1. Bianto Surodjo
Head of Liabilities, Wealth
Management and e-Channel
Bank Permata
I n s u r -
ance coupled
with invest-
ment has be-
come a choice
product for
Indonesian
c o n s u m e r s
because it can
be a comple-
mentary [one]
in providing diversification in invest-
ment and simultaneously giving pro-
tection for life insurance, accidents
and critical diseases in one integrated
package. It’s one single product with
multiple benefits.
The current favorite insurance
product is unit link, which provides
life insurance coverage as well as its
related benefits as an integrated in-
vestment in one single product. Ad-
ditionally, this unit link product also
provides various types of financial
aid for the future, such as education
for offspring, retirement, expan-
sion of business, capital for business
which is also covered with hospi-
talization reimbursement. Health
insurance is also highly popular. I
invest in insurance myself because it
provides protection against various
risks for me and my family.
Yulian Warman
Head of Public Relations Division,
PT Astra International Tbk (ASII)
Insurance including various in-
vestment benefits is now offered by
many insurance companies to Indo-
nesian consumers both via direct or
indirect mar-
keting. Gener-
ally the cur-
rent insurance
products offer
double ben-
efits, mean-
ing insurance
coverage or
p ro t e c t i o n
that includes
investment benefits. Indeed this is
thepluspointthatattractsmanycon-
sumers. The amount of the invest-
ment is informed through discus-
sions and available reports.
As a holder of insurance policy
that covers the education needs of
my children I have really enjoyed the
benefits of such an insurance prod-
uct. Apart from investment, I feel
secure as the education of my chil-
dren is fully assured. Insurance also
gives other benefits, such as policies
or protection, for heirs if we pass
away at a certain age. However, if the
insurance holder is still alive on the
policy’s due date, he or she receives a
certain amount of money in compli-
ance with the initial agreement.
Endang Ruhiyat
Director, PT Asuransi Bangun
Askrida
Presently,
Indonesian
c o n s u m e r s
are becoming
more aware
of the need
for insurance
coverage, es-
pecially dur-
ing today’s
uncertainties.
There are many insurance products
to choose from, such as retirement
or old age insurance, education,
health or hospitalization, property
protection as well as those including
investment benefits like unit link,
with information widely available in
the mass media. I have enjoyed vari-
ous benefits from insurance, such as
health and vehicle accident protec-
tion, as well as the education cost of
my children. The process for claims
is quite simple and easy.
AsfarasIknow,unitlinkisalifein-
surance product that includes invest-
mentsattachedtothestockexchange.
Theuniquefeatureofunitlinkiswhat
is underlying, like the high returns,
whileatthesametimehighriskwhen
the stock price falls. So the “high re-
turn high risk” concept is really up to
us whether we are this type of inves-
tor. Basically, today the advantage or
benefits of many current insurance
products come from the integrated
insurance products that provide both
coverage, protection as well as poten-
tial investment.
Henry Koenaifi
Director, BCA
The traditional benefit concept
of insurance is protection. However,
along with the economic develop-
ment, the public’s understanding of
insurance has gradually changed.
Starting in the early 1990s, unit
link was introduced, which is cur-
rently one of the fast-selling insur-
ance products for many life insur-
ance companies here in Indonesia.
Unit link provides protection as
well as investment benefits to the
policyholder. In my opinion, gener-
ally the investment is categorized
as relatively conservative. I have
invested in insurance myself and
have enjoyed the benefits. I receive
both protection and profits from the
investment. Well, honestly, I was
aware of the possible loss in such
investment. For customers the unit
link with a single premium has more
advantages compared with unit link
with a regular premium.
Benny Waworuntu
Executive director, Life Insurance
Association of Indonesia (AAJI)
The reason
why Indone-
sian consum-
ers today tend
to invest more
in insurance
is because
most of them
have started
to realize that
insurance is
the “base” of investment, meaning
that indirectly they will be “forced”
to diligently save for such invest-
ments. Additionally, they also real-
ize another plus point is the vari-
ous protection offered, such as for
illness or death without losing the
value of investments. All this is very
attractive to middle and upper seg-
ments.
In actual fact the current
growth of unit link is still low
due to the decreased single pre-
mium, which is lower than the
traditional insurance products.
Well, this is a matter of choice
for each customer. I myself have
not chosen an insurance product
that includes investment because
my insurance protection is “pure”
without any investment; I wish
to separate protection from in-
vestments. I prefer investment in
properties and combined stock or
shares (mutual funds) which is a
better match for my interests.
The Indonesian life insurance seg-
ment has in the last eight years
shown robust growth. This growth
has been mostly fermented by the
growing popularity of unit-linked in-
surance products aligned to healthy
economic growth and favorable de-
mographics. These factors are aug-
mented by a relatively youthful and
productive population.
This said, Indonesia as a nation has
one of the most underdeveloped life
insurance segments among Southeast
Asian economies, with Indonesia’s
penetration gross written premiums
accounting for only 1.3 percent of Indo-
nesia’s GDP in 2012, as compared to 3.90
percent for Malaysia and more than 4.30
percent for Singapore, according to Avatar
Global Consult-AGC from various sources.
This relatively low penetration is pre-
dominantly the result of an inherent public
apathy when it comes to using financial ser-
vices products as a means of risk management
and investment. Life insurance companies pri-
marily sold individual life insurance products; this
trend has seen a strong predilection toward the sale
of unit-linked life insurance products, with unit linked
products generating premium income accounting for 53.6
percent of total life insurance premiums.
The Indonesian life insurance segment is dominated by 10
large life insurance companies. These insurance giants account
for a 78 percent market share in terms of assets and net premi-
um income based on the 2012 period. Importantly, Indonesian
general insurance is less concentrated and only accounts for a
61 percent market share and 54 percent of net premium based
income for the same review period (as cited by AGC from vari-
ous sources).
Agent and bancassur-
ance (insurance prod-
ucts sold by bank staff to
bank customer based on
a distribution agreement
with the insurance part-
ner) was the most popu-
lar distribution channel
in Indonesia. Based on
2012 data from various
sources more than 40
percent of new business
premium was sold by
bancassurance and only 25 percent and 38.3 percent of total pre-
mium by insurance agents.
Robust and sustained GDP growth, with a reported 6.5 percent in
2012 and 6.4 predicted for 2013, means more disposable income and
therefore a leaning toward better quality financial advice and aligned
financial service product.
This trend has led to a largely better understanding of the impor-
tance in investing in insurance vehicles that assist with future edu-
cation funding, wealth accumulation, enhancement and retirement
funding. Unit linked insurance products have led the way as the insur-
ance product of choice within this fiscal facilitation.
Unit-linked products allow for the flexibility of choice in re-
gard to the amount of protection that best suits your personal
needs (regulatory conditions exist) importantly, the policy hold-
er has automatic access to investment funds not ordinarily avail-
able as a retail offering and although the investment returns and
surrender values are not guaranteed, unit linked type products
have become very popular given their inherent access to spe-
cialized investment funds, diversity of investment opportunity
and ultimately access to investment vehicles that were in the
past not available to the ordinary consumer.
Inherent to unit-linked product is the safety of well structured capi-
tal spread into different portfolios based on an individual appetite for
risk and/or reward. This type of tailor made convenience and flexibil-
ity facilitates the management of all your insurance and investments
needs via a single life insurance platform, with the added bonus of
flexible payment and/or premium options.
Importantly, as a unit-linked policyholder you have the addi-
tional peace of mind in choosing personally specific supplemen-
tary protection and/or benefits that better suite your financial
needs. Unit-linked life insurance products also accommodate
affordability in the sense that annual increases in costs of life
cover due to your age may be deducted from the investment por-
tion of your life insurance plan.
In extreme cases of fiscal constraint the whole premium may be
paid from the investment portion (dependent on policy term and in-
vestment made)
The challenge among insurance professionals remains that of sell-
ing an intangible consumer product that promises a contingency pay-
out or investment return over a given period in time, this in return
for a cash contribution by the client/consumer. Aggravating this chal-
lenge in the material fact that life insurance policies are usually sold
aligned to a lengthy term making the return of investment difficult to
grasp by the consumer.
This sales challenge can sometime lead to an inflated guaranteed
proposition of return by the agent largely driven by the commission
paid to them by the insurance company. The resultant gap between
client expectation and reality has the potential of eroding enthusiasm
in the insurance industry and stunting an already lethargic acceptance
of life insurance in general within Indonesia.
Lastly and perhaps most importantly, as a consumer, remain
vigilant, curious and prepared for the rapidly changing finan-
cial services market around you. Ask questions, understand and
evaluate each product on the de-facto policy wording specifi-
cally regarding features, limitations, risk, exclusion and any oth-
er contractual term stated within the actual policy wording or
marketing collateral.
This will not only ensure a smooth transition into the life insurance
world but the peace of mind and fiscal freedom that accompanies an
educated and informed financial decision.
The writers are co-founder & managing partners of Avatar Global
Consult Pty (Ltd).
Avatar Global Ltd is a financial services consulting and advisory
entity, with the implementation intent of creating massive strategic
advantages for clients being part of its fundamental strengths.
Garth Ibbetson Eddy K A Berutu
|| SUPPLEMENT WEDNESDAY August 21, 2013 12
LIFE INSURANCE
Sudibyo M. Wiradji
THE JAKARTA POST/JAKARTA
Achmad Istamar and his wife
sat down one day for a serious dis-
cussion on the future of their three
small children.
They realized their children
would someday need funding for
higher education. But they also
acknowledged the uncertainties
of life or, as private company em-
ployee Achmad says, the fact there
is no “fixed schedule” for death.
“Buttheriskswefaceinlifearenot
only related to death but also other
matters,suchasheartattack,strokeor
accident,” said the 40-year-old.
“We started to think what the fate
of our children would be if some-
thing happens to me as the bread-
winner … we have to anticipate this.
That’s why, while I am still strong
enough to earn money, I decided
to set aside my income for my chil-
dren’s education plans.”
He invests a designated amount of
fundsthroughaninsurancecompany
on a monthly basis, or what is com-
monly known as a unit-linked plan.
“Our funds are protected. If I sud-
denly suffer a heart attack or other
kinds of illness categorized as criti-
cal ones, leaving me unable to work
andpaythemonthlypremiumbefore
my insurance contract term ends,
my funds will continue to increase
because the insurance company will
replace my obligation to pay the
monthly premium,” he said, adding
that their insured children would
have access to funds to finance their
studies in the future.
Achmad has also taken a pension
policy.
“Apart from having conventional
insurance policy, I also invest my
funds in unit-linked products which
are more flexible in terms of the utili-
zation. We can use the funds that we
claim for whatever we want,” he said.
“By investing through an insurance
company, we want to make sure that
we’ll have funds in the future.”
He also likes the assurance of be-
ing protected.
“The operation of insurance
companies is under the supervi-
sion of the Ministry of Finance. So,
if an insurance company violates a
regulation, such as refusing to pay a
claim, the company can be brought
to court,” he said.
Achmad’s concern for the future
guaranteed availability of funds,
whether through education, health
or pension plans, is also shared by
many Indonesians. When it comes
to financial planning, savings are
Insurance firms answer customer
need for long-term protected funds
Insurance plans
as an investment
instrumentnot enough, with the solution to
investing in mutual funds or unit
linked products.
“Unit-linked products al-
low customers to enjoy return
on investment and protection
from the risk of diseases, acci-
dents or death,” said Common-
wealth Life’s division head
Jeffry Lomanto.
Many life insurers are
offering unit-linked
products.to take
advantage of the
growing market
for the prod-
uct.
B u o y e d
by an aver-
age 29 per-
cent growth
of unit-linked
products since
2008, Com-
monwealth Life
revised up the
unit-linked prod-
ucts to 30 percent
in 2013.
“This year, unit
linked product, our
new business, continues
to grow and we target an
increase by 30 percent per
year,” said Jeffry.
Currently, as many as 47 life
insurance companies operate in In-
donesia, with new unit-linked-based
premiums reaching Rp 23.7 trillion in
the second semester of 2012, accord-
ing to the Indonesian Life Insurance
Association (AAJI).
The AAJI predicted that unit link
would still become a major contrib-
utor to the life insurance industry
in 2013 thanks partly to expected
improving performance of the Indo-
nesia Stock Exchange (ISX), the in-
creasing number of players and the
rise in the middle class.
Allianz Life Indonesia, one of the
joint venture life insurance com-
panies operating in Indonesia, dis-
closed that as per June 2013, the
company manages 45 funds in its
portfolio, 13 of which are its unit
linked funds.
“Each fund has its own objective
and strategy, giving our customers
a variety of funds to, choose from
to suit each customers risk profile,”
said chief investment officer Alan
Darmawan.
Of the 45 funds, equity funds are
the preferred fund among custom-
ers. “It has weighed on average
about 50 percent of our unit-linked
portfolio since December 2011,
with growth of 83 percent record-
ed since December 2011 until June
2013,” he said.
Since unit-linked products
were launched in 1998, several
major life insurance companies
report growth in terms of premi-
um, number of people insured and
customers.
PT Asuransi Jiwa Generali Indo-
nesia reported premiums of Rp 826
billion in the first semester of this
year, an increase of 28 percent com-
pared to Rp 644 billion in the corre-
sponding period last year.
Generali’s CEO Edy Tuhirman
said that the premium growth is at-
tributable to several factors, one of
which is the rising contribution of
unit-link based premiums.
Despite the capital market fluctu-
ating, unit-linked products remain a
major attraction for customers.
“Unit-linked products are becom-
ing the trend due to the attractive
financial market,” he was quoted by
Kontan daily as saying at the launch-
ingofProvistaOptimum,anewunit-
linked product, in Jakarta recently.
Unit-liked products contribute
77 percent of the company’s total
premiums, with the remaining 23
percent coming from traditional
products.
He said the auto riskmanagement
system that the company has devel-
oped to protect customers’ funds
when the capital market experienc-
es a sharp drop has also contributed
to the increase in the premium.
Allianz Life recorded 46 percent
growth of a total number of people
insured to 2,952,343 in 2013 from
2,022,546 in 2011. It also reported 13
percent growth of the total number
of customers to 421,119 in 2013 from
373,113 in 2011.
The company’s market manage-
ment head, Karin Zulkarnaen, at-
tributed the growth of the equity
fund to the country’s capital market
growth in the last couple of years,
which saw “our index reaching the
new record high of 5,214 on May 22,”
he said
He said that the biggest challenge
in to selling insurance products is
low insurance awareness as insur-
ance is an “intangible” product and
“long run’ benefit.
“The benefit of insurance can be
received if the risks occurred or a
long time after purchasing. There-
fore, Allianz Indonesia promotes
testimony of the claimants to share
the experience of having insurance,”
he said.
Getting ‘linked’ the new way to insure
How do unit-linked investment products benefit customers?
Policyholders give insight on their value for a more secure future.