This week, representatives from Swiss insurer Zurich Financial Services Group told media that they were planning to expand their operations in Indonesia considerably over the next year, taking advantage of the country’s steady economic growth, rising household incomes and demand for protection products.
Martin Senn, Zurich Group’s Chief Executive Officer, told reporters at a press briefing in Jakarta on Tuesday that his firm expects to triple its market share and become one of the top six insurance companies in Indonesia within the next five years, with premium income from the group’s general insurance products to exceed Rp 2 trillion (US$234 million). Zurich is currently ranked 20 on the list of Indonesia’s top 50 insurance companies with a 1.2 percent market share. In 2010 the insurer reported general insurance premium income from Indonesia was Rp 407 billion (US$46.4 million) and that figure is expected to grow by a further 5 percent to Rp 450 billion (US$48.4 million) by the end of the year. If Zurich can effectively leverage its international insurance expertise and strong capital position further it should be able to join the upper echelon of insurance providers in Indonesia before long.
“We are very confident that this is achievable. With a population of almost 250 million, a growing middle class and a low penetration rate, naturally there’s a huge opportunity to benefit from these conditions,” Senn remarked.
Indonesia weathered the international financial crisis better than most and the development of the country’s insurance sector continues largely unabated. Between 2006 and 2010, the country life insurance premiums grew by 16.7 percent annually, now valued at US$7.2 billion, while non life premium growth rose 5.3 percent over the same period of time with a current market valuation of US$3.5 billion. The Indonesian government has anticipated the country’s gross domestic product will rise by 6.5 percent this year, up from a 6.1 percent growth rate in 2010, driven by strong commodity exports that have boosted per capita income in the country considerably. According to the World Bank, 56 percent of Indonesia’s population, around 131 million people, earned a monthly average of Rp 2.5 million (US$293) in 2010, entrenching the country’s status as a valuable middle-income country.
Mr. Senn affirmed that Indonesia’s fast-growing and sustainable market made it one of Zurich’s top priorities for investment. “Indonesia is a truly important economy as it has a growing middle class, rich natural resources and strong economic growth, so, we’re looking to expand here,” he commented. To achieve their performance targets, Senn said that Zurich would focus on both individual and small and medium-sized business lines in Indonesia to generate premium income. The company also plans to use its recent acquisition of an 80 percent stake in local life insurance firm Mayapada Life to develop its presence in the Southeast Asian country.
While Indonesia’s insurance market does present attractive opportunities, there are several challenges currently facing the companies looking to do business in the country. The first issue is infrastructure. The unusual geography of Indonesia and its many islands makes it necessary for insurers like Zurich to employ a large agency force to promote, sell and manage insurance products. These high operation costs are however slowly being solved by increased use of centralized promotion efforts like call centers and through effective tie-ins with existing banking networks to provide bancassurance products. The more difficult challenge for insurers in Indonesia has remained low general public awareness, with insurance still largely considered a luxury good by a majority of the country’s population. Only around 2 percent of Indonesians have insurance, compared to at least 8 to 12 percent of the population in more developed markets. The government has been taking to steps to educate people and certainly the aftermath of the 2004 tsunami, which made several million uninsured Indonesians dependent on aid, has also been a factor in addressing this issue in improving the general public’s perception of insurance. In the end however, Zurich and other insurers recognize that the greatest trigger for a rise in insurance penetration will be a continued growth in income, with people ultimately more likely to purchase protection and investment products if they have sufficient disposable cash with which to do so.
Zurich’s expansion in Indonesia is part of their larger overall strategy to create a more diverse international portfolio. By 2013, the Swiss insurance conglomerate wants its performance in emerging markets to account for 40 percent of all business operating profit, up from the 26 percent currently, as the ongoing financial crisis in the United States and the Eurozone continues to slow down growth in mature insurance markets. “Development in the US and Europe are challenged by economic crises and tightening regulations. For years to come we’re expecting that growth [in the United States and Europe] would be below potential… and companies might want to go to the East,” Mr. Senn concluded.
Asia is not only a target for premium growth and development work in times of hardship in the West, the region could also be the source of innovative new products for the international insurance industry. German reinsurance giant Munich Re has recently signed a cooperation agreement with China’s Ping An Property & Casualty Insurance, to jointly develop and provide insurance solutions for the mainland’s renewable energy industry.
China has become the leading manufacturer of renewable energy technology, accounting for almost half of the world’s production in 2010, and its market share is continuing to soar. Last year, the country invested US$ 50 billion in research and development for green energy projects, with plans to provide 500 gigawatts to China’s power grid through renewable energy by 2020. The insurance policies that are now being developed by Ping An and Munich Re will bolster the renewable energy sector, providing critical financial protection, limiting investor risk, and enabling manufacturers to properly engage their important large-scale technology projects. If these complex risk solutions are successful it could prove to be an important development in funding alternative energy projects all around the world.
Many multinational insurers are shifting their focus away from western hemisphere countries to the growth markets in Asia in order to capitalize on the increasing affluence in the region. China and India are leading the charge in economic expansion, with both Asian powerhouses reporting bumper growth in demand for insurance products; countries such as Malaysia, Vietnam and Indonesia are also developing quickly in concert with their regional powerhouse neighbors.