Indonesia’s life insurance business seeks foreign investment to bridge capital requirements, says GlobalData

The recent move by Indonesia to relax foreign investment cap will help infuse capital and address the ongoing challenges the domestic life insurance companies are facing, says GlobalData, a leading data and analytics company.

According to GlobalData, the Indonesian life insurance industry, in terms of gross written premiums (GWP), grew from IDR101.5 trillion (US$8.6bn) in 2014 to an estimated IDR180.2 trillion (US$12.7bn) in 2019, and is among the fastest growing markets globally.

Madhuri Pingali, Insurance Analyst at GlobalData, comments: “Favorable demographics and rising middle class population are driving the life insurance industry growth in the country. The industry is expected to grow at a compound annual growth rate (CAGR) of 7% to reach IDR253 trillion (US$17.1bn) in 2024.”

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However, of late the domestic life insurance industry is facing some challenges. Consumer confidence is low in the wake of recent crisis in state-owned insurers. The country’s fifth largest insurer Asuransi Jiwasraya, which has 5.9% market share, is on the brink of collapse due to alleged fraud and mismanagement and is awaiting government bailout.

Other state-owned insurers such as Asuransi Sosial Angkatan Bersenjata Republik Indonesia are also in similar position.

While the government funding would help defuse short-term crisis, an easier capital access will be helpful for the long-term growth of the industry.

In line with this, the government relaxed foreign investment restrictions in January 2020. As a result, foreign investors, who were earlier allowed up to 80% stake, are now exempted from such a limit. This will enable overseas investors to inject funds in their Indonesian ventures. The regulations mandate that the foreign insurers must raise capital through a primary issue.

Pingali concludes: “The relaxation of investment restrictions was a long standing demand of incumbent insurers. The domestic life insurance industry is dominated by foreign joint ventures, which have 57% market share. Access to additional capital will bolster their efforts to expand business and strengthen consumer confidence.”

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