Regulator pushes for mergers in Indonesia amidst premium stagnation

Insurance penetration in Indonesia has declined to 2.64% in 2023.

The Indonesian insurance industry has struggled in recent years, with stagnant premium growth and declining market penetration. Rising claims driven by weakening asset quality have compounded these challenges, according to Algo Research. 

The insurance industry currently consists of 148 companies, including 58 life insurers, 78 general insurers, and 8 reinsurance companies. 

However, insurance penetration in Indonesia declined from 3.03% in 2019 to 2.64% in 2023. Contributing factors include corruption scandals involving major state-owned insurers Jiwasraya and ASABRI, which caused over $1b in customer losses and eroded trust in insurance products. 

This impact, combined with a subsequent moral hazard issue in 2021, led to further industry struggles as companies pursued riskier customer profiles to boost revenue, resulting in increased claims.

Indonesia also ranked 6th in insurance penetration within ASEAN, with a rate of 1.4% in 2022, compared to Singapore (10.5%), Thailand (5%), and Vietnam (2.5%).

Notable corporate actions are already taking place. IFG Life recently acquired an 80% stake in Mandiri Inhealth, a major player in the group health insurance segment with 1.8 million customers. 

Additionally, several companies are planning Syariah spin-offs, including TUGU and BNI Life, to capitalise on the faster-growing Syariah insurance sector.

Amongst public-listed companies, AHAP, JMAS, and PNLF are seen as potential candidates for mergers or acquisitions. AHAP, majority-owned by Anthoni Salim, has capital below the required threshold and may need to pursue corporate actions. 

JMAS, the only listed Syariah insurer, is seen as a potential target for regional players looking to enter the Indonesian market. PNLF, trading at 0.4x PBV, could also benefit from industry consolidation.

In response, Indonesia's Financial Services Authority (OJK) has introduced new regulations to encourage consolidation and mergers within the industry.

The OJK's regulation (POJK 23/2023) mandates gradual compliance with minimum capital requirements for both conventional and Syariah insurance companies. 

The first deadline is set for 2026, requiring companies to meet specific capital thresholds. According to estimates, 33% of insurance firms in 2023 (excluding Syariah units) had capital below $16m (IDR250b), meaning they are unlikely to meet the 2026 requirements and may need to pursue mergers or acquisitions.

($1.00 = IDR15,384.26)