Unit Link Spurs Indonesian Insurance Growth

Although insurance companies have been doing business in the country for many years, they are still struggling to find customers. This is because most members of the public are not insurance-minded.

Yet, amid difficulties resulting from the public’s lack of awareness in the importance of insurance, some insurance companies have been able to record growth thanks to their ability to introduce new products.

The growth is particularly evident in insurance companies that offer unit-link products. Financial magazine Infobank said in its latest edition that the country’s insurance industry showed a mixed picture last year: the general insurance sector declined and the life insurance sector rose. The growth of gross general insurance premiums stood at 3.57 percent last year, lower than 10.83 percent registered in 2005.

The drop, the magazine reported, was caused by several things. One reason was that the country’s economic growth was not strong enough to spur growth in the sector last year. Businesses were generally still struggling due to the impact of the government’s decision to increase fuel prices by up 126 percent the previous year.

Meanwhile, banks were still reluctant to channel loans and investment in various industrial sectors registered a drop. Another factor is that general insurance companies were involved in unsound competition as they lowered their premiums from the normal level. “They should actually prioritize services, not lower their rates,” said Frans Yoppy Wahusilawane, general chairman of the Indonesian General Insurance Association (AAUI).

While the general insurance sector is still struggling with the war of rates with the result of a drop in gross premium income, the life insurance business, on the other hand, is picking up. Gross life insurance premiums grew in 2006 by 23.15 to Rp 27.44 trillion, higher than Rp 22.28 trillion posted in 2005.

The growth was particularly ascribed to the growing popularity of unit-link products offered by life insurance companies, according to the magazine. The life insurance sector continued to grow in the first quarter of the year. Data at the Indonesian Life Insurance Association (AAJI) say that the premium income of the national life insurance sector in the first quarter of 2007 reached Rp 8.65 trillion, up 62 percent from the figure recorded in the same period the previous year. Premiums from unit-linked products amounted to Rp 2.87 trillion or 33.18 percent of the total.

A unit link has double value, namely investment plus protection. This product is flexible because it allows customers the freedom to determine by themselves their investment needs plus the protection they require.

The growth in the unit link market is evident from the data issued by AAJI. In 2004, total unit link sales were recorded at Rp 3.3 trillion. Two years later, the figure rose to Rp 6.07 trillion.

Back in 1998, the year when unit-link products were first introduced to the domestic market, there were only three players; today there are 22 life insurance companies marketing unit-link products.

Sun Life Financial Indonesia is one of the insurance companies reaping profits from lucrative unit-link products. “Due to the strong growth in unit-linked premiums, Sun Life Financial Indonesia has retained its position as one of the top-five in unit-linked total new business premiums among all life insurance companies in Indonesia,” Barry Halpern, president director of Sun Life Financial Indonesia, told The Jakarta Post.

Aside from relying on its unit-link products, known under the name of Brilliance, Sun Life is tapping the Indonesian market with two traditional insurance products, namely education insurance and pension fund insurance.

However, unit link has proven to be the company’s prime product and has therefore jacked up Sun Life’s performance. Compared with the same period last year, in the first quarter of 2007, the total premium income of Sun Life rose 50 percent to Rp 195.36 billion. Its total new premium income in the same period reached Rp 146.73 billion, an increase of 53 percent.

Brilliance, which in the past year has grown by 157 percent, is the largest contributor to premium income. This product booked a premium income worth Rp 59.075 billion in the first quarter of 2006. In the same period of 2007, premium income exceeded Rp 152.77 billion. Brilliance is relatively new as it was only introduced five years ago. Launched in 2002, this product lends prominence to its flexibility. A policyholder can raise the premium to increase his or her investment and can also withdraw his or her investment fund any time he or she wishes.

One thing that makes Brilliance attractive, according to Halpern, is that it is a life insurance product that gives the advantage of investment to a policyholder until he or she is 88 years old. Brilliance offers an attractive investment return, which he claims makes this particular product highly competitive.

While unit-link products have helped the country’s insurance industry grow amid the current sluggish economic growth, observers believe that there is a lot of potential for the industry to grow faster in the future. They believe other insurance products could also grow as well as the unit link. “From an industry perspective, we see that people’s awareness of the importance of insurance has improved compared to five to 10 years ago as there has been an increase in policyholders. However, the number of current policyholders in Indonesia is still small compared to the market’s potential,” Halpern said. (Eddy P. Kasdiono and R. Dijan Subromo)

The Jakarta Post July 15, 2007

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