limited liability company A mutual fund (usaha bersama) The forms most commonly used are state-owned limited liability companies (if the company is set up by the State) and limited liability companies (if the company is set up by the private sector). Any foreign investment must be carried out through an Indonesian limited liability company. In terms of ownership, an insurance company may either be wholly owned by Indonesian citizens and/or Indonesian legal entities, or be jointly owned by a local insurance company and a foreign insurance company through the establishment of a joint venture insurance company. Law 2/1992 provides that an insurance company can be established by: Indonesian citizens and/or Indonesian legal entities, wholly owned by Indonesian citizens and/or Indonesian legal entities (a “local insurance company�) A local insurance company and a foreign insurance company (a “joint venture insurance company�) Decree 426 permits a foreign holding company, subject to certain criteria, to become a shareholder in an Indonesian insurance company.

8


5. References International Monetary Fund General Insurance Association Of Indonesia Tower Watson AM Best Hadiputranto, Hadinoto & Partners Insurance Insights Capital Market and Financial Institution Supervisory Board (BAPEPAM-LK) Fitch Ratings Global Business Guide Indonesia www.munichre.com www.swissre.com www.thejakartapost.com www.oxfordbusinessgroup.com

9

Insurance market overview indonesia  
Read more
Read more
Similar to
Popular now
Just for you