A.M. Best Special Report: Indonesia’s Insurance Market Looks to Life Business for Growth

HONG KONG--(BUSINESS WIRE)-- Life insurance has emerged as a key driver for growth of Indonesia’s total insurance market. Life insurance accounted for 60.4% of the insurance industry’s total gross premium in 2010, according to figures from the country’s insurance regulator. Solid economic fundamentals with rising domestic consumption, improving insurance regulation, product innovation and use of alternative distribution channels are bolstering prospects for life insurance to grow in Indonesia, according to a new report from A.M. Best Co.

As a key economy in the Association of South East Asian Nations (ASEAN), Indonesia is refining its regulations to strengthen insurance development in line with international standards. The insurance sector is primed for further growth, as the industry has generally exhibited stable operating performance despite capital challenges for some players and a weak international environment.

As in other Southeast Asian countries such as Thailand, local players traditionally have dominated the Indonesian market, often linked to important families or state-owned corporations.

An enhanced capital requirement is already in place ahead of full implementation of the ASEAN Free Trade Agreement in 2015. A number of undercapitalized local insurers face significant challenges, and one option for them may be merger or acquisition; otherwise, they have to surrender their licenses. The total number of insurance companies in Indonesia steadily decreased 10.2% to 142 in 2010 from 2006, but the country has yet to see a very active merger-and-acquisition market.

Foreign players have entered the market, driven by increasing foreign investments, infrastructure projects and new business ventures. Local insurers also are attracted to form foreign joint ventures as they seek international knowledge to develop new products and distribution, business models and operating systems, and most important, increased capital to fuel long-term development.

Other topics discussed in the report include:

• The life industry reported gross premium of IDR 75.5 trillion (USD 8.4 billion) in 2010, up 175% from 2006.
• Fueling takaful’s growth will depend on strengthening the regulatory framework, developing Shari’a capital market products such as Sukuk or Shari’a bond and Shari’a-based investment funds, and participation of traditional insurers.
• With nearly half the population living in rural areas, Indonesia shows great potential as a market for microinsurance.
• A stronger Japanese currency and existing corporate clients’ business have prompted Japanese insurers’ move into Indonesia’s insurance sector.

To access a copy of this special report, please visit www.ambest.com/press/070602indonesialifereport.pdf.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

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Source: A.M. Best Co.