Download Challenges of the Actuarial Profession in Indonesia

Challenges of the Actuarial Profession in
Indonesia
IAA Seminar
Kuala Lumpur
Kim Yeoh
PT Prudential Life Assurance Indonesia
10 October 2011
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
2
2
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
3
3
Indonesia Life Insurance Landscape – Competitive position
Indonesia Life market is relatively fragmented, representing a healthy competitive
landscape and potential for consolidation
Rest of market
6th
Comments
10th
to
insurers
Top 5
insurers
More
Developed
Market
Penetration
(%)
Population
(mn)
No. of
insurers
Population /
insurer (mn)
Emerging
market
10
7
3
1
4
<1
7
5
29
237
1,232
89
56
18
16
46
22
10
0.1
0.3
1.8
5.2
56.0
8.9

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
4
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
Life market APE, LCb
24.0
20.0
16.0
Rest
12.0
Top 5
8.0
 Steadily growing insurance penetration, but well
below other large emerging markets (China: 3%,
India: 4%)
4.0
0.0
2006A
19%
2007A
40%
2008A
10%
2009A
8%
0.8%
1.1%
1.0%
1.1%
1.2%
N/A
N/A
N/A
N/A
N/A
GDP growth3
5.5%
6.3%
6.0%
4.6%
6.1%
10-year bond rate4
9.8%
10.0%
11.9%
10.9%
7.8%
Inflation
6.6%
6.6%
11.1%
2.8%
7.0%
Stock mkt ind
1,806
2,746
1,355
2,534
3,704
Mkt growth
Penetration(GDP)1
Penetration(Popul.)2
 Economy showed high resilience to recover quickly
after 2009 economic crisis, posting 6.1% growth in
2010
2010A
53%
 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
Indonesia Life Insurance Landscape – Forecast
Robust economic outlook with low insurance penetration make Indonesia a very
attractive life insurance market
Life Market APE
Observation
 GDP growth expected to remain strong at about
6% for 2011-2014
32.0
Life market APE, LCb
28.0
24.0
20.0
Rest
16.0
 Strong potential for industry grow with insurance
penetration expected to remain fairly low at 1.2%
Top 5
12.0
 Stock market expected to continue steady growth
from growing foreign inflows and high investor
confidence
8.0
4.0
0.0
2011YTD
2011F
2012F
2013F
21%
12%
12%
12%
12%
Penetration(GDP)1
N/A
1.2%
1.2%
1.2%
1.2%
Penetration(Popul.)2
N/A
N/A
N/A
N/A
N/A
GDP growth3
5.9%
5.9%
5.8%
6.2%
6.3%
10-year bond rate4
7.6%
7%
7%
7%
7%
Inflation
5.5%
5.0%
5.0%
5.0%
5.0%
Stock mkt ind
3,889
4,260
4,899
5,633
6,478
Mkt growth
2014F
 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)
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
Macroeconomic indicators
Positive and robust economic outlook is favorable for the industry
Peer comparison
Population (mn)
Comments
Insurance penetration
 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
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
7
Demographics
Low insurance penetration and a growing young segment provide significant
opportunities
Population by Sex and Age Group (current & future)
Comments
Customer Demographics:
2008
Total population: 227 million
 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:
2028
Total population:284 million
 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
Source: US Census Bureau
8
Product Trend
ILP continues to dominate customer & distributor demand
Market Product Mix
Commentary
2012-14
CAGR
16.9%
(5.3%)
1.3%
4.3%
 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
2012-14
CAGR
 Increasing demand for SP endowment/ILP products
from bank partners
8.7%
 Syariah continues to grow by mirroring conventional
products
12.7%
 Increasing interest in micro-insurance (credit life) but
lacking in distribution infrastructure
9
Distribution Channel Trend
Agency remains leading channel, though Bancassurance has shown rapid recent
growth
Market Distribution Mix
Commentary
 Agency remains leading channel with over 50% share
2012-14
CAGR
 Recently introduced licensing and professional
development requirements support the development
of a professional agency force
4.1%
13.9%
 Significant recent growth in Bancassurance, largely
driven by Single Premium sales – 89% of all
Bancassurance sales are SP
14.3%
 Steady growth in DM/TM channel as banks maximize
revenue potential from customer database
10
Industry outlook
Strong economic fundamentals have fuelled industry growth
Life Insurance Premiums
Economic Growth
GDP (IDR trn)
Premiums (IDR trn)
Premiums per
capita, USD
21.5
22.0
25.3
35.5
45.0
54.6
70.0
GDP per
capita, USD
Real GDP Growth Rate
1,916
2,238
2.329
2,963
3,270
3,532
3,822
Source : BMI, Swiss Re; AAJI; internal projections
11
Key Industry Insights
Life Insurance Companies
Key Insights
 Positive outlook for industry with premiums
expected to grow at CAGR 22% for 2008-2013
No. of companies
46
45
46
45
 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)
Industry
Growth %
66%
19%
5%
53%
 Agency remains dominant distribution channel
contributing 43% of industry APE, while
Bancassurance channel emerging with 24% of
industry APE
Sources : BMI; Swiss Re; AAJI
12
Market Characteristics & Evolution
Indonesia is still at its ‘early growth’ stage but crucial to prepare
for the next phase
Infancy
Product
Distribution
Compensation
Source of Profit
Countries
Early Growth
Maturing
Matured
Simple traditional life
products
Simple investment
linked, traditional life
products
Sophisticated
Unbundled investment
investment linked
and protection, variable
products (e.g. life cycle) annuities, equity release
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
High up front
commission
High up front, with
some renewal
Reduction of up front,
more emphasis on
renewal
Fee for service,
renewal, AUM fees
Investment
performance and brand
drives profits
Ownership of customer
relationship drives
profits
Scale of sales force and Competitive pressure
underwriting drives
erodes underwriting
profits
profits
China
India
Malaysia
Indonesia
Singapore
Germany
Hong Kong
US
Australia
UK
Japan
Source : McKinsey
13
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 wellestablished 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
14
Industry SWOT – Opportunities & Threats
Opportunities
Threats

Several local players are owned by
shareholders who are not naturally in the
business of providing life insurance or longterm savings solutions

Foreign investment inflows have been
volatile, and country depends on foreign
capital markets to fund industrial and
infrastructure developments

If government is perceived to strengthen the
legal system and reform bankruptcy laws,
there could be significant influx of crossborder life insurers


Cross-border life insurers are better placed
than local players to weather any future
storms in Indonesia’s underdeveloped capital
markets
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

Large uninsured or under-insured population

Potential for growth in Takaful and Microinsurance segments
15
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
16
16
Personal Experience
Experience in Indonesia:
17

Since Jan 2009

Worked for 2 large multinational life insurance companies

Led teams of actuarial students and qualified actuaries

Participated in industry events
17
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
18
18
Insights
19

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
19
Agenda
1. Life Insurance in Indonesia
2. Personal Experience
3. Insights
4. Challenges
20
20
Challenges
21

Actuaries
– Recruiting and retaining
– Training and developing
– Professionalism

Product innovation

Regulatory uncertainty
21