Page 32 - Digital Edition SIRC Supplement

MARKET REPORT - INDONESIA

Challenges and
opportunities – What this
means for reinsurers?

Swiss Re’s Mr Clarence Wong and Ms Adeline Chua share that Mr Clarence Wong Ms Adeline Chua
Indonesia’s economy is resilient despite rising headwinds and the
non-life sector outlook remains favourable with reinsurance having a
key role to play.

Despite challenging economic headwinds, the workforce that will help to uplift productivity and economic
Indonesian economy still managed to grow by an growth, increasing use of technologies (Indonesia has 71
average of 4.7% in real terms in the first half of 2015, million internet users in 2014) that comes with both challenges
close to the recent trend growth rate of around 5%. A more and opportunities, and rising risk awareness that is essential in
prosaic assessment of economic fundamentals have helped narrowing the insurance protection gap. Government policies
to remove Indonesia from the list of fragile markets that to improve infrastructure and attract foreign investment will
are believed to be most vulnerable to the Federal Reserve’s also help to keep non-life premiums at a high growth trajectory.
“lift-off” in policy rates.
The near-term economic outlook though
remains testing, given low commodity prices
and elevated financial market volatility. The
Indonesia rupiah has lost 16.4% in the first Figure 1: insurance penetration and urbanisation rate in 2014
three quarters of 2015 against the US dollar,
16%

Hong Kong

hinting at fragile investor sentiments over 12%
the near-term outlook of emerging markets.
2014 insurance penetration South Korea

Non-life insurance growth remains 8% Japan
sanguine Singapore

Insurance in Indonesia has nonetheless 4% Thailand Malaysia
continued to expand healthily. According China
to the General Insurance Association of India
Indonesia (AAUI), the non-life insurance LPahoislippPianIkneidsstoannesia
Sri Lanka BaMVnigyelaatnndmaemsahr
industry in Indonesia posted gross premiums 0% Cambodia
of IDR28.1 trillion (US$1.97 billion) in the
first half of 2015, an increase of 10.1% from 10% 25% 40% 55% 70% 85% 100%
the same period of 2014, and faster than 2014 urbanisation rate

Source: United Nation World Urbanization Prospects: The 2014 Revision, Swiss Re Economic Research &
Consulting

the 7.1% seen in 2014. Property insurance, • Urbanisation in particular will have a strong positive
which increased by 18%, was the main growth driver supported
by government efforts to accelerate infrastructure development. impact on the growth of non-life insurance in Indonesia.
Growth of motor insurance premiums on the other hand Empirical evidences from regional markets (see Figure 1)
dipped to 7% due to more sluggish car sales. The number shows a positive correlation between the level of urbanisation
of cars sold dropped 19% y-o-y in the first eight months of and insurance growth. Indonesia is lacking behind many Asian
2015. Property and motor insurance were still the two largest markets in terms of the urbanisation but signs are favourable for
business lines, accounting for close to one-third of total the country to catch up with its peers. Urbanisation, especially
non-life premiums respectively in the first half. Meanwhile, in small and mid-sized cities of outer island regions is expected
gross claims in January to June 2015 amounted to IDR13.5 to continue into the next decade and will be a major driver of
trillion, up 37.3% from the same period of last year. The surge economic growth.
in claims mainly reflects higher aviation losses as a result of The process of urbanisation will bring in more insurance
large pay-outs related to the crash of an AirAsia aircraft in opportunities for the non-life insurance sector, as increases
December 2014. in income and financial assets alongside urbanisation will
As it turns out, the cyclical downturn in global, and in generate new need for risk protection solutions. Premiums
particular the slowing Chinese economy, has only minimal in commercial lines will be supported by infrastructure
impacts on the growth of Indonesia’s non-life insurance construction and industrialisation. Personal lines will benefit
markets, which corresponds more closely with domestic too as more private individuals can afford and seek risk
consumption and investment activities. protection, including motor, household content, personal
liability and travel insurance. There will also be increasing
Outlook continues to be underpinned by strong concentration of risks as a result of urbanisation, which will
fundamentals challenge insurers in their risk management framework and
The outlook of the non-life sector remains favourable. The strategies.
modest slowdown in economic growth has not dented the • Of particular importance is the large property protection
attractive fundamentals of Indonesia. These include a young gap in Indonesia. Based on model simulations, Indonesia faces

30 SIRC Supplement • November 2015 • www.asiainsurancereview.com Back to Contents