Key statistics:
270 million population with an emerging middle class
Only around 2 million emerging customers have insurance cover
50%+ of the population does not have a bank account
Our latest country report puts forth some of the key challenges and opportunities facing Indonesia - a country striving to break down the barriers for greater financial inclusion across its diverse but largely untapped population.
Shining a spotlight on the progress made in extending Indonesia’s social protection system, and how the country has been addressing the financial burden of responding to and recovering from natural disasters, the report also examines the opportunities presented by a growing middle class; the impact of digitalisation in broadening the reach of financial services provision; and how inclusive insurance can help bring Indonesia closer to achieving financial inclusion.
Indonesia is South-east Asia’s largest economy and the world’s fourth-most populous country. It has made positive strides over the last two decades in terms of economic growth, a reduction in poverty rates, expansion of public services and investments in infrastructure. Continued progress, however, hinges on a number of critical factors including increasing productivity and lowering the burden of climate costs while addressing other key issues such as climate change, an ageing population, rapid urbanisation (which has not kept pace with infrastructure development), inequality, low levels of income and an under-insured population.
Changing demographics
Indonesia has a relatively young population compared with many Western nations although it is ageing as the country's birth rate has slowed and its life expectancy has increased. Half of the population of over 270 million is under 30 but it is estimated that by 2030, the number of people aged 65 and over will have increased by more than 60%. By 2050, the median age is expected to increase to 37.4 (up from 30.2 years in 2017).
Approximately two-thirds of the working population are still informally employed - with a significant proportion of this employment concentrated in the nation's rural areas, particularly in sectors such as agriculture and construction. Low-income levels and skills mean that around a third of the population is near-poor, an issue exacerbated by a lack of awareness, access to or uptake of social protection. Indonesia has made progress in areas such as access to healthcare for low-income people and women – but there are still significant gaps that need to be addressed, including in relation to income and healthcare protection as well as pension-related insurance.
Prudent financial management
Located on the Pacific “Ring of Fire”, Indonesia is an archipelago of tens of thousands of islands spanning 5,100km. It is one of the most disaster-prone countries in the world with tsunamis, volcanic eruptions, flooding and landslides regular occurrences. Indonesia has borne a heavy financial burden in responding to and recovering from natural disasters and in recent years, it has recognised the need to find alternative ways to finance disaster response.
The Ministry of Finance has developed a strategy to prepare proactively for financial management of disasters – including, for example, a USD 500 million World Bank loan in 2021 as well as looking at the potential to scale up index-based (parametric) insurance – so that these weather-related events do not pose as much of a risk to budgets allocated for other priority sectors such as health, education and poverty alleviation.
Indonesia is also a priority country for the tripartite agreement between the German government, the Insurance Development Forum (IDF) and The United Nations Development Programme’s Insurance and Risk Finance Facility, as well as for the IDF’s Inclusive Insurance Working Group.
Financial inclusion opportunities
In recent years, Indonesia has made significant progress towards expanding financial inclusion. Although more than 50% of the population is still unbanked, there has been increasing engagement with e-money transactions (albeit from a low base) and digitalised insurance is also seeing signs of growth. In addition, there have been a number of high-profile public awareness and financial literacy campaigns across multiple provinces and changes in regulation have also helped to push financial inclusion higher up the agenda.
In Indonesia today, insurance penetration (insurance premiums as a percentage of GDP) is low at just under 2% and it is estimated that just under two million emerging customers have some kind of insurance cover – with life insurance dominating.
Microinsurance is a key component of Indonesia’s National Financial Inclusion Strategy with the aim being to provide low-cost insurance products to an extremely large market segment that has until now gone largely underserved. However, a number of factors have prevented microinsurance from taking off in Indonesia to date including a lack of awareness; financial education; a lack of cost-effective distribution channels and limited demand which are amplified by a largely rural population which makes access and reach difficult; and a lack of accessible, affordable insurance products.
The size of the potential microinsurance market opportunity in Indonesia is huge and although some inroads have been made, much more can be done to achieve financial inclusion – including drawing on the expertise and experience of public private partnerships from around the world.
We hope that you enjoy reading this report and as always, please do give us your feedback. Stay tuned for our monthly country reports throughout the year.
Our country reports provide a detailed overview of specific target countries - and their inclusive insurance markets included in our yearly Landscape of Microinsurance Study. All country reports are available to members of the MiN free of charge.
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