Bancassurance has emerged as a high-growth segment for insurance sales in recent years, as banks seek new revenue sources and diversification of their customer portfolios. In January 2019 the Indonesia Life Insurance Association (AAJI) forecast that total life insurance premium generated through the bancassurance channel would grow by 15-30% that year, based on the proliferation of partnerships between life insurers and banks, and a deepening product portfolio. AAJI said that as of September 2018 bancassurance had contributed life insurance premium of Rp59.2trn ($4.2bn), equivalent to 42% of the life segment’s total. Some 65-70% of bancassurance premium is sourced from single-premium customers who tend to be investment-minded and comfortable committing to investments with long repayment periods. Insurers favour single-premium policies because regular premium payment periods tend to be short, at just two or three years, and persistency is low. Bank clients present an obvious target market for insurers seeking single-premium customers because the fact that they hold bank accounts implies a certain degree of financial literacy. “Trust in the banking industry helps to ensure the success of bancassurance. We see significant potential for growth in this segment as awareness grows among Indonesia’s emerging middle class,” Rio Winardi, CEO of BCA Life, told OBG.
In December 2019 AAJI reported that life insurance revenue increased by 14.7% year-on-year in the third quarter of 2019 to Rp171.8trn ($12.1bn), supported by a 2% increase in total premium income, which reached Rp143.7trn ($10.1bn). Bancassurance again accounted for 41.8% of total premium.
Further growth of the bancassurance channel will depend in part on deepening the talent pool involved in the distribution of products. This process will take considerable time and investment in order to enable bank sales agents to convince customers of the efficacy of regular premium coverage and protection. In the meantime, AAJI is promoting an expansion of the number of accredited insurance agents in Indonesia, who account for approximately 40% of premium sales. AAJI is aiming to boost the number of agents to over 1m from a base of about 585,000 in 2019. However, future growth may be more about the customer base than the sales force. “Bancassurance is not going anywhere but the market is saturated. Every single branch of every bank is selling insurance, so growth is limited to the number of people who walk through the door on a daily basis,” Sam Flitman, advisor of insurance at PwC Indonesia, told OBG.
Meanwhile, the penny stock investment scandal involving two of Indonesia’s largest state insurers – life insurer Asuransi Jiwasraya and its counterpart Asabri – has created some uncertainty around the near-term growth of bancassurance unit-linked policies (see Capital Markets chapter). News about the manipulation of penny stocks brought a strong response from a host of regulatory actors. The Attorney General’s Office ordered the Financial Services Authority (OJK) and the Indonesia Stock Exchange to suspend 800 securities accounts, and the House of Representatives called upon the Supreme Audit Agency to launch an audit of state-owned insurers. In February 2020 AAJI pushed back against the OJK draft restrictions aimed at limiting the sale of unit-linked insurance products to eliminate unnecessary risk. The OJK plans to review and subsequently regulate which products can be marketed through the bancassurance channel.
While banks initially halted unit-linked sales following the news of the market manipulation, this was expected to be a temporary measure. In the longer term, after Indonesia adopts the International Financial Reporting Standard 17 in 2021, the industry will lose the incentive to sell single-premium, unit-linked policies, as most policies will immediately be booked as liabilities rather than positive contributions in profit and loss accounting.
Despite the setback, industry stakeholders are confident that state efforts to bolster insurance inclusion alongside digital innovation will bear fruit. Bianto Surodjo, chief partnership and distribution officer at Allianz Indonesia, told regional media that he expects a compound annual growth rate of 15-20% to drive gross written premium to over Rp1000trn ($70.5bn) by 2030, creating an insurance industry profit pool of Rp100trn ($7.1bn). He also foresees systems that process claims and payments to be among the first applications of digital solutions in the sector, alongside programmes that enable integration with health care operations. The OJK is working on new regulations for insurance technology (insurtech) business models, as well as claims payment mechanisms and complaints procedures aimed at protecting consumers. It is hoped that these will be included in the forthcoming Omnibus Law revisions to the wider financial system.
This sets the stage for Indonesia’s unicorn digital platforms – defined as privately held start-ups valued at over $1bn – to track bank operations and leverage their huge user bases and established payments systems to offer consumers digital insurance products – or at least digital pathways to buy traditional insurance. Such synergies have already begun to take place. For example, Allianz Indonesia formed a digital partnership with e-commerce unicorn Bukalapak in May 2019 to launch a “touch of a finger” insurance product, which it markets as easy, instant and secure. Allianz has also partnered with ride-hailing start-up Gojek to provide protection for drivers.
In June 2019 Prudential Life Assurance announced a strategic partnership with domestic payments and financial services platform OVO to launch digital wellness, health and wealth products and services, including e-payments and e-claims. OVO followed this by seeking to recruit a head of insurance in Jakarta, which mirrored steps taken by Gojek and fellow ride-hailing app competitor Grab Indonesia. Elsewhere, Indonesian life insurance firm Astra Aviva Life launched Flexi Critical Illness, an online policy offering coverage for strokes, heart attacks and early-stage cancer. Insurer AJ Central Asia Raya has issued a micro-insurance product in collaboration with e-wallet money service TrueMoney Indonesia that covers dengue fever.
Local insurtech player PasarPolis has received investment from Gojek, Tokopedia and Traveloka, enabling it to build a portfolio of more than 100 micro-insurance products, from damaged goods protection for Tokopedia’s shoppers and sellers, to flight and train delay insurance for customers who buy tickets via Traveloka. In February 2020 Gojek launched GoSure, providing its users with access to a suite of PasarPolis insurance products that cover motor, travel and mobile device protection. Other players in the space include FWD, Asuransiku, AXA MyPage, insurance88.com and Jagadiri. The trend points to large potential growth in lifestyle-oriented micro-insurance products; Jagadiri even has one targeting computer gamers. OJK data shows that there were some 22m micro-insurance policyholders in Indonesia as of June 2019 with considerable potential for further expansion.
Although the acceleration of low-cost products launched via digital channels is promising, the bulk of insurers are looking for the right combination of market and higher-value products to drive profitability. PwC expects to see tie-ups between insurers and large holders of transaction data, such as banks and airlines, proliferate as partners seek to tailor specific insurance products. “The bigger play is leveraging customer data to sell more substantial products,” Flitman told OBG, adding that local insurers do not possess the capacity to process large swathes of data, and the digital partners that do will want significant remuneration in return for their services. “The balance of which party – the insurer, digital partner or customer – bears that cost needs to be carefully worked out or demand will dwindle.”
However, the success of digital insurance business models is as yet unproven and data privacy compliance in an evolving regulatory environment may prove restrictive. Nevertheless, insurers could do more within existing laws – such as seek customer consent for data sharing and create deeper levels of aggregation in terms of how data is segmented – to improve product targeting. Investments in digital tools, both back-end systems and customer-facing offerings, are expected to bring down costs in the long term and help insurers maintain a healthy bottom line. PwC’s 2019 survey of financial insurance executives suggests that – despite knowledge of an over-reliance on manual processes – there has so far been “remarkably little investment in robotic processing and data analytics in finance processes compared to other industries”.
Meanwhile, progress is moving faster when it comes to customer solutions. Sudibyo Susanto, vice-president of sales and marketing for Selindo Alpha, which provides communication technology for business enterprises, told OBG that banking and insurance is by far the company’s largest and fastest-growing customer segment, with insurers demanding omnichannel solutions to streamline their interactions with customers.
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