Challenges for insurtech in Indonesia

After fintech, insurtech seems to be a hot area for startups and investors in Indonesia. The logic is the same as fintech: most Indonesians are not only underbanked, but also underinsured. 

Even if you just target the millennials market – or 24% of the population of 270 million. Even though more than ⅔ of us understand banking and insurance products, only 6% of us have insurance products. 

This is a huge market that current players are unable to tap effectively.

“Insurtech” incorporates a variety of digital tools and platforms, including aggregators and marketplaces, that offer or provide access to insurance products. They might be an answer to reach out to the 94% untapped millennial, who are tech savvy and financially literate. 

Lifepal, FutureReady, FUSE and Qoala are some of the main players which received investor trust to tackle this market. 

However, we think that insurtech development in Indonesia lags behind fintech, and there are a couple of challenges causing this. I am talking from both a target customer and a industry observer points of view. 

The challenges include geography, education, and regulation.

1.   Geography 

Indonesia is the largest archipelago in the world consisting of more than 17,000 islands. Even in some of the main islands such as Java and Sumatra, there are a lot of communities that are far from each other.  

Do note that 77% of the total new premium of life insurance is generated from the agency and bancassurance distribution channels, i.e. offline. And life insurance is the most lucrative (some argue the only lucrative) insurance category. 

Even experience in China shows that it is difficult to move the life insurance sale process completely online. 

For insurtech companies – the challenge traditional insurance issuers find hard to tackle for years will not be that straightforward to resolve either; 

2.   Education

Even though the millennial are tech savvy, persuading them to buy insurance online might be difficult. Understanding the products is one thing, buying it online and making regular payments is another, especially when you do not see the benefits immediately. 

This is another reason that even in more mature countries like Singapore, you need offline agencies and banks as the sales channel. It is just challenging to gain people’s trust, millennial or not. 

Some perceive insurance as an expensive product and complicated, while the rest are concerned about the safety of buying insurance online. Hence, education becomes an essential thing for Insurtech players to reach a wider target.

3.   Regulation

Insurance industry is highly and strictly regulated by the government. As a relatively nascent sector, insurtech regulation is far from proper and complete, even compared to fintech and payment.

Financial Services Authority (OJK) regulates the insurance market and requires tech players with new business models to go through a sand-boxing scheme. While it is useful to work with the regulators to create the regulations first hand, for players it can also be a process that distracts them from developing the business. 

Of course, if it was not challenging, the market would have already been occupied. With the major players trying slightly differentiated models, it is interesting to watch how the landscape will shift in the next few years. 

One thing is for certain, trigger points (maybe to a certain extent COVID-19 is one) are needed to accelerate growth for insurtech – players can’t purely rely on marketing or (gradually) shifting consumer awareness.