Dialogue Series V on Financial Services: Navigating Financial Market Volatility
Jakarta, 24 November 2015
Jakarta, November 24th, 2015. The enactment of Law No. 40/2014 on Insurance obviously brings certain implications to the industry. With 18 Chapters and 92 Articles, most of basic principles of insurance have been accommodated. The need to establish strong local reinsurance companies and the urgency to transfer the risk of natural disasters are two of several main issues carried by this Law. Along with change in regulation, change in industrial practice shall follow.
For these reasons, Indonesia Services Dialogue (ISD) held its fifth thematic Dialogue Series in 2015. Moderated by Jusuf Wibisana, Senior Financial Services Partner PwC Indonesia, ISD aims to identify market competition in insurance industry, which is implied by soft-pricing condition and tight profit margin. In the same time, it could not be less important to prompt insurance industry as a mean to protect people and support national development.
“Amongst ASEAN countries, the use of insurance in Indonesia is comparably low. From industrial perspective, certification for specialized workers in insurance is a task that is needed to be done. Innovation in digital technology is also a challenge we need to recognize,” said Felia Salim, ISD Board of Advisors, in her welcoming remarks.
Besides the changing pattern of consumer behavior, the nature of Indonesia’s geography requires insurance, both General and Life Insurances, as the safety net should the natural disasters happen. Otherwise, people might suffer the loss of everything and probably national economy would be at stake. National Board for Disaster Management (BNPB) data indicates that from January to August 2015, there are at least 1,200 natural disasters that damaged 10,000 houses and affected more than 765,000 people across Indonesia.
“Given our location on the ‘ring of fire’, where a major earthquake could wipe out everything, for everybody, rich, middle class, or poor, logic should tell the Indonesian people, that they need to embrace the only safety net available, meaning insurance which, if regulated on the basis of best international practices, and responding to the needs of the vast majority of the population, is a must have, to sustain the country’s economy and its society at large,” mentioned Peter Meyer, American Chamber (AmCham) Indonesia’s Services Committee Chairman, AmCham Governor, and former Country Officer of American International Group (AIG) Indonesia, who is managed to be the Speaker.
As a matter of fact, people’s awareness to buy insurance policy is far from high. Julian Noor, Executive Director of the General Insurance Association of Indonesia, emphasizes that insurance is perceived as secondary, even tertiary need, not primary one.
“Financial Services Authority (Otoritas Jasa Keuangan) data shows, only 18 out of 100 Indonesian people who have sufficient knowledge about insurance, and only 12 out of 100 people who own insurance policy,” added Julian Noor.
Therefore, heading 2016, insurance market is forecasted to continue scoring significant growth. According to Adi Pramana, Chairman of the Sharia Insurance Association of Indonesia, insurance industry in Indonesia is very potential given the circumstances. For Sharia Life Insurance, the growth of asset in 2015 is 14.24% and the growth of investment is 14.68%. In order to accelerate growth in insurance industry, there are times when we need to benchmark from foreign players, who have proven successful in this business.
“Grand design in insurance industry is necessary. We should identify our national needs and put it head to head to our ability. If we need foreign companies to help us, then we must firstly reduce constraints. But, I think we should do it in reciprocal proportion,” said Edhie Purnawan, Vice Dean Faculty of Economic and Business, Universitas Gadjah Mada.
On another hand, there is also reinsurance industry as the supporting partner for the insurance industry. With strong reinsurance company, there comes strong insurance company, and vice versa. The main challenge in this premise is that most of local insurance companies nowadays choose to put their money in foreign reinsurance companies.
“While we are talking about insurance, we should not oversee the importance of reinsurance company. The Government has issued Government Regulation No. 77/2015 to revitalize local reinsurance industry,” explained Prof. Suahasil Nazara, Acting Head of Fiscal Policy Agency (Badan Kebijakan Fiskal), Ministry of Finance Republic of Indonesia.