The Prospect of Life Insurance Industry in Indonesia

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In the last few years, life insurance compared to other types of insurance depicts a significant growth. Up to September 2007, The Indonesia Life Insurance Association (AAJI) records that the total revenue of gross premiums reached Rp. 32.4 trillion, raised by 71% compare with the same period in 2006. This number could shortly change considering that this figure just only now covers 39 out of 46 of total life insurance company operating in Indonesia. The increase was particularly triggered by selling of unit link product which recently was very phenomenal. Until June 2007, the revenue of unit link premiums touched Rp. 5.75 trillion or almost doubled in a year compared to the same period in 2006. One of the main factors is the commence shifting of the society appetite from traditional insurance product (without cash value) to unit link where in an agreed time the client will gain both cash value and heath protection benefits. This product is loved by clients due to the combination of protection and investment. With the satisfying achievement in 2007, how about its performance in 2008?. In 2008, it is predicted that life insurance will still keep significantly growing. This could happen considering that some supporting factors exist, such as the growing increase of society consciousness about how important the health insurance is. In addition, this exceptional sales phenomenon of unit link was also supported by product innovation and the decline of bank’s interest rate. People start looking for other alternative investments that contribute more interesting return than bank’s time deposits. In macro sector, the economic growth which is set by government could reach up to 6.8%, also counts up the confidence level of the society that the life insurance will be growing more in 2008.

The Growth of Life Insurance Based on total assets, in the last few years life insurance keeps growing consistently with the average growth reached 25% per year. The development of life insurance in period 2000 - 2006 can be seen in Figure 1. Even though total asset of life


Financial observer and practitioner in state-owned enterprises Economic Review ● No. 210 ● December 2007


insurance in 2006 recorded the amount of Rp. 70.99 Trillion, this figure was only accounted for 6% of total Indonesian banking assets.

Figure 1 The growth of Indonesia Life Insurance in 2000-2006 The insurance growth 2000-2006
(Rp million) 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 2000 Total Asset 2001 Capital 2002 2003 2004 2005 2006

Gross Premiums

Gross Premiums growth

Source: analysed from several sources

Setting minimum capital requirement for insurance company by government through Government Regulation (PP) No. 63 year 1999 became a trigger for the significant increase of total equity capital in 2006. PP No. 33 obliged insurance This regulation will be company to have minimum equity of Rp. 100 billion.

implemented in stages; by 31 December 2007 minimum equity capital should be Rp. 25 billion, on 31 December 2008 Rp. 60 billion should be available; and by 31 December 2009 the total equity capital must reach Rp. 100 billion. The regulation implemented by government via Decree of Finance Minister No. 424 year 2003 pertaining to Risk Based Capital (RBC) which is set minimum of 120% of RBC, seemed did not lessen life insurance to keep growing. Up to the end of 2006, there were only 3 out of 46 companies which had RBC below 120%, whereas 19 companies (or 41%) had RBC above 250 %. Based on gross premium income, life insurance grows consistently. This can be seen from the life insurance gross premium that in 2006, it grew up to 23.15% or equal to Rp. 27.2 trillion. The average of the life insurance gross premium from 2000 to 2006 reached 26%. Economic Review ● No. 210 ● December 2007


Sixty-nine percent of gross premium income is...
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