This article was originally published on Antaranews.com on 28th December 2023 with the heading “Industri asuransi Indonesia hadapi tantangan serius”.
Liga Asuransi – The text discusses the serious challenges faced by the insurance industry in Indonesia, particularly the low level of public trust. Notably, there has been a significant increase in insurance-related complaints over the past five years, with a staggering 57-fold rise from 22 complaints in 2017 to 1,291 in 2022, indicating a profound issue in maintaining public confidence.
Irvan Rahardjo, an insurance observer, highlights the industry’s excessive competition due to an abundance of players, resulting in unhealthy competition that adversely affects the quality of insurance products and services. Furthermore, the limited risk-bearing capacity within the Indonesian insurance sector, with a substantial portion of risks being reinsured, adds to the challenges.
The text emphasizes the issue of low insurance inclusion in Indonesia, with only 16.6% coverage and 31.7% literacy, suggesting that despite adequate knowledge, the public lacks interest in purchasing insurance. Irvan attributes this reluctance to negative past experiences, such as claim rejections, payment failures, and discrepancies between promised and delivered product features.
Despite the regulatory roadmap crafted by the Financial Services Authority (OJK), Irvan believes it falls short in providing concrete solutions, especially regarding restorative justice and compensating policyholders, as mandated by the 2023 law. To address these challenges, Irvan recommends that OJK undertake insurance reforms to restore public trust and deliver specific solutions for various default cases that have eroded confidence. The complexity of the issue demands careful understanding and precise interventions to rebuild trust in the insurance industry in Indonesia.
The low insurance inclusion in society adds another factor. Despite relatively high insurance literacy, public interest in purchasing insurance policies remains low. Negative experiences related to claim rejections, payment failures, and discrepancies between promised product features and company deliverables have led to profound distrust.
Although the Financial Services Authority (OJK) has crafted an insurance roadmap, its implementation has yet to provide concrete solutions to the challenges faced. In this context, the urgency of insurance reform becomes increasingly apparent, especially in creating legal clarity and restorative justice, involving compensation for customer losses as mandated by Law No. 4/2023.
Efforts to educate the public on the benefits of insurance, enhance service quality and business transparency, and effectively address complaints can be tangible steps to overcome this low level of trust. In this way, the insurance industry can restore public confidence, foster a healthy environment, and rebuild its reputation in the eyes of the public.
The low trust of the Indonesian public in the insurance industry, reflected in the surge of complaints over the last five years, indicates a serious crisis of confidence. Unhealthy competition and industry capacity limitations are highlighted, with dominant risks held by reinsurers. Low insurance inclusion and negative customer experiences further exacerbate the lack of trust.
While the OJK has drafted an insurance roadmap, concrete solutions are hindered by implementation challenges. Urgent reforms are needed, especially concerning restorative justice in line with Law No. 4/2023. To address these challenges, public education, service improvement, and effective complaint handling are crucial. Through these measures, the insurance industry has the potential to restore trust, build integrity, and reclaim its reputation in the eyes of the public.
This article is part of the book “BANGKITNYA ASURANSI KAMI” with keynote speaker Professor Muhammad Eddi Purnawan, Member of the OJK Supervisory Board. February 2024. ISBN, IPB Press Publishers.
This article has been published in the KOMPAS daily with the title “Peningkatan Industri Asuransi Mendesak” (6/12/2023).
Liga Asuransi – Public awareness is urged to make wiser choices in selecting insurance products, especially those associated with investments. Life insurance companies are currently evaluating unit link products or insurance linked to investments. This evaluation encompasses a moratorium and adjustments to product schemes.
Previously, the Financial Services Authority (OJK) issued a circular regulating insurance products linked to investments, also known as unit link. Circular (SE) OJK Number 5 of 2022 regarding Investment-Linked Insurance Products (PAYDI) aims to protect consumers while enhancing governance and risk management for life insurance companies.
Unit link products offer dual benefits, long-term investment returns, and protection. However, recent years have seen misinformed offerings of unit link insurance products, leading to dissatisfaction among the public.
Hanindio W Hadi, CEO of PT Perta Life Insurance (PertaLife Insurance), states that the company is currently imposing a moratorium on the sale of its sole unit link product, Powerlink. This decision is driven by adjustments mandated in SE-OJK No 5/2022 on PAYDI. “Based on our past evaluations, this product has shown potential that is not very favorable, both for us as administrators and for our customers,” he mentioned on Sunday (10/12/2023).
Historically, unit link product sales were conducted through agents or individual channels, incurring additional costs such as acquisition fees, impacting investment development. Hanindio adds that the investment results from PowerLink are not satisfactory because a significant portion of the premiums received is deducted upfront for product development. As of Q3-2023, Pertalife Insurance manages approximately IDR 34.5 billion in PowerLink funds.
“We are contemplating how to alter our marketing strategy, moving away from costly independent channels, including exploring digital platforms, while adhering to regulatory requirements. However, whether this will be effective or not remains our ongoing challenge,” he stated.
Understanding customers poses a unique challenge for PertaLife Insurance, requiring enhanced financial literacy and risk management education. Haris Anwar, Director of Marketing at PertaLife Insurance, adds that the company is currently adjusting PowerLink in line with the Financial Services Authority Circular (SEOJK) No 5/2023 on Investment-Linked Insurance Products (PAYDI). These adjustments cover waiting periods, premium breaks, insurance costs, more efficient sales channels, and healthier investment choices.
Haris believes that unit-link products are indeed necessary for customers. Nevertheless, it is crucial for customers to thoroughly understand unit-link products to make informed decisions. “Customer understanding poses a unique challenge for the company, and we are committed to addressing this through ongoing education and literacy initiatives,” he emphasized.
“PertaLife Insurance aims to enhance financial literacy and education regarding risk management,” he said.
Data on the Development of the Insurance, Guarantee, and Pension Fund (PPDP) Sector as of October 2023. Source: Financial Services Authority.
Chubb Life Indonesia is Committed to Consumer Protection and Adapting to Regulations
Meanwhile, PT Chubb Life Insurance Indonesia (Chubb Life Indonesia) is committed to prioritizing consumer protection. Kumaran Chinan, President Director of Chubb Life Indonesia, stated that they have no objection to adapting to regulations governing PAYDI. “Adaptation does take time. Previous cases serve as collective lessons in the life insurance industry. Therefore, we strive to maintain our reputation by implementing good governance by applicable regulations,” he said in an interview in Jakarta on Wednesday (6/12/2023).
In Q3-2023, Chubb Life Indonesia recorded a premium growth of IDR 1.34 trillion, a 91% annual increase. The solvency ratio (risk-based capital/RBC) of Chubb Life Indonesia at the end of 2022 was recorded at 1,336.25%, significantly above the minimum threshold of 120%.
Quoting the report from the Indonesian Life Insurance Association (AAJI), the income of the life insurance industry as of September 2023 amounted to IDR 162.87 trillion, experiencing a 0.6% annual decline. This decline is primarily attributed to the decrease in premiums from unit-link life insurance products.
Driving Force for Revenue in the Life Insurance Industry
Chairman of the Board of AAJI, Budi Tampubolon, stated that unit link products had been a significant revenue driver in the life insurance industry. This influenced the performance of the life insurance industry alongside improvements in unit link product sales. However, Budi continued that the contraction experienced by the life insurance industry due to the improvement of unit link products was not as extensive as anticipated. Furthermore, the proportion of traditional products surpassed unit link products, providing a solution for the growth of the life insurance industry.
“Being responsible for claims payments and providing access to customers to have insurance protection remains a priority. While unit link products are still undergoing adjustments, we will offer other insurance products, including traditional ones,” said Budi in a press conference on the Performance of the Life Insurance Industry for the January-September 2023 period in Jakarta.
AAJI projects that unit link products will regain a larger share after all life insurance companies adapt to the provisions of SEOJK No 5/2022. Market demand for unit link products remains high, and it will take 3-6 months for adjustments to restore unit link products.
Challenges in Offering Unit Link Products and the Role of Customer Understanding
Insurance observer, Irvan Rahardjo, stated on Sunday (10/12/2023) that in offering unit link products, agents tend to portray investments optimistically and promisingly. However, investment risks such as the potential decrease in asset value or even asset loss are not explained to potential customers.
“What was promised by insurance companies turns out to be unrealized due to sales errors by agents. They present scenarios or proposals promising added value, but at the end of the contract, there is a decline,” he said.
The mismatch between what was promised and what was received leaves customers feeling deceived. Many complaints from the public, and even the emergence of a moratorium, prompted the issuance of SEOJK No 5/2022 on PAYDI, which came into effect in March 2022, with a deadline for companies to adjust no later than March 14, 2023.
According to Irvan, SEOJK No 5/2022 on PAYDI emphasizes consumer protection, which was previously lacking attention. Some provisions regulate insurance companies to improve investment governance, reporting, and recording, as well as ensuring a minimum capital of around IDR 200 billion.
“They should target the segment of the population that already understands investments. Unit link is a highly risky product and should only be offered to customers capable of bearing such risks or the upper-middle-class community. Therefore, companies should target the upper-class community and not the lower class,” added Irvan.
Therefore, the public is advised to prioritize protection needs while considering financial capabilities. Health protection needs, for example, should not be mixed with investment products, and vice versa.
Criteria for Selecting Insurance Products and the Role of OJK in Supervising the Life Insurance Industry
OJK Executive Head of Insurance, Guarantee, and Pension Fund Supervision, Ogi Prastomiyono, emphasized that the public needs to pay attention to the benefits of insurance products. Insurance products that only provide protection benefits are generally simpler than complex insurance products, such as PAYDI, which offers a combination of protection and investment benefits, along with the investment risks borne by policyholders.
“The public also needs to consider the suitability between the specifications of the insurance products to be purchased and their financial needs and capabilities. For insurance products that involve savings or investment benefits, do not expect excessive returns compared to other financial products, such as returns offered by deposit products from the banking sector,” said Ogi.
In addition, the financial health of insurance companies needs to be considered, including the type of assets, total liabilities, and financial health ratios that can be viewed regularly on the company’s official website. In general, the life insurance industry records a Capital Adequacy Ratio (CAR) of 435.98%, far above the minimum threshold.
In recent times, OJK has revoked the business licenses of several insurance companies that do not meet the requirements, such as PT Asuransi Purna Artanugraha (PT Aspan) as of December 1, 2023, because it does not meet the minimum requirements for CAR, equity, and investment adequacy. Similarly, the business license of PT Asuransi Jiwa Prolife was revoked for violating insurance regulations.
In the life insurance industry, unit link products have long been the main driver of premium income. However, improvements to these products have resulted in a contraction not as extensive as anticipated. AAJI projects a recovery in the proportion of unit link products after life insurance companies adapt to the new regulations. Insurance observer, Irvan Rahardjo, highlights sales errors that make customers feel deceived, prompting the issuance of the PAYDI regulation by OJK.
Irvan emphasizes the need for customer understanding of the mechanisms of high-risk unit link products. Meanwhile, OJK, through Executive Head of Insurance Supervision Ogi Prastomiyono, reminds the public to choose insurance products that suit their needs and financial capabilities, as well as understand the benefits and risks. In conclusion, challenges and adjustments in the life insurance industry underscore the need for consumer protection, product understanding, and alignment between insurance products and individual needs to maintain the financial health of the public.
This article is part of the book “BANGKITNYA ASURANSI KAMI” with keynote speaker Professor Muhammad Eddi Purnawan, a Member of the OJK Supervisory Board. February 2024. ISBN, IPB Press Publishers.
The price of this book is IDR 155,000 and can be ordered through ligasuransi.com.
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Irvan Rahardjo
Lebih dari 40 tahun berkecimpung di dunia asuransi dimulai dari asuransi joint venture hingga pernah menjadi Direksi Asuransi BUMN ; Komisaris Independen AJB Bumiputera 1912 dan Asuransi SOMPO Indonesia. Saat ini menjabat sebagai Komisaris Utama di L&G Risk Insurance Broker.
