Challenges of the Actuarial Profession in Indonesia
IAA SeminarKuala Lumpur
Kim YeohPT Prudential Life Assurance Indonesia10 October 2011
22
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
33
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
44
Indonesia Life Insurance Landscape – Competitive position
Developed markets are generally more fragmented than emerging ones, with more insurance companies relative to population of market
Despite being a developing market, Indonesia is less concentrated than many other developed and emerging markets in Asia, representing healthy competition from customers’ perspective
27 out of 46 life insurance companies have market share of less than 1%, highlighting need for market consolidation
Indonesia Life market is relatively fragmented, representing a healthy competitive landscape and potential for consolidation
Comments
Top 5 insurers
6th to 10th insurers
Rest of market
Emerging market
More Developed Market
Penetration (%)
10 7 3 1 4 <1
Population (mn)
7 5 29 237 1,232 89
No. of insurers
56 18 16 46 22 10
Population / insurer (mn)
0.1 0.3 1.8 5.2 56.0 8.9
Indonesia Life Insurance Landscape – Recent Trend
Robust economic outlook with low insurance penetration make Indonesia a very attractive life insurance market
Life Market APE* Observation
Strong GDP growth over the 5-year period (5%+) mainly driven by commodity exports and domestic demand
Economy showed high resilience to recover quickly after 2009 economic crisis, posting 6.1% growth in 2010
Steadily growing insurance penetration, but well below other large emerging markets (China: 3%, India: 4%)
One of the best performing stock markets from developing countries leading to high investor confidence
Top 5 players dominate market share in a highly fragmented market
ILP continues to drive industry growth as all JV players have entered the segment
1. As a % of GDP; 2. As a % of population with life insurance coverage; 3. Based on nominal GDP; 4. Local corporate bond rate (S&P rating A and above)Source: BMI , Indonesia Bond Pricing Agency, Indonesia Stock Exchange, AAJI Report Q2 2011* Weighted new premiums is used as proxy for APE, as per available reported data from AAJI, the Life Insurance Association of Indonesia
0.0
4.0
8.0
12.0
16.0
20.0
24.0
2006A 2007A 2008A 2009A 2010A
Life m
ark
et
AP
E,
LC
b
Rest
Top 5
Mkt growth
Penetration(GDP)1
Penetration(Popul.)2
GDP growth3
10-year bond rate4
Inflation
Stock mkt ind
19%
0.8%
N/A
5.5%
9.8%
6.6%
1,806
40%
1.1%
N/A
6.3%
10.0%
6.6%
2,746
10%
1.0%
N/A
6.0%
11.9%
11.1%
1,355
8%
1.1%
N/A
4.6%
10.9%
2.8%
2,534
53%
1.2%
N/A
6.1%
7.8%
7.0%
3,704
Life Market APE Observation
GDP growth expected to remain strong at about 6% for 2011-2014
Strong potential for industry grow with insurance penetration expected to remain fairly low at 1.2%
Stock market expected to continue steady growth from growing foreign inflows and high investor confidence
Top 5 players expected to further consolidate dominance of market share
ILP expected to continue driving industry growth
Increasing interest from Chinese and Japanese insurance players (e.g. Mitsui Sumitomo – Sinarmas JV)
Indonesia Life Insurance Landscape – Forecast
Robust economic outlook with low insurance penetration make Indonesia a very attractive life insurance market
0.0
4.0
8.0
12.0
16.0
20.0
24.0
28.0
32.0
2011YTD 2011F 2012F 2013F 2014F
Life
mar
ket
AP
E,
LCb
Rest
Top 5
1. As a % of GDP; 2. As a % of population with life insurance coverage; 3. Based on nominal GDP; 4. Local corporate bond rate (S&P rating A and above)Source: BMI , Indonesia Bond Pricing Agency, Indonesia Stock Exchange, AAJI Report Q2 2011, PLA internal projections
Mkt growth
Penetration(GDP)1
Penetration(Popul.)2
GDP growth3
10-year bond rate4
Inflation
Stock mkt ind
21%
N/A
N/A
5.9%
7.6%
5.5%
3,889
12%
1.2%
N/A
5.9%
7%
5.0%
4,260
12%
1.2%
N/A
5.8%
7%
5.0%
4,899
12%
1.2%
N/A
6.2%
7%
5.0%
5,633
12%
1.2%
N/A
6.3%
7%
5.0%
6,478
77
Macroeconomic indicators
Positive and robust economic outlook is favorable for the industry
GDP continues to show resilience with growth forecast at 6%+ for 2011-2013, largely driven by domestic demand (infrastructure, automotive, oil & gas, mining)
4th most populous country in the world (237 million) with increasing urbanization and growing household income levels
Largest Muslim population in the world – significant Syariah opportunity
Low insurance penetration of 1.1% (vs. 3% in Malaysia and 7% in Singapore) represents significant growth opportunity
Peer comparison Comments
Insurance penetrationPopulation (mn)
2011 GDP Growth Forecast 6.2% 5.3% 4.5% 1.5%
2011 Real GDP Forecast, USD bn 777 237 233 5,683
Sources: Swiss Re, BMI, IMF
88
Demographics
Population by Sex and Age Group (current & future) Comments
Low insurance penetration and a growing young segment provide significant opportunities
2008
2028
Customer Demographics:
4th most populous country in the world - 240 million
Young population with an increasing 45 - 65yr age bracket
Approximately 25-30 million people within the AB market segment
Significant Growth Opportunities Moving Forward:
Individual insurance penetration is still very low at 2.9% (6.6 million)
Most Indonesians are in need of financial planning for education, health, retirement, and protection
IL products remain in demand
Tremendous Syariah opportunity leveraging largest Muslim population in the world
Total population: 227 million
Total population:284 million
Source: US Census Bureau
9
Product Trend
ILP continues to dominate customer & distributor demand
Market Product Mix Commentary
Investment linked products continue to dominate demand (2010 growth 48%)
All JV players have now entered ILP market
Growth in low-margin group health and group life products
Regular premium remains preferred mode for large segment of customers
Increasing demand for SP endowment/ILP products from bank partners
Syariah continues to grow by mirroring conventional products
Increasing interest in micro-insurance (credit life) but lacking in distribution infrastructure
2012-14 CAGR
2012-14 CAGR
16.9%
8.7%
12.7%
(5.3%)
1.3%
4.3%
10
Distribution Channel Trend
Market Distribution Mix Commentary
Agency remains leading channel with over 50% share
Recently introduced licensing and professional development requirements support the development of a professional agency force
Significant recent growth in Bancassurance, largely driven by Single Premium sales – 89% of all Bancassurance sales are SP
Steady growth in DM/TM channel as banks maximize revenue potential from customer database
Agency remains leading channel, though Bancassurance has shown rapid recent growth
2012-14 CAGR
4.1%
13.9%
14.3%
1111
Life Insurance Premiums
Strong economic fundamentals have fuelled industry growth
Source : BMI, Swiss Re; AAJI; internal projections
Premiums per capita, USD
21.5 22.0 25.3 35.5 45.0 54.6 70.0
Premiums (IDR trn)
Economic Growth
GDP (IDR trn) Real GDP Growth Rate
GDP per capita, USD
1,916 2,238 2.329 2,963 3,270 3,532 3,822
Industry outlook
1212
Key Industry Insights
Positive outlook for industry with premiums
expected to grow at CAGR 22% for 2008-2013
Fragmented market with 45 life insurance
companies
Market share :
Top 5 companies – 54.1%
Domestic companies – 45.2%
Foreign JV companies – 54.8%
High demand for ILP continues, contributing 51% of
industry APE (Q4 2010)
Agency remains dominant distribution channel
contributing 43% of industry APE, while
Bancassurance channel emerging with 24% of
industry APE
Life Insurance Companies Key Insights
Sources : BMI; Swiss Re; AAJI
Industry Growth %
66% 19% 5% 53%
No. of companies
46 45 46 45
1313
Market Characteristics & Evolution
Indonesia is still at its ‘early growth’ stage but crucial to prepare
for the next phase
Infancy Early Growth Maturing Matured
Product Simple traditional life products
Simple investment linked, traditional life products
Sophisticated investment linked products (e.g. life cycle)
Unbundled investment and protection, variable annuities, equity release
Distribution Proprietary sales force Proprietary sales force, emergence of brokers
Multi-channel distribution, penetration by brokers and IFAs
Alternate channels (e.g. internet), high advice ingredient, increased compliance
Compensation High up front commission
High up front, with some renewal
Reduction of up front, more emphasis on renewal
Fee for service, renewal, AUM fees
Source of Profit Scale of sales force and underwriting drives profits
Competitive pressure erodes underwriting profits
Investment performance and brand drives profits
Ownership of customer relationship drives profits
CountriesChina India
Indonesia
Malaysia Singapore
Hong Kong
US UK
Australia
Germany
Source : McKinsey
Japan
1414
Industry SWOT – Strengths & Weaknesses
Strengths
Indonesia’s large population, growing
economy and insurance sector growing
strongly of small base
Industry is relatively fragmented, and
while majority of market is held by well-
established firms, none has a dominant
position
Economic conditions are, and are likely
to remain, favorable
Weaknesses
Very small market with low product
density per capita of USD 32
Unemployment, terrorist threats and lack
of institutional transparency remain
concerns for businesses considering
operations in Indonesia
1515
Industry SWOT – Opportunities & Threats
Opportunities
Several local players are owned by
shareholders who are not naturally in the
business of providing life insurance or long-
term savings solutions
If government is perceived to strengthen the
legal system and reform bankruptcy laws,
there could be significant influx of cross-
border life insurers
Cross-border life insurers are better placed
than local players to weather any future
storms in Indonesia’s underdeveloped capital
markets
Large uninsured or under-insured population
Potential for growth in Takaful and Micro-
insurance segments
Threats
Foreign investment inflows have been
volatile, and country depends on foreign
capital markets to fund industrial and
infrastructure developments
Volatile politics, challenging macroeconomics
and structural problems mean Indonesia is
usually rated as one of the more difficult
countries in the region in which to do
business
Terrorism threat needs to be taken into
account when underwriting risks
1616
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
1717
Personal Experience
Experience in Indonesia:
Since Jan 2009
Worked for 2 large multinational life insurance companies
Led teams of actuarial students and qualified actuaries
Participated in industry events
1818
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
1919
Insights
A dynamic, growing market
Developing regulatory environment
Intensifying competition
New entrants and more to come
Actuaries– A scarce resource– A small-ish pool of talent– Mainly technical in focus
2020
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
2121
Challenges
Actuaries– Recruiting and retaining– Training and developing– Professionalism
Product innovation
Regulatory uncertainty