Liga Asuransi – The world of insurance is always interesting to discuss because insurance is not only limited to vehicles and life, especially for business protection coverage, insurance still has a very wide reach. In the third week of November 2023, we are again collecting 7 selected news related to insurance that are good for you to know.
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OJK Reveals Ambitious Plan to Shape the Future of Insurance, Guarantees and Pension Funds
The Financial Services Authority (OJK) has revealed seven priority programs that will be the main focus in directing the development of the Insurance, Guarantee and Pension Fund (PPDP) sector over the next five years, as stated in the OJK Roadmap 2022-2027. In his statement, the Chief Executive of the OJK Insurance, Guarantee and Pension Fund Supervision, Ogi Prastomiyono, explained that the regulator is targeting solving various problems involving the insurance industry and pension funds as one of its main priority programs.
The first priority program is to handle problems involving problematic insurance, guarantee and pension fund financial services institutions, as well as ensuring law enforcement against the parties involved. Meanwhile, the second priority program includes organizational transformation in the field of PPDP LJK supervision. The third program includes the preparation of derivative provisions and implementation of the PPSK Law.
The fourth program aims to increase the percentage of healthy PPDP LJKs, with a focus on good governance, capital, risk profile and profitability. This involves setting targets for very healthy and healthy composite ratings for PPDP FSIs, namely 80% for insurance and 80% for pension funds. Apart from that, there is a target insurance density level of IDR 2.4 million and a pension fund density level of 17%.
The fifth program focuses on support for Consumer Education and Protection (EPK) in achieving literacy and inclusion targets related to the PPDP LJK sector. The sixth program includes ensuring the smooth implementation of PSAK 74. Meanwhile, the seventh program includes drafting provisions and developing applications that support technology-based supervision, such as regtech or suptech.
With this ambitious plan, OJK is committed to shaping a stable and growing future for the insurance, guarantee and pension fund sectors. These strategic steps are expected to have a significant positive impact on the financial industry in Indonesia.
OJK Records 39 Insurance Companies with Equity Over IDR 1 Trillion: Opportunities and Challenges for the Indonesian Insurance Industry
The Financial Services Authority (OJK) revealed that by the end of 2022, as many as 39 insurance companies had succeeded in achieving equity above the fantastic figure, namely IDR 1 trillion. Equity, which reflects the value owned by shareholders after fulfilling all obligations, is an important indicator that reflects a company’s ability to survive in the long term and provide returns to shareholders.
According to data contained in the 2023–2027 Roadmap for the Development and Strengthening of Indonesian Insurance, of a total of 124 conventional insurance companies, 39 of them managed to achieve equity above IDR 1 trillion. In detail, 22 life insurance companies and 17 general insurance companies managed to maintain a strong equity position in 2022.
However, in the reinsurance sector, OJK records show that only 1 company managed to achieve equity of IDR 2 trillion. This indicates that the majority of insurance and reinsurance companies still have equity below this fantastic figure.
Facing this condition, OJK emphasized the urgency to formulate a consolidation strategy to strengthen company capital. The Road Map also reflects OJK’s view that industry consolidation can be a strategic step in promoting future development of the insurance industry. Historically, the government has implemented policies that support industry consolidation, such as regulations regarding sole proprietorships and increases in minimum corporate capital requirements.
OJK explains that consistent and increasing growth in equity is a positive sign that the company has good management and is able to generate sustainable profits. For investors, insurance company equity is a key indicator in evaluating a company’s financial performance and future growth potential.
However, in facing this growth ambition, insurance companies are expected to prepare themselves considering the minimum capital increase plan that will be implemented by the regulator. Currently, the minimum capital for insurance companies is IDR 100 billion, but the plan is to increase it to IDR 500 billion in 2026, and reach IDR 1 trillion in 2028.
Thus, this article reviews the challenges and opportunities facing the Indonesian insurance industry, while highlighting the role of equity as a determinant of a company’s financial stability and attractiveness for investors.
Tugu Insurance Opens Opportunities to Become the Parent Business Group of Insurance Companies
Insurance company which is part of PT Pertamina (Persero), PT Asuransi Tugu Pratama Indonesia Tbk. (TUGU), or Tugu Insurance, is considering the opportunity to become the parent of the Insurance Company Business Group (KUPA). This decision was driven by Tugu Insurance’s equity achievement of IDR 6.57 trillion in the third quarter of 2023. Tatang Nurhidayat, President Director of Tugu Insurance, expressed the company’s intention to discuss the potential of KUPA by involving the Tugu Insurance group. However, Tatang emphasized that this consideration would only apply to groups that have strong financial relationships.
Tatang’s statement came after the 2023 National Seminar held by the Insurance Writers Community (Kupasi) in Jakarta on Tuesday (21/11/2023). Although admitting the possibility of becoming KUPA’s parent, Tatang also highlighted that it is unlikely that Tugu Insurance will become the parent of a group that has no financial ties to the company. “Even though we are still waiting for the details of this KUPA, we do not expect any negative financial impact on us due to the actions of other parties in the KUPA that we cannot control,” he said.
Tatang emphasized that Tugu Insurance will carefully consider opportunities and risks before deciding to get involved in KUPA. “We are considering it. But if we think the opportunity is good and the risks can be managed, we will do [KUPA],” he said.
As context, the Financial Services Authority (OJK) has provided a solution for insurance companies that do not meet the requirements to be included in the Insurance Company Group based on Equity (KPPE), namely through KUPA. Chief Executive of the OJK Insurance, Guarantee and Pension Fund Supervision, Ogi Prastomiyono, explained that the KUPA model refers to banking models such as Bank Business Groups (KUB), which require affiliation with insurance companies that have met minimum capital. OJK plays a role not only as a regulator that issues regulations, but also as a solution provider and driver of the development of the insurance industry.
AJB Bumiputera 1912 Emphasizes Not Forcing Customers to Buy Products, Disbursement of Claims is Guaranteed Without Additional Obligations
The management of Bumiputera 1912 Joint Life Insurance (AJB) firmly emphasizes that they never force their customers to buy Mitra Asuransi Rakyat Indonesia (Mitra ASRI) insurance products. This statement also applies to policy holders who will disburse pending policy claims in November 2023. AJB Bumiputera 1912 Corporate Secretary, Hery Darmawansyah, confirmed that sales of Mitra ASRI products are an offer and invitation to policy holders.
According to Hery, Mitra ASRI products offer comprehensive protection for all family members with just one policy. Apart from that, policyholders are given the freedom to choose a premium package according to their needs and abilities. With affordable premiums, Mitra ASRI is recognized as Bumiputera’s commitment to expanding protection to the lower middle class.
The question arose after a customer said that he was contacted by the branch office and asked to purchase protection insurance for IDR 200,000 as a condition for disbursing the claim. However, Hery clarified that offering this product is not mandatory.
Previously, AJB Bumiputera 1912 had announced plans to pay policyholder claims after disbursing guarantee funds. Claim payments will begin in mid-November 2023 in stages, according to the Secretary of the AJB Bumiputera 1912 Task Force, Auditomo Mawarto or Audi. Although Audi cannot confirm the total amount that has been disbursed or the number of policies that have received claims, he emphasized that his party will provide detailed information in the next few days.
The total guarantee funds that have been disbursed reached IDR 262.32 billion, which will be paid to more than 42,712 individual insurance policy holders with a value of IDR 181.3 billion. Meanwhile, IDR 81.01 billion will be paid to 450 group insurance policy holders. Claim payments for individual insurance will be made to policy holders with a nominal amount of up to IDR 5 million and IDR 5-IDR 10 million who have previously responded to the Reduced Benefit Value (PNM) policy.
OJK Records Growth in Commercial Insurance Assets Even though Premium Income Contracts
The Financial Services Authority (OJK) recorded growth in commercial insurance assets in Indonesia which reached IDR 872.6 trillion in September 2023, showing an increase of 1.3% year on year (yoy) compared to the same period in the previous year. OJK Deputy Commissioner for Insurance, Guarantee and Pension Fund Supervision, Iwan Pasila, revealed this at the 2024 Indonesia Financial Sector Outlook (IFSO) event organized by the Indonesian Banking Development Institute (LPPI) in Jakarta.
However, on the other hand, the insurance industry experienced a slight contraction in premium income, reaching IDR 228 trillion by the end of September or a decline of 1.6% yoy. The claim figure also fell by 2.2% yoy to IDR 163.90 trillion. Despite this, Iwan emphasized that the life insurance industry’s capital remains well maintained, with the Risk Based Capital (RBC) level still above 120%. Life insurance posted 415% RBC, while general insurance averaged 389% RBC.
Iwan reminded that the insurance sector continues to be faced with challenges, especially related to global uncertainty which can affect investment management strategies. He advised insurance companies not only to focus on investment portfolios, but also to pay attention to the product portfolio side. In this context, it is important to manage risk through premium income well.
Apart from that, other challenges include the level of insurance literacy and penetration in Indonesia which is still low. Iwan emphasized the need for extra efforts for insurance companies to increase insurance literacy and penetration in society. Meanwhile, technological developments also provide challenges, especially regarding consumer data, but at the same time provide opportunities to provide services that are more easily accessible.
Latest Trends in the Life Insurance Industry Target Paydi as the Main Source of Income
The Financial Services Authority (OJK) revealed that the life insurance industry will continue to rely on premium receipts from investment-linked insurance products (Paydi), or what is more popularly known as unit link, throughout the 2022 period. According to the Roadmap for Development and Strengthening of Indonesian Insurance 2023-2027 , almost half of the total conventional life insurance premiums in 2022, worth IDR 169.95 trillion, will be obtained through unit link products. OJK data shows that as much as 44.0% or IDR 74.85 trillion is premium income from unit-linked products, followed by dual-purpose products at 22.0% or IDR 37.41 trillion.
In the 2018–2022 period, life insurance premiums decreased by 3.8%, decreasing from IDR 198.30 trillion to IDR 169.95 trillion. In 2020, conventional life insurance premiums fell 8.28% from IDR 186.26 trillion to IDR 170.83 trillion, but experienced growth in 2021 of 7.90%.
OJK noted that the low growth in conventional life insurance premiums was largely influenced by the impact of the Covid-19 pandemic, as revealed in OJK documents. Even so, the results of the OJK survey of the insurance industry in 2023 show that insurance premium income is still dominated by the life insurance business line, including sharia life insurance, at 66%, compared to general insurance and reinsurance including sharia, which reached 34%.
Responding to this trend, OJK emphasized that regulations related to Paydi have not shifted the focus of life insurance companies from developing basic types of insurance. OJK said that life insurance companies’ plans for the future will further strengthen the development of basic types of insurance to remain relevant in the market.
Building Trust in the Midst of Challenges: The Importance of Strong Branding and a Good Reputation in the Insurance Industry
Observers state that the insurance industry needs to build strong branding and a good reputation in an effort to restore consumer confidence, especially amidst reports of difficult claims and cases of default. Wahyudin Rahman, General Chair of the Indonesian Insurance Writers Community (Kupasi), emphasized that in a situation where the insurance industry is faced with the perception of difficult claims and the risk of default, insurance companies need to focus on improving communication with consumers through strong branding strategies.
At the 2023 National Seminar held by Kupasi in Jakarta, Wahyudin stated that building strong branding and a good reputation is the key to giving confidence to consumers. According to him, consumers tend to trust insurance companies that have a good reputation for providing consumer services and protection.
Wahyudin also highlighted the low level of insurance literacy and inclusion compared to the banking sector. Data from the 2022 National Survey of Financial Literacy and Inclusion (SNLIK) shows that the financial literacy index of Indonesian society rose to 49.68%, while the financial inclusion index reached 85.10%. However, insurance literacy and inclusion levels are still low, with a financial literacy rate of 31.72% and an inclusion rate of 16.63% in 2022.
This article emphasizes the importance of insurance companies not only focusing on improving service and consumer protection, but also prioritizing efforts to build a positive image through strong branding to overcome challenges in the insurance industry.
This article is brought to you by L&G Insurance Broker, an insurance broker in Indonesia.
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