Interview: Ben Ng
What is your outlook for the potential of the life insurance segment in the country?
BEN NG: We are very optimistic about the market’s outlook. The penetration rate is still low, so there is a lot of potential to be tapped. There is an increase in high-net-worth individuals and an expanding middle class that will fuel the growth of the industry in the short, medium and long term. There is high potential in all sizes of protection; the population is gradually becoming more sophisticated in terms of insurance demand and risk management.
However, this highlights the importance of strengthening the skills of professionals and increasing the proportion of people who are full-time insurance workers. When compared to Singapore or Malaysia, Indonesia still has a smaller pool of insurance professionals. This country can benefit from the presence of players that are present across Asia by leveraging expertise and knowledge transfer. In Indonesia consumers’ expectations are increasing and we need to do a better job of understanding their needs and be able to meet their expectations.
What is the importance of increasing financial literacy in regard to insurance awareness?
NG: Low insurance awareness remains the biggest barrier for the industry. The single-digit penetration rate means that there are a lot of people who are still not aware of the importance of insurance for life protection and long-term financial planning to achieve their aspirations in life. We believe that there is a clear correlation between increased financial literacy and a higher insurance penetration rate.
Although awareness remains low, there has been an improvement in recent years. The Financial Services Authority (OJK) has undertaken important efforts in collaboration with the private sector to boost financial literacy in the country, and it is important for both the regulator and companies to continue with these efforts. A positive note for the future of financial literacy is that Indonesia has a young population, which is very tech-savvy and digitally oriented. This opens a lot of opportunities for increasing the level of financial literacy through the help of digital tools and channels.
How can the industry strengthen its role as a long-term funding source for development?
NG: There are significant opportunities for infrastructure development in Indonesia – including works at ports, airports, and electricity generation and distribution facilities. Such projects typically require longer-term funding, which fits well with the long-term nature of insurance liabilities. Insurance companies could be a good source of funding and this presents great opportunities for insurers to earn higher yields and diversify their investments.
The OJK has revealed a plan to encourage participation from pension funds and insurance companies to invest in government securities and government infrastructure projects through a variety of investment instruments. The funding from insurance companies could be more significant if the government were to provide an appropriate tax incentive. In terms of developing the regulatory framework, the national regulator is very open minded in accepting new ideas, and it has done well in taking these on board since its recent creation in 2013.
On the other hand, when comparing Indonesia’s market to those of other countries in the region, the framework is relatively more closed. In other markets you can introduce new products with much simpler prior approval, or in some cases approval is not required at all, allowing for greater investment overseas. There is an early stage of liberalisation in Indonesia; but this could be accelerated. There is growing wealth in the country, and it is very important to increase the options for further investment.
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