Insurtech Landscape in Indonesia: Opportunities and Challenges

Insurtech Landscape in Indonesia: Opportunities and Challenges‍

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Having the largest population of around 273.5 million, Indonesia is a country that has great potential for insurance business actors, especially insurtech players. Even so, the insurance industry in Indonesia cannot be said to be in neither good nor bad condition.‍First, let's look at the overall figure regarding the market penetration, density, and market value of insurance in Indonesia. In terms of insurance penetration. Despite experiencing an increase in the first half of 2021, from 2.9% in 2020 to 3.11%, Indonesia has continued to stagnate since 2017, only at 2 to 3% annually.‍

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Yes, indeed, when compared to ASEAN countries which are at 1 to 3%, the penetration rate is not bad. However, if you look at Indonesia's GDP, which dominates other ASEAN countries, the 3% figure is still relatively low. Plus, when compared to other G20 countries such as Japan, South Korea, and Australia, whose insurance penetration rates are 5 to 11%.‍For the record, insurance penetration itself is the ratio of the number of funds in the insurance industry to the gross domestic product or GDP. Although the insurance penetration rate in Indonesia is not so good, it turns out that the density of insurance or the number of premiums people buy in a year in Indonesia continues to increase.‍Since 2010, the density of insurance in Indonesia is only around Rp500,000 per person. Now the insurance density figure in Indonesia reaches IDR 1.67 million per person in 2019, IDR 1.74 million per person in 2020, and in the second half of 2021, it reaches IDR 1.78 million per person.‍

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On the other hand, according to Faber Consulting report, Indonesia has the third life insurance market value after Singapore and Thailand with a premium value of IDR 213 trillion in 2019.  As for the market value of general insurance, Indonesia is also in the third position after Singapore and Thailand, which is IDR 92 trillion in 2019.‍Seeing the value of the insurance market and increasing insurance penetration opportunities, Indonesia is the sexiest place for insurance industry players, especially insurtech.‍‍

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Digital Adaptation during a Pandemic is an Opportunity for Insurtech‍Unlike other financial services that triumphed during the pandemic, it turned out that the insurance industry has experienced a decline. Life insurance, for example, experienced a decrease in total annual premiums of up to 6.1%.‍In fact, according to reports, there has been a decrease in the number of insurance companies from 2019 to 2020, which is as many as 12 companies. One of the reasons why the insurance industry in Indonesia experienced a decline was due to the decline in people's purchasing power during the pandemic, which affected the purchasing power of insurance premiums.‍

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However, these contractions did not last long. In the 3rd quarter of 2020, life insurance performance experienced positive growth of up to 2.5% and rose significantly in the 4th quarter to almost 100%, from Rp50.56 trillion to Rp91.86 trillion.  The reason for this increasing trend is none other than the increasing awareness of the public about the need for emergency funds when sick. People are starting to realize that the difficult conditions of the pandemic can have a huge impact on their finances. Especially in terms of mental health and safety.‍

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The second reason is that the Indonesian people are starting to adapt to digital services. For example, the proliferation of embedded finance trends, such as retail investment applications to online loan applications, has begun to be widely used by people when they start working from home.‍

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Well, besides that, Indonesia is the third-largest country in Asia that has internet users, around 212 million people. Almost 90% of Indonesians use the internet.  So it's not surprising that Indonesia is the country that adapts the fastest to the shift from conventional culture to digital.‍

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The Main Challenges of Insurtech Players in Indonesia

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Even though it is supported by the digital ecosystem of the Indonesian people, it does not mean that insurtech actors run without challenges. From the beginning, the challenge for insurance actors in Indonesia is that they are often considered parasites, make calls at the wrong time, considered extortion, dangerous, and other negative stigmas.

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This indicates that financial literacy, or as OJK states, that insurance literacy in Indonesia is still relatively low. When compared to financial literacy in 2019 as a whole which reached 38%, insurance literacy in Indonesia is still very minimal at 15.8% in the same year.‍Another challenge is how insurtech actors can reach the untapped potential of insurance. For example, micro-insurance users or micro and small business actors. On the other hand, the main problem that is often faced by insurance business actors, especially insurtech players, is related to underwriting or risk analysis of potential customers.

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So, how to answer this challenge?‍‍

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1. Responding to the Challenges of the Insurance Ecosystem

Just like other fintech companies, insurtechs must innovate, especially on how their products can be conveyed properly to consumers. One of which is by reaching insurance consumers with their insurance market education.  One of which is based on how the investment climate in retail in Indonesia is starting to provide accessible information and education about the stock market itself. The same can be done in the insurance market.‍

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In the initial step or even on an ongoing basis, insurance market education is important. For example, providing educational content related to insurance, risks, and benefits through digital platforms like social media platforms including Instagram, TikTok, YouTube, or online forums like Telegram or Clubhouse.‍

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Many insurtech actors have hired Key Opinion Leaders to increase their brand as an insurer to consumers.‍‍

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2. Build Consumer Trust

The second is to build trust in consumers. Insurance actors are often considered to be parasites, which is quite disturbing. Skepticism of the practice of scamming, fraud, or default is also inherent in insurance actors.  According to the Director of Insurance Supervision of the OJK, Supriyono, insurance actors are required to implement good corporate governance to build trust in the community. The question is whether these insurtech actors can manage their companies well. This includes data security or financial governance security.

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3. Collaborate

Third, collaborate with stakeholders and other companies that can reach lower-level consumers, in this case, the users of microinsurance.  Several insurtech actors in Indonesia are currently established because of innovation and collaboration. One of them is PasarPolis, which collaborates with the online transportation platform GOJEK, and provides insurance services to GOJEK drivers.

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It doesn't stop there, PasarPolis also collaborates with e-commerce marketplaces to provide insurance services when shipping goods. In addition, there is Qoala, an insurtech that collaborates with OYO Hotels and PT Simas Insurtech to provide insurance protection to customers who book rooms at lodging provided by OYO.

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There is also Wowpremi in collaboration with payment gateway companies that are connected to 21 banks to simplify the premium payment process.

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4. Building the Consumer Experience through Embedded Insurance

The fourth is to build experience with embedded insurance, starting from filing claims, processing premium payments, and the availability of insurance product information, to security. Embedded insurance itself is the convenience of the integration of insurance services for consumers. This is also done to provide consumer lifetime value and consumer retention efforts.

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For example, what is done by Futuready. The insurtech company provides an easy claim process within 48 hours or Wowpremi which guarantees convenience in paying premiums. In addition, there is 9Lives which has a selfie insurance feature that specifically protects the face in the event of an accident.

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Optimizing Underwriting Process with AI

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The challenges for insurtech actors do not only come from outside, but also from within. One of them is when carrying out the underwriting process or risk identification.  An insufficient underwriting process usually creates risks that will harm the company such as claim frauds or fraudulent claims from the customer. In some cases, these fraudulent customers even do it in an organized manner.An example is a case in the United States, where every year there are 20 claims from insured homeowners and 10% of them are fraudulent claims. One way to overcome fraud in the claim process is to apply AI or Artificial Intelligence technology.

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With AI, insurtech companies can identify risks that are owned by customers. For example, the process of identifying and estimating the cost of accident damage, medical history data, or the most basic things, such as the process of verifying data and inputting information from prospective customers. One that has done so in Indonesia is Qoala. In practice, Qoala uses Artificial Intelligence to identify and verify the data of its prospective customers. So, if the customer is at risk, the company has the right to refuse the customer's request.

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In Indonesia, one of the technology enablers for insurtech players is Brick, which is an open API service provider. To improve the insurance technology ecosystem, Brick can assist fintech players, especially in helping the risk identification process using artificial intelligence.  Now, the main question remains, to what extent is your company ready to adapt and maximize the potential of the promising insurance industry climate in Indonesia?