Can technology unleash the potential of Indonesia’s insurance market?

Digital solutions can simplify access to insurance products and increase their adoption among Indonesia’s fast-growing middle class.

Cleosent Randing founded his digital insurance startup, PasarPolis, in 2015, when Indonesia’s fintech ecosystem was still in its infancy. Originally an aggregator site, PasarPolis is now a leading player in the local insurtech industry, having served around 35 million customers across its three markets—Indonesia, Vietnam, and Thailand.

PasarPolis is one of a clutch of firms in Indonesia trying to leverage technology to simplify access to insurance, as conventional insurance providers have had little incentive to transition to a digital and more user-friendly insurance experience.

The current state of insurance in Indonesia

Randing identified a sizable opportunity in Indonesia due to its low insurance penetration, which ran at around 2% in 2015. This number is progressing slowly; it reached 2.77% in 2018, according to the General Insurance Association of Indonesia (AAUI), showing there is still vast potential growth in Southeast Asia’s largest economy.

Most Indonesians are already familiar with the concept of collective action or sharing burdens within a community, which can be similar to the execution of insurance. In every suburb in the country, there is a neighborhood association called Rukun Tetangga, or RT, which is the lowest administrative division. The head of each RT usually collects small amounts of money from every family in the neighborhood. These funds are pooled and disbursed to help families when someone falls sick or other disasters strike.

Besides, the country has a mandatory health insurance program, known as BPJS, that covers basic care like orthodontics, infertility treatments, and drug rehabilitation in public healthcare facilities. Around 222.9 million people are now registered as part of the BPJS scheme. But when it comes to formal insurance schemes, many Indonesians, especially those who are unbanked, see them as luxury investments that are geared toward the upper middle class. Overall insurance literacy in the country remains low, at just 15.8%, according to Indonesian financial authority (OJK).

Hendra Tan, president director of OneConnect Indonesia, a financial technology subsidiary of Chinese insurance giant Ping An Group, explained to KrASIA that “Indonesians, in general, are not aware of the needs to insure their life, health, and assets. This lack of awareness is possibly due to the low median income of the population where the majority earn just enough for their daily necessities.”

However, the COVID-19 pandemic has led to a rapid rise in demand for insurance products.

Randing believes that 2020 could be a vital inflection point for insurtech development. “While the pandemic is severely hitting other industries, health-related sectors, including insurance, are seeing surging demand as people are becoming more aware of the importance of insurance,” Tan told KrASIA, adding that customers are most interested in coverage related to health, personal accidents, and property.

Indonesia’s insurance industry is currently dominated by banks, commonly known as bancassurance, and offline agent networks. Prudential is one of the insurance firms with a long history in the country, and it is also the most profitable one, followed by Allianz Life Indonesia. Other major insurers are FWD Life Indonesia, Sequis Life, and Zurich.

Allianz Life Indonesia established an innovation lab in 2018 and has seen an uptick in digital traffic this year. Nevertheless, according to EY’s Global Insurance survey, the traditional insurance industry lags behind in developing innovative and customer-friendly digital experiences. Specifically, they lack information transparency, customer engagement through social media, and the use of analytics for tailor-made solutions.

PasarPolis offers lifestyle microinsurance products that offer coverage for flight cancellations and lost baggage, for instance. Courtesy of PasarPolis.

The potential for tech-driven insurance startups

Randing believes that PasarPolis addresses the three biggest pain points of Indonesians who are thinking about buying insurance coverage—complicated registration, inefficient claims processing, and costly premiums. The startup provides easy access to insurance policies through its platform, so people don’t need to go through agents or fill out long forms to be covered.

PasarPolis also allows customers to make insurance claims within 24 hours after the first notice of loss—that is, the moment when a policyholder informs the insurance company that they have experienced a loss and can invoke coverage. PasarPolis combines underwriting data sourced from provider partners to figure out the right pricing levels and offer more affordable policies than those created by conventional insurance companies.

The strategy seems to work as the startup claimed to see significant growth in the last two years, with the number of policies sold each month increasing more than 80-fold. Then, in early September, PasarPolis notched USD 54 million in a Series B funding round.

PasarPolis is not the only insurtech startup that gained ground this year. In April, Qoala raised USD 13.5 million in Series A funding led by Centauri Fund, the joint venture between South Korea’s KB Financial Group and Telkom Indonesia.

The Indonesian insurance sector holds so much promise that it has even attracted foreign players that are after their own slice of the market. Financial technology provider OneConnect (NYSE:OCFT), a subsidiary of Chinese insurance giant Ping An Group, is using technology to augment the abilities of insurance agents in Indonesia.

OneConnect’s app allows agents to register new customers using facial and voice recognition technology, with the user’s biometric data used to streamline future customer experiences. The app can also facilitate real-time communication between the company and customers online, boosting communication efficiency during the pandemic.

Additionally, Hendra Tan told KrASIA that the current sales model for insurance in the country does not serve Indonesians well. He explained, “In recent years, bancassurance has been growing at an alarming rate and is dominated by a few dominant players in the market. These insurers rely on banks as a sales channel when the bank relationship managers are not incentivized to proactively promote the insurance products to their customers.”

According to Tan, the industry’s reliance on freelance agents to bring clients on board hampers the industry’s growth. To compound the inefficiency, freelance contracts are not structured to induce the best customer service possible.

Tan explained, “The current remuneration model where insurance agents receive 80% to 90% of the fee in their first year with an insurance company further aggravates the problem caused by insurance agents constantly switching the companies they represent and results in them not focusing on a company’s product.”

Insurtech’s role for fintech players

Indonesia’s maturing fintech payment ecosystem is contributing to insurtech’s development. As customers frequently lament the complicated procedures for conventional insurance claims, a digital payment service is a must for insurance providers looking to streamline the process.

As a result, insurtech platforms are collaborating with online payment channels to not only provide a seamless user experience but also leverage the mass adoption of e-wallet apps to grow its potential user base.

For e-wallet operators who often burn money on subsidies and promotions to acquire users, insurance products offer a high margin alternative to other financial transactions. Once digital payment platforms mature, they look to expand their offerings and include more complex financial products like loans and insurance, typically in collaboration with third parties.

In 2019, Gojek and its digital payment arm GoPay were among the first in Indonesia to offer insurance products through Go-Proteksi and GoSure, in partnership with PasarPolis, which also cemented strategic collaborations with Ant Group-backed payment provider Dana earlier this year.

Meanwhile, digital payments unicorn Ovo announced its partnership with global insurance firm Prudential in June 2019, with plans to develop comprehensive digital propositions encompassing wellness and health services. Ovo launched its first insurance offerings in May this year for accidental death and COVID-19 coverage, which can be accessed through the Ovo app.

In an interview with KrASIA earlier this year, Ovo’s CEO Jason Thompson said the firm will explore opportunities in insurance and investment this year. State-owned mobile payment app LinkAja also has various insurance offerings—such as travel coverage, fire coverage, and gadget damage protection—in partnership with various providers, including Jiwasraya, Axa, and Cermati.

“Fintech has made many breakthroughs, changing the way people make transactions. This is critical for insurtech, which relies on fintech partners for risk management, claims, processing, marketing, and so on,” said Randing.