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