Liga Asuransi – The development of the insurance industry is still interesting to follow. In the fourth week of October 2023, we summarized seven news related to insurance that you should know.
As always, if you are interested in this article, please share it with your colleagues so they can understand it as well as you.
Requirements that Banks and Insurance Companies Must Fulfill Before Entering the World of Sharia Finance According to Vice President Ma’ruf
The Indonesian Vice President (Wapres) Ma’ruf Amin has identified great potential in the Indonesian sharia financial market. He warned that financial institutions must ensure their financial health before entering the realm of sharia.
When speaking at the Ijtima Sanawi event of the Sharia Supervisory Board, Ma’ruf Amin emphasized the need to ensure health and security as a prerequisite before financial institutions move towards sharia. He made a comparison with the halal food industry, where products must meet the health and safety standards of the Food and Drug Supervisory Agency (BPOM) before receiving a halal label. Ma’ruf Amin also encouraged more financial companies to switch to sharia principles to support the growth of this market.
Currently, the share of the sharia financial market is still relatively small, although its growth is stable. Ma’ruf Amin aims to increase the share of the sharia financial market to reach 50%. He also highlighted the importance of collaboration in increasing the level of sharia financial literacy and inclusion, which is currently still low.
Data from the Financial Services Authority (OJK) shows that sharia financial literacy currently only reaches 9.14%, while inclusion is 12%, a figure which is still much lower than national financial literacy which reaches 49.6%, and inclusion is 85.1%. Mirza Adityaswara, Deputy Chair of the OJK Board of Commissioners, also acknowledged the positive contribution that the sharia financial industry has made to the national economy, even though its market share is still limited. In order to increase sharia market share, he emphasized the need for acceleration in literacy and inclusion levels, which can be achieved through strong collaboration across sectors.
Prognosis of Hardening Trends in the Insurance and Reinsurance Market that will Continue into 2024
It is estimated that the hardening trend in the insurance and reinsurance industry will continue until 2024. Hardening market conditions are changes that occur when risks in the industry increase, either due to increased claims or other factors that require insurance and reinsurance companies to change terms. and conditions before providing protection. The main impact of the hardening market that is clearly visible is the drastic increase in premiums that insurance companies must pay to reinsurance and other insurance companies.
The characteristic features of a hardening market are the shrinking capacity of reinsurance to absorb risk, increasing premium prices, and increasingly stringent provisions. Delil Khairat, Director of Operations Engineering at Indonesia Re, noted that based on industry research, market hardening is still ongoing throughout 2023 and is expected to continue until 2024. While the impact may vary based on location and type of business, the general estimate is that the market will remain hard until 2024, with the uncertainty that follows.
However, Delil also stated that the market situation could change to a softening market condition if insurance and reinsurance companies could manage risks well and achieve profitability. Softening markets are the opposite of hardening markets, where insurance companies begin to relax terms and conditions because the risks they face tend to decrease.
Delil admits that the market situation is unpredictable, with many factors influencing market hardening conditions. One major factor is the level of loss, which can affect insurance prices globally if a major loss occurs somewhere.
Apart from the level of losses, Delil also pointed out that inflation and currency exchange rates contributed to hardening market conditions in the insurance and reinsurance industry. In addition, geopolitical factors such as war in a region can also affect supply chains and insurance markets.
To improve the insurance and reinsurance industry in Indonesia, Indonesia Re is pushing for an extension of the agreement (renewal treaty) in 2024. Delil considers the renewal treaty not only as a policy extension, but also as an integral part of Indonesia Re’s commitment to the Indonesian economy. The hope is that the renewal treaty process which will take place in November-December can be a momentum for improvement for the industry as a whole.
BRI Life Shrinks Unit Link Portfolio: Focuses on Traditional and Protection Products
PT Asuransi BRI Life, or BRI Life, has announced a significant reduction in its portfolio of Investment-Related Insurance Products (PAYDI) or unit links. Currently, companies are more oriented towards traditional insurance products that offer insurance coverage benefits without investment elements. Although unit-linked products still exist, their share has shrunk significantly.
BRI Life Finance Director, Lim Chet Ming, revealed that now more than 90% of BRI Life’s product portfolio is traditional products, while unit links only contribute around 10%. He explained that while there is still demand for unit link products, the company is considering the suitability of the product for each customer. Unit link products tend to be more complex than traditional products.
However, BRI Life will still provide unit link products for customers who understand these products, especially for the upper middle segment. Plt. BRI Life President Director, I Dewa Gede Agung, emphasized the importance of providing complex products such as unit links to customers who already understand them.
BRI Life Marketing Director, Sutadi, stated that the company has directed its product portfolio towards protection and continues to reduce unit-linked products. Currently, around 85% of BRI Life’s business operates through the Bancassurance business channel. The company is also developing the marketing of life insurance products through the BRImo application developed by Bank BRI.
Until the end of September 2023, BRI Life has served around 27.1 million insured people, with growth of more than 8% compared to the same period the previous year. In addition, the company has paid claims amounting to IDR 4.1 trillion until the end of September 2023, with growth of 14.2% year on year (yoy).
The Secret Behind the 2024 Treaty Extension in the World of Domestic Reinsurance
PT Reinsurance Maipark Indonesia is pushing for corrective steps when facing the treaty extension in 2024. In the upcoming treaty negotiations, this company is prioritizing obtaining favorable prices, ratings, and terms and conditions, especially amidst the ongoing hardening market conditions.
Treaties, which are written agreements that share risks between insurance and reinsurance companies, are the main focus of this company. In this agreement, all coverage taken by the insurance company will be automatically distributed to the reinsurance company in accordance with the respective portion agreements. This reinsurance treaty contract is usually renewed every year.
The hardening market conditions reflect rising premium rates as well as stricter regulations, which have made it difficult for the industry to absorb more risk. Maipark Indonesia Reinsurance Technical Director, Heddy Agus Pritasa, hopes that by extending the treaty, we can get prices and reinsurance programs that are in line with the company’s expectations.
His party also encouraged negotiations to extend the treaty to be carried out earlier, and even though there were currency fluctuations, such as the strengthening of the US dollar, this condition was not considered to have an influence on the extension of the treaty.
Achmad Sudiyar Dalimunthe, President Director of PT Asuransi Asei Indonesia, explained that reinsurance treaties are automatic support for risk capacity for insurance companies. The goal is to ensure business processes run smoothly without the need to seek capacity separately for each large insurance case.
On the other hand, Indonesia Re’s Technical Director of Operations, Delil Khairat, believes that there are still many improvements that need to be made in reinsurance treaties. He highlighted underperformance in the treaty, which has led to losses for insurance companies. Factors such as the unbalanced structure of reinsurance contracts and pricing that needs to be improved are the main problems. Delil also emphasized the need to adjust reinsurance rates to the ongoing market hardening conditions at the global level.
The final difficulty is the practice of co-insurance, where several insurance companies combine to cover a single risk. One insurance company acts as the first party (seeding), while the other acts as reinsurer. In order to improve the treaty, various factors are being evaluated to ensure harmony and success in extending the treaty in 2024.
OJK Supports Mandatory Insurance for Mass Events: New Rules in Design
OJK has provided strong support for developing mandatory insurance in Indonesia as a step to increase the level of insurance penetration in this country, which is still relatively low. Chief Executive of the OJK Insurance, Guarantee and Pension Fund Supervision (PPDP), Ogi Prastomiyono, revealed that the Government is currently drafting regulations regarding mandatory insurance.
The rule, when implemented, will require events with large crowd participation, such as football matches and concerts, to use insurance. Currently, insurance for activities involving many people is still optional and not widely used. Ogi explained that this mandatory insurance will focus more on Third Party Liability products. He hopes that these regulations can be implemented immediately in Indonesia and is collaborating with the Ministry of Finance to implement them.
Apart from mandatory insurance, OJK continues to conduct outreach throughout Indonesia about the importance of insurance and how to make good use of it. They also actively support consumer protection, especially in dealing with increasingly widespread insurance problems. OJK also encourages the use of technology in the insurance industry through Insurtech to reach more people. Currently, people can use insurance when shopping on online shopping platforms.
Even though the level of insurance inclusion and penetration is still relatively low, OJK is working to increase it. OJK data records a less significant increase in the insurance inclusion rate of 13.15% in 2019 to 16.63% in 2022. Meanwhile, the insurance penetration rate grew from 2.81% in 2019 to 2.82% in 2022. A significant increase can be seen in the insurance sector literacy level, which increased from 19.40% in 2019 to 31.72% in 2022.
Great Eastern Life Indonesia Launches GREATPedia Insurance Dictionary: Bringing Financial Literacy to All
Great Eastern Life Indonesia has inaugurated the GREATPedia Insurance Dictionary to strengthen financial literacy and financial inclusion in Indonesia. This launch is part of the commemoration of Financial Inclusion Month 2023 with the theme “Equal Financial Access, Prosperous Society”, which coincides with National Insurance Day on October 18 2023.
Nina Ong, Director of Bancassurance Great Eastern Life Indonesia, explained that the launch of the Insurance Dictionary emerged from the belief that increasing financial inclusion must be accompanied by an even increase in financial literacy. According to the National Survey of Financial Literacy and Inclusion (SNLIK) 202, the financial literacy index of Indonesian society reached 49.68%, while the financial inclusion index was 85.10%. Even though the financial inclusion rate is high, there is a significant gap between literacy and inclusion, namely 35.42%.
GREATPedia, which can be accessed for free by all Indonesian people, presents more than 100 insurance terms in the hope of helping those who do not understand insurance concepts. Through better understanding, it is hoped that people who buy insurance products will truly understand the benefits and related concepts. Apart from the GREATPedia Insurance Dictionary, Great Eastern Life Indonesia is also partnering with Solopos Media Group to hold two free financial literacy webinars that Indonesians can participate in online.
By launching the GREATPedia Insurance Dictionary and holding financial literacy webinars, Great Eastern Life Indonesia aims to increase financial literacy among the public. With better knowledge of financial concepts, people are expected to be able to choose protection solutions that suit their needs, and thereby, improve their overall standard of living.
OJK Responds to Payment Defaults in the Insurance Industry: Regulatory Steps in Resolving Problems
The insurance industry, which is haunted by cases of default, is still the focus of attention, and the Financial Services Authority (OJK) is also responding to this problem. OJK Deputy Commissioner for Insurance, Guarantee and Pension Fund Supervision, Iwan Pasila, acknowledged that there are still many problems facing the insurance industry. However, Iwan sees that OJK as the regulator has taken many steps to improve this situation.
Iwan explained, “But if I look at the OJK, it has done a lot of things, including taking resolutions for several problematic companies.” Over the past year, Iwan noted that the OJK had taken various actions, including revoking the business licenses of problematic insurance companies.
Revoking a business license is a step that is sometimes undesirable, but Iwan explained that this is a necessary step to maintain the health of the insurance industry. Apart from that, OJK is also trying to help insurance companies that are having difficulty finding solutions. It’s not just the regulator’s job, insurance companies and associations also play a role in this effort.
Even though insurance problems still exist, Iwan warns the public to be more careful in purchasing insurance protection products. He emphasized that comparing investment results alone is not enough when choosing insurance products.
For the record, in the last year, OJK has revoked the business licenses of two life insurance companies, namely PT Asuransi Jiwa Adisarana Wanaartha (Wanaartha Life/PT WAL) and PT Asuransi Jiwa Kresna (Kresna Life). This revocation was carried out because these companies were unable to meet the solvency or risk-based capital (RBC) requirements set by the OJK in accordance with applicable regulations. OJK took this step because these companies were unable to cover the difference between liabilities and assets, either through capital contributions by controlling shareholders or inviting investors.
This article is brought to you by L&G Insurance Broker.
LOOKING FOR INSURANCE PRODUCTS? DON’T WASTE YOUR TIME AND CALL US NOW
24 JAM L&G HOTLINE: 0811-8507-773 (CALL – WHATSAPP – SMS)