Life insurance starts to fulfil market potential

Introduction: Indonesia has long been viewed as a country with enormous potential for life insurance, but the market has traditionally been characterized by too many, often under-capitalised, companies in the market, a situation which has resulted in price-driven products not based on technical considerations. Additionally, many companies suffer from high expense ratios due to expensive branch operations, overstaffing and lack of critical business mass. But, things are changing. After years of inaction, the insurance regulatory authorities are now taking a tough line with companies experiencing difficulty in meeting risk-based capital requirements. In the last two years, the Insurance Supervisory Department of the Capital Markets and Financial Institutions Supervisory Agency (CMFISA) has revoked the licences of 17 insurance companies, nine of which were life insurance companies.

As at the end of August 2007 there were 149 life, non-life insurance and reinsurance companies with a licence to transact business in Indonesia. Of these 48 were life companies (including the state company), 92 non-life insurers, four reinsurers, two administering the social insurance programmes, and three administering the civil servant and armed forces programmes. This compares with 2006 when there were 157 licensed insurers, 51 life (including the state company), 97 non-life, four reinsurers, two administering the social insurance programmes, and three administering the civil servant and armed forces programmes.