Life Insurance Companies Start Boosting Cheap Products and Mini Premiums

The life insurance industry in trend began to boost the penetration of products with small nominal premiums, to touch the wider segment of society.

Chairman of the Governing Board of the Indonesian Life Insurance Association (AAJI) Budi Tampubolon explained that this phenomenon was reflected in the accumulated performance of 58 life insurance companies throughout the first semester of 2022, where the number of policies and insureds grew rapidly, but premium income fell.

"If previously it might have targeted more people in certain segments, which were few in number but the premiums were large, now it seems wider to target," he said when met in a limited discussion with the media, quoted on Wednesday (7/9/2022).

For information, the number of insureds in the life insurance industry as of June 2022 grew 19.1 percent (year-on-year / yoy) to 73.9 million people. The number of policies is also on an increasing trend, currently to 21.9 million policies or growing 10.8 percent YoY.

However, premium income in the first semester of 2022 experienced a slowdown of 8.9 percent (year-on-year/yoy) to IDR 95.68 trillion from previously being able to break through IDR 105.05 trillion in the first half of 2021.

"This indicates that insurance products marketed in the first semester of 2022 have begun to target the lower middle class who want to have protection, but with a small nominal sum insured," he explained.

Budi emphasized that although the performance of premium income, in general, experienced a correction, there was still good news in terms of the growth of sharia business lines, premiums from group insurance, premiums for health insurance products, and products with regular premium payment types.

In detail, sharia-based product premiums are still on a growing trend from IDR 6.3 trillion as of June 2020, to IDR 9.75 trillion as of June 2021, and continue to IDR 10.87 trillion as of June 2022.

Likewise, special premium income for health insurance products is currently growing 15.9 percent YoY to IDR 8.6 trillion as of June 2022. Previously, health insurance premiums reached IDR 7.1 trillion as of June 2020, then IDR 7.4 trillion as of June 2021.

"This means that there are still very specific needs from the community that the life insurance industry must be able to answer. Because even though Covid-19 is a lot of negatives, there are also positive impacts for us in terms of increasing public awareness related to insurance products," added Budi.

Meanwhile, based on the type of payment, the portion of regular payments in the trend continues to grow from IDR 48.5 trillion as of June 2020, to IDR 49.06 trillion as of June 2021, then IDR 49.7 trillion as of June 2022. On the contrary, the contribution of single premium type products fell 17.9 percent YoY to IDR 45.9 trillion.

"The continued improvement in regular premiums reflects that many people increasingly understand the function and usefulness of long-term protection from life insurance products. From the company's side, the increase in regular premiums is also very positively welcomed to create a sustainable business," explained Budi.

Therefore, in the second semester of 2022, Budi remains optimistic that the commitment of insurance companies to boost products that can be accepted by the wider community will contribute to the improvement of industrial premium income.

Meanwhile, AAJI's Head of Product, Risk Management, and GCG Fauzi Arfan added that from the players' side, pursuing the type of policyholders who routinely pay premiums even though the nominal is small is being boosted, because it is profitable from the business side.

"The premium is small but a lot, it's better than big but only a little bit, both for the company and the industry in general. This effort also has nothing to lose, because it means that the spread of risk will be more evenly distributed," he explained.

It's just that boosting small-value premiums has consequences, where companies have to face challenges in terms of product marketing that must be more practical and digital-based, along with the demands for services that must be faster and more online.