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Life insurers eye ‘double-digit growth’ in 2021 amid recovery
Life insurers saw coverage shrink 7 percent yoy to 63.69 million people in 2020 mainly as companies cut back on employee benefits.
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ndonesia’s life insurance industry expects revenue to rebound this year, after facing a drop last year, as economic recovery enables more companies to pay premiums in 2021.
The Indonesian Life Insurance Association (AAJI) expects to book double-digit growth in revenue in 2021, after it contracted 8.6 percent year-on-year (yoy) to Rp 215.42 trillion (US$15.04 billion) last year.
“On several occasions, the AAJI has stated that 2021 revenue will most likely rebound to the 2019 level, or even higher,” said AAJI actuarial and risk management head Fauzi Arfan in a virtual press conference on Tuesday.
He said the association had been recording improvements in revenue and premium income since the fourth quarter of last year, partly due to the impact of the government’s national economic recovery program that has been extended until this year.
The government has pledged Rp 699.43 trillion for the recovery program that includes distributing vaccines, granting tax breaks and providing direct cash transfers. The Financial Services Authority (OJK) has also relaxed several regulatory requirements for insurers to help them stay afloat.
[RA::Government pledges higher spending boost to focus on health::/paper/2021/02/24/government-pledges-higher-spending-boost-to-focus-on-health.html
Many businesses laid off employees and cut back on employee benefit spending last year to cut costs as the COVID-19 pandemic caused Indonesia’s economy to contract by 2.07 percent, marking its first annual contraction since the 1998 Asian Financial Crisis.
Transportation, retail, manufacture and construction were among the hardest hit sectors, contributing the largest chunks to last year’s GDP crunch, according to data from Statistics Indonesia (BPS).
Due to the spending cut, the number of people covered by life insurance shrank by 7 percent yoy to 63.69 million people last year. The decline was led by group policy holders, which shrank by 8.6 percent yoy to 46 million people.
“We assume companies that used to have group policies decided not to continue as a cost-cutting measure,” said AAJI communication head Nini Sumohandoyo.
“But we believe these companies understand that group policies for employees are extraordinarily important. It is simply this situation that has forced them to reduce their policies for a moment.”
Total premium income, the largest contributor to industry revenue, fell 6.1 percent annually to Rp 187.59 trillion last year, which was more severe than the 2.5 percent annual decline anticipated by the association, according to AAJI chairman Budi Tampubolon.
Read also: Insurance premium income to contract this year: Association
New premium income was down by 8.9 percent yoy to Rp 114.75 trillion and renewed premium income by 1.5 percent yoy to Rp72.84 trillion in 2020.
The downturn in the life insurance industry was in line with the slower growth in the insurance and pension fund sector, which grew by 4.01 percent yoy last year, slower than the 5.67 percent annual growth in 2019, BPS data shows.
AAJI operational and consumer protection head Freddy Thamrin said premium income from all distribution channels was down except from bancassurance.
The AAJI also reported a slight decline of 2.4 percent to Rp 151.10 trillion in claims and benefit payments last year from 2019. The payments for matured claims, partial withdrawal claims and healthcare claims went down, while those for surrendered claims and death claims went up.
“The AAJI is of the view that, while the economy is improving, it is not yet stable compared with 2019, so people still need to withdraw cash,” said Freddy, referring to the rise in surrendered claims payments.
The association also recorded disbursing Rp 661.46 billion worth of claims related to COVID-19 for 9,128 policyholders. This figure accounted for less than 0.5 percent of the total claim and benefit payments.
Insurance analyst Irvan Rahardjo said the life insurance industry was expected to remain under pressure from the pandemic this year and thus the industry was not expected to see a rebound to pre-pandemic levels.
COVID-19 may result in more claims from policyholders and thus, put further pressure on the liquidity of insurers, according to Irvan. He also said with the pandemic-induced downturn still lingering, there was still a possibility of more companies defaulting on policies.
“All in all, the pressure on growth will remain,” Irvan told The Jakarta Post in a phone interview on Tuesday. “The concern is the pressure on liquidity could lead to a dispute between policyholders and insurers.”
