Global Business Guide Indonesia

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Finance | An Overview of Indonesia’s Health Insurance Sector

As the wealth and purchasing power of Indonesia’s middle class continues to grow, the demand for health insurance from both individuals and corporations grows with it. While insurance companies have traditionally focused more on life insurance, the need for healthcare coverage for the middle income segment has been highlighted as lifestyles have been subject to unprecedented change. In the past, private health insurance was viewed as a luxury enjoyed by the top tier income earners, yet greater awareness of health and the rise of non communicable diseases in urban centres is seeing a change in this attitude. Moreover, reform of the state healthcare system under Law 40/2004 concerning the National Social Security System has been slow to make progress, making private coverage a necessity. Health insurance is therefore a promising but challenging area of Indonesia’s burgeoning insurance sector to be tapped into.

Indonesia's Private Health Insurance Sector
Further competition in the health insurance sector is expected in the lead up to the implementation of universal healthcare coverage.

As GDP growth continues unabated at 6.4% for 2011, the need for universal health care coverage for Indonesia’s 240 million citizens has risen on the national agenda. The first reforming steps towards this goal were the setting up of Jamkesmas in 2008 which replaced Askeskin, to cover state employees, the poor and the most vulnerable members of society. In 2010 this program covered a total of 76.4 million people (Ministry of Health). Jamsostek was established in 1977 to provide social security for private sector employees and had 8.4 million members in 2010. In both cases, funding for the schemes and lack of state hospital facilities limited their implementation and effectiveness. Health care coverage for the country as a whole remains low with an estimated 130 million people lacking any kind of coverage at all. The main challenge being that most Indonesians work in the informal sector or are self employed and therefore not eligible for the tax financed scheme.

In the private sector, health insurance penetration is estimated at 4% or 7.5 million people mainly concentrated in urban areas, based on information from the country’s leading insurers. For the middle income bracket, the ranks of those that can afford private health coverage is increasing. A shift is also taking place among employers in medium and large scale companies who are recognising both the responsibility and the benefits of such coverage. According to research carried out by consulting firm Deloitte, Indonesia is following a trend similar to that of the rest of South East Asia in that the private sector is taking the lead on health coverage as state progress is proving too slow. The upcoming liberalisation of the sector under the ASEAN single market in 2015 is contributing to a greater assertiveness among local insurance players in terms of product innovation and promotion.

Indonesia’s transition from a state funded health care system to one based on insurance and state contributions for the poor has opened up significant opportunities for the private insurance sector. Jamsostek requires employers with more than 10 employees to contribute to age and death benefits through the state system, however higher benefit payments such as health coverage can be taken with private providers. As a result, public health care schemes tend to be declined by companies that contribute more than 60,000 RP a month as they prefer to opt for group health insurance coverage. Group healthcare coverage undertaken by companies makes up the majority of policies with less than 10% of total policies being purchased on a prepaid basis by individuals in 2009 (General Insurance Association of Indonesia).

Competition within the sector is also growing with international insurance companies entering the market as both life insurance and general insurance providers are permitted to provide health care insurance products (See The Prospects for Indonesia’s Insurance Industry). The issue of price in healthcare coverage makes it all the more competitive as corporations who are the main purchasers seek out coverage for their employees at the lowest rates. International companies here have an edge in securing large scale corporate accounts that cover expatriate employees. Leading players in the health insurance sector include Allianz, AXA, AIA, Prudential, ManuLife, AVIVA and BNI Life. Health insurance schemes tend to be sold as add on products as opposed to stand alone products but offer attractive revenues. Further competition in the health insurance sector is expected in the lead up to the implementation of universal healthcare coverage. While foreign insurance providers are expected to maintain their lead in the corporate sector for large scale companies, health care coverage for micro, small and medium enterprises offers an untapped segment for local insurance providers to utilise their local knowledge in marketing and product distribution. This segment of the market offers lower premiums but the sheer volume of businesses that it comprises still makes it a very promising sector for group health insurance products.

The issue of fraud is an issue plaguing Indonesia’s health insurance industry with a 24% fraud rate for health insurance claims. As health insurance has only been introduced to the market relatively recently, Indonesian policy holders have shown a tendency to take advantage of their coverage by unnecessary visits to the doctor. This creates extensive paperwork for insurance companies to deal with and drives up the costs of operating. While the issue of insurance fraud in Indonesia is not restricted to health insurance coverage, it is particularly challenging to overcome as it involves a transformation in social attitudes towards the entitlements of insurance coverage and greater awareness as well as education regarding health.

Indonesia is at an exciting stage in its socio-economic development in the lead up to the implementation of a universal healthcare system by 2014 which will stand as a key milestone in its progression towards becoming a developed country. As the government prepares state health insurance institutions, so must the private sector to promote awareness among employers as well as offering innovative products that provide competitive benefits for employees. This will present opportunities to local insurance players to carve out strategic positions in their captive markets and make inroads into Indonesia’s micro, small and medium enterprises which account for 96% of national employment.

Global Business Guide Indonesia - 2013

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Indonesia Finance Snapshot - Insurance

Total Assets: 853 trillion IDR (2015)
Life Insurance Growth: 17% (Q2 015)
General Insurance Growth: 10% (2015)
Number of Life Insurance Companies: 50
Number of General Insurance Companies: 81 (2015)
Conventional Insurance Penetration : 2.51% (2015)
Islamic Insurance Penetration: 0.08% (2015)
Government Bodies: Bank Indonesia, Ministry of Finance, Financial Services Authority (OJK).
Relevant Law: Presidential Regulation No. 39 of 2014 on the Negative Investment List permits foreign ownership up to 80% in the sector, excluding pensions, and the 2014 Insurance Law introduced increased protection for policyholders.