Low-income sector fast-growing market for insurance firms in RI

Life insurance companies are trying to grab a new market with their microinsurance products, teaming up with microfinance institutions, such as credit unions and cooperatives, providing financial protection to millions of low-income people who previously considered insurance to be only for the wealthy.

Every day is a rough day for Siti Aisyah. The single mother of three squeaks by on the Rp 50,000 (US$5.21) per day she earns from her food stall in Duren Sawit, East Jakarta.

She said she often wondered what would happen to her children if she passed away. “I was worried I could not save enough for their future with my meager daily earnings,” she said.

About five years ago, she joined a local credit union to get small loans to finance her business and to save some money. But, Siti said, what were more important were the life insurance benefits, which the credit union offered.

Now that she is a member, her family is entitled to get Rp 25 million if she passes away. They will also get additional funds generated from her savings.

Siti is not the only participant of such a program, which is aimed at low-income people. There are others who have joined similar programs, held in cooperation between microfinance institutions and life insurance companies.

The latest data from Bank Indonesia said that low-income people, with an annual income of less than Rp 20.4 million, reached 22.1 percent of the population or 50.8 million people. Middle-income people, with an annual income between Rp 20.4 million to 65.6 million, accounted for 60.9 percent of the population or more than 140 million people.

According to the Indonesian Chamber of Commerce and Industry (Kadin) deputy chairman of the insurance and pension funds committee Herris Simandjuntak, Indonesia’s huge low-income population has become a potential market for the life insurance industry, offering microinsurance products with low premiums.

“However, the market has not been fully developed as the industry still faces several difficulties in socializing the program. A lot of people think that insurance products are only for the wealthy,” he said.

The Association of Indonesian Life Insurance Companies (AAJI) chairman Hendrisman Rahim also voiced similar concerns. He said the existing number of microinsurance programs was still insignificant compared to that of the low-income population. However, he said the agency had not developed a solid microinsurance database.

“One of the problems is related to distance as most of these people live in remote villages. So far, only a few insurance companies with access to those villages could implement the programs. It is not easy to set up new distribution channels,” Hendrisman said.

To cope with the problem, he added, the companies usually established partnerships with cooperatives and credit unions. Members of these cooperatives and credit unions are potential customers for the life insurance companies.

Bererod Gratia Credit Union, of which Siti is a member, cooperates with life insurance company PT Asuransi Jiwasraya in providing insurance coverage for its members.

As of September 2012, Bererod Gratia had 500 members, most of which work in the micro and informal sector, with an average monthly income of Rp 1 million to Rp 2.5 million.

“We have members who run a beauty salon, sell vegetables, operate a welding business and many other microbusinesses,” Bererod Gratia financial consultant Jeffrey Sairatu said.

Jiwasraya itself claims to have 500,000 microinsurance customers, mostly in Java and Kalimantan, through its partnerships with 200 microfinance institutions.

Jiwasraya claims director Indra Situmeang said that the segment contributed to about 6 percent of the company’s total revenue. During its first six months of 2012, Jiwasraya booked Rp 2.4 trillion in premiums, 38 percent higher from the same period last year.

“The contribution is still small, but it grows every year. That is the most important thing,” Indra said.

Meanwhile, Allianz Life Indonesia reported that in the first half of this year, its number of insured customers in the microinsurance segment reached 860,000 people, a 56 percent growth from the same period last year. Gross premium income from this segment rose 63 percent to Rp 29.2 billion from its partnership with 66 microfinance institutions.

Allianz Life Indonesia vice president director Handojo Kusuma said the company targeted to reach
Rp 65.7 billion in gross premiums and to insure up to 1 million people by year end.

Separately, the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) insurance head Isa Rachmatarwata said there were still differences in terms and definitions of microinsurance among the industry players.

“Some life insurance companies claim to have developed microinsurance products with premiums as low as Rp 10,000. But we found out that the benefits were actually way lower than the acquisition cost. That cannot be considered a microinsurance product,” he said, adding that his agency would develop separate regulations on microinsurance soon.

He welcomed the already existing partnerships between companies and microfinance institutions. “In the future, we may see these companies cooperate with other non-formal organizations,” he said.

Source : thejakartapost.com