Thousands of islands of growth: Indonesia

Indonesia embodies in many ways the true growth market: Stable economics and politics, steady economic expansion and a rising middle class. Allianz recognized this development already in the 1980s and has been growing its presence in the island nation ever since. Joachim Wessling, CEO and country manager of Allianz in Indonesia, tells the story.
 

Allianz has been established for more than 30 years in Indonesia. What makes the country remain attractive for Allianz?
 

The Indonesian market is incredibly attractive for the insurance industry. Considering the low penetration of insurance coverage, stable economic growth, the young demographics of the population, there remains large untapped potentials. Looking at Allianz history in Indonesia, three decades is not a short period of time. We can say that we are growing and developing with the country. We started by opening a representative office back in 1981 then subsequently Allianz Utama was established in 1989. Then we expanded to the life and health insurance business under Allianz Life in 1996. The development is positive, and I think we’ve made much progress here.
 

How does the development of Allianz compare to the development in Indonesia
 

When we first established Allianz Utama in 1989, the population in Indonesia was 176 million, with GDP at 93 billion euro. By 2012, the population had increased by almost 50 percent to 247 million people and GDP had grown seven times to 687 million euros. These are fascinating figures; I think Indonesia, along with other Asian countries, will remain Allianz’s focus for insurance and asset management business in the coming years.

“The Indonesian market is incredibly attractive for the insurance industry. And we can say that we are growing and developing with the country.” - Joachim Wessling, CEO and country manager of Allianz in Indonesia
“The Indonesian market is incredibly attractive for the insurance industry. And we can say that we are growing and developing with the country.” - Joachim Wessling, CEO and country manager of Allianz in Indonesia
Downtown Jakarta on the island of Java: Indonesia’s capital attracts people and commerce from around the world.

Downtown Jakarta on the island of Java: Indonesia’s capital attracts people and commerce from around the world.

So what does the insurance industry in Indonesia look like overall?
 

Indonesia’s insurance sector has numerous opportunities to be realized within both the life and property and casualty insurance segment. The life and health insurance industry is very competitive; the market leaders are mostly joint venture companies with the largest having a market share of 20 percent. The industry itself is growing quite rapidly, 23 percent for the last five years. However, the market penetration is very low with only 2 percent of the population being insured. This is probably because health insurance was not mandatory until it was made so by the government as of the beginning of 2014. However, we remain optimistic of our L&H business, because our product offers wide-range of benefits and quality of service compared to the current universal health insurance product offered by the government. With Indonesia’s currently growing middle class, I think we have a big opportunity there.
 

And what about the property and casualty business?
 

Meanwhile, the property and casualty insurance business is growing a little bit more slowly compared to life insurance; the industry’s annual growth rate is at 9 percent. We are also in tight competition with local players who have traditionally dominated the Indonesian market. Motor insurance premiums still dominate the market, followed by property insurance. Although it is not mandatory, people have motor insurance because it is required for taking out a car loan from banks or financing companies. Despite the inflation, depreciation of the rupiah, and fuel cost increase, customers have high buying power, as indicated by double-digit growth of motor insurance in 2013.
 

Then for Allianz in particular, what is its business portfolio in Indonesia?
 

In 2012, the largest portfolio for Allianz Life is derived from individual life, followed by credit life, health and saving products. Meanwhile in the channel distribution, bancassurance is the biggest contributor followed by agency and others.
 

In property and casualty insurance, the largest portfolio comes from property, followed by motor, liability, marine and engineering. Our broker is the biggest contributor in channel distribution, followed by agency and others.
 

Unit-linked products seem to be really popular in Indonesia. Why is that?
 

In my opinion the main reason is their flexibility. It allows customers to switch their investments between designated funds or even cash in their policies. People in Indonesia would prefer to have an instant benefit from the goods they purchased. This is different from traditional risk life insurance, where you as the policyholder will not receive the benefit during your lifetime, but your beneficiary will afterwards. Unit-linked insurance is also affordable and offers customers both protection and investment returns.
 

What is the main challenge in growing insurance business in Indonesia?
 

The insurance industry faces a low insurance penetration rate due to the lack of awareness in insurance as a whole. Although insurance companies such as Allianz Indonesia record business growth every year, we still have the same main challenge, which is a persistent low penetration in the market. This indicates that the business growth has come from existing customers, thanks to our sales efforts on upselling and cross-selling. Unfortunately, customer acquisition growth is still very low.
 

And how do you plan to overcome this low level of awareness?
 

We need to empower the public by making insurance simple and easy. It is our job to ensure that our products are easily understood, with easy access. Our points of sale are available in almost every big city in Indonesia, which provides easy access for people to reach us. To deliver an excellent customer service, we make sure that our business process is fast, accurate and simple. Allianz Indonesia is also active in educating the public on insurance awareness through various public communication channels.
 

What are the key factors for doing business here in Indonesia for Allianz?
 

The business of insurance is about selling a promise, based on trust. Trust is the foundation of reputation and a critical area in which the business differentiates itself from the competition. We have learned from pasts mistakes, and we have taken the necessary steps to strengthen our internal processes. A good corporate governance is the key competitive advantage in an industry trading an intangible goods such as “trust”. Our customers, business partners and the public should feel rest assured that they are dealing with a good and trustworthy company.

As with all content published on this site, these statements are subject to our Forward Looking Statement disclaimer:

 

Claudia Mohr-Calliet
Singapore
Phone +65 6297 2724
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Patience Chan
Hong Kong
Phone +852 2238 8574
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