Health insurance in Indonesia is still in its infancy, but changing lifestyles, rising disposable income, mounting health bills and increasing awareness about the benefits of insurance are set to change this. In the future, private insurers should command a growing share of booming health spending – despite the roll-out of universal public healthcare.
A new national health insurance scheme is due to cover the country's entire population by 2019, with insurance premiums on behalf of low income earners fully subsidized by the state (See What Social Security Reform Means for Business in Indonesia). Theoretically, public healthcare poses a threat to private health insurance, as those covered by the national scheme might see no reason to maintain a private insurance policy.
However, this is unlikely to be the case in Indonesia. Since the public system will not offer the extent and quality of treatment or the freedom of choice they desire, an increasing number of patients should be happy to pay for premium healthcare. With personal incomes on the rise and growing awareness about the benefits of insurance, the Indonesian market remains highly attractive for private health insurers.
The healthcare market is seeing rapid growth throughout Southeast Asia, but nowhere in the region has expenditure increased faster than in Indonesia. According to data from the World Health Organization (WHO), expenditure in Indonesia grew from $5.9 billion USD in 2003 to $26.6 billion USD in 2012. At a compound annual growth rate (CAGR) of 16.25%, this far exceeded Indonesia's GDP growth over the same period. The sector is widely expected to continue to outperform. Standard Chartered predicted a CAGR of 17% for the period 2014 through 2018.
Per-capita Total Expenditure on Health (US$ at average exchange rate)
Source: World Health Organization (WHO)
The country's growing and ageing population is driving overall demand for healthcare services, with greater longevity increasing the prevalence of chronic diseases like arthritis and Alzheimer's. In addition, urbanisation tends to go along with exposure to pollution, more pressure at the workplace, a lack of exercise and unhealthy eating habits, which in turn is associated with a range of adverse health conditions, including asthma, diabetes, obesity, cardiovascular diseases and depression.
Fortunately, increasing affluence and rising personal incomes at the same time make health bills more affordable for most Indonesians. As a result, the healthcare market is benefiting from a double growth effect, with more patients demanding more treatment (volume growth) and the services on offer generally fetching higher prices (value growth) (See Overview of Indonesia’s Pharmaceutical Sector). On the reasonable assumption of continued economic progress and political stability, this makes Indonesia a highly attractive market for health service providers – and it has important implications for insurers.
Indonesia's health insurance industry is still at an early stage of development, with low market penetration but significant growth potential. Currently, the vast majority of Indonesians pay for medical treatment out-of-pocket; only a relatively small number of high earners enjoy the benefits of insurance. Out-of-pocket expenditure accounts for about three quarters of total private spending on health in Indonesia, World Health Organization (WHO) data show.
Personal accident and health insurance accounted for merely 5.6% of the country's total insurance industry in terms of gross written premium in 2013, according to JSB Market Research, but recorded annual growth (CAGR) of 16.0% over five years. Employer-provided health plans today account for the majority of private health insurance premiums. As Indonesian companies mature and compete for talent by offering attractive benefit packages, the corporate sector is bound to generate growing demand for health insurance.
The industry's fast expansion and high growth potential have drawn global providers to Indonesia, where they compete with a fairly small number of well-established major local companies. Cooperating with local insurers or banks is the preferred way to enter the market, since it affords foreign firms access to extensive sales networks. The so-called Negative Investment List (NIL) allows foreign capital ownership of up to 80% in insurance companies.
The launch of a nationwide pubic health insurance system is no doubt a game changer in Indonesia's healthcare market, but not necessarily in a way that threatens the scope of private insurance. Law No. 24/2011 on Social Security established the Social Security Agency for Health (Badan Penyelenggara Jaminan Sosial Kesehatan – BPJS Kesehatan). BPJS Kesehatan essentially incorporates what used to be several public insurance schemes for different groups and extends coverage to segments of the population that were previously not covered at all, including foreign residents.
This is done through the National Health Insurance (Jaminan Kesehatan Nasional – JKN). JKN launched on 1st January 2014 for the registration of formal-sector employees at small, medium-sized and large companies. Coverage extends to family members. Micro-sized enterprises are given until 1st January 2016 to sign up their staff. Non-employees and informal sector workers (which is the majority of Indonesians) have another three years to register themselves and thereby achieve universal coverage for the entire population of some 250 million by 1st January 2019. As of August 2014, more than 126 million Indonesians had been issued a membership card for the programme, according to the government.
At first glance, JKN with its mandatory contributions and universal coverage looks like it will pull the rug out from under private health insurers. It may, in fact, do quite the contrary. JKN offers free healthcare, but gives patients little say in where to receive this care. The programme works primarily through a network of government hospitals (though there is also some cooperation with private ones to meet capacity requirements) and with referrals between participating doctors and clinics. The thrust of JKN is to provide wide coverage at affordable cost. Anybody wishing to receive more than run-of-the-mill treatment and a predefined course of medical action will need to pay for that themselves, either out-of-pocket or through private insurers, which generally give patients greater freedom of choice in selecting hospitals, doctors and medication.
Private hospitals are rapidly expanding in Indonesia in a bid to serve the growing premium healthcare market – and bring home the billions of dollars Indonesians spend on treatment abroad every year (See Indonesia’s Healthcare Sector). As state-owned hospitals become crowded with the millions of newly insured, patients who can afford it will be keen to pay a premium for more personalized treatment at modern facilities. Given Indonesia's expanding middle class and rising number of high earners, this is a growing market for private health insurers to tap into. Hence, there is little cause for concern among private insurers. The two forms of coverage operate at opposite ends of Indonesia's healthcare market.
Private insurance companies have also expressed interest in working together with the JKN programme. A Coordination of Benefits (CoB) scheme offers private insurers the chance to capture the middle segment of the market by offering upgraded treatment (such as patented drugs) or add-ons (for example, better rooms) atop the basic healthcare guaranteed by the state. The details of a CoB agreement between private insurers and BPJS Kesehatan have yet to be finalized.
Intensifying competition and the rapid increase in medical costs are among the main challenges private insurers must face in Indonesia. Local companies will be under pressure to increase their capital as they seek to fend off regional competitors in the upcoming ASEAN Economic Community (AEC). Global companies with recognized brands have an advantage in winning the client's trust, a crucial commodity in any insurance business. The enormous growth potential in the country's emerging economy and a young population (almost 29% below the age of 15; only 8% above 60) make Indonesia an important frontier in the global insurance business.
Global Business Guide Indonesia - 2015
Total Assets: 323 trillion IDR (October 2015)
Life Insurance Growth: 26.6% (yoy, Q2 015)
General Insurance Growth: 10% (yoy, Q3 2015)
Number of Life Insurance Companies: 50
Number of General Insurance Companies: 81
Conventional Insurance Penetration : 2.51% (September 2015)
Islamic Insurance Penetration: 0.08% (September 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.