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 in accordance with 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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