AM Best has revised the outlook for Indonesia's non-life insurance segment to 'Stable' from 'Negative'.
The factors behind the revision include robust growth prospects, the potential for compulsory third-party liability (TPL) insurance for motorists, and regulatory changes that are expected to enhance the sector’s long-term financial stability.
The Best’s Market Segment Report, “Market Segment Outlook: Indonesia Non-Life Insurance”, also notes two moderating factors, including pressure that remains on underwriting conditions in core business segments and elevated pricing risk due to the rapid growth of the electric vehicle market.
Indonesia’s economy grew by 5% in 2023 and is likely to remain robust over the near term, supported by steady domestic demand, rising business investment, and fiscal spending, according to the report. The country’s non-life insurance segment reported robust top-line results in the first quarter of 2024. This followed the growth momentum from 2023 with key drivers being the property, credit, health, and motor lines of business.
AM Best expects demand for commercial insurance to increase over time under the Indonesian government’s “Golden Vision 2045.” This strategy is designed to transform the economy through plans to modernise and develop the country’s existing infrastructure and increase renewable energy production. Additionally, a regulatory proposal requiring motorists to have TPL insurance is expected to further bolster insurance demand, given that motor TPL insurance is currently purchased on a voluntary basis.
“Given the regulatory push to implement the policy in 2025, motor insurance demand is expected to grow significantly over the medium term and help narrow the country’s insurance protection gap,” said Chris Lim, associate director at AM Best. “Nonetheless, successful implementation of the proposal will require effective product design, robust risk management, and adequate pricing strategies to mitigate potential underwriting challenges.”