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.”