The digital opportunity in Indonesia is significant. Half of the country’s population, roughly 130 million people, are under 30 — more than the total population of any other country in Southeast Asia. And during the next five to 10 years many of these people will enter the middle class and become insurance customers for the first time.
Winning those customers is within reach for insurers that are willing to seize the opportunity, but doing so requires making some fundamental changes. Adopting a digital approach will be key, as the principal customer interaction shifts from face-to-face or phone to online and, in particular, mobile devices.
More than 70% of web traffic in Indonesia is served to smartphones, tablets and other handheld gadgets, according to the latest We Are Social report. Facebook alone claims 130 million active users in the country, with 92% accessing via mobile — more than in any other country. The vast majority of these users are under 30.
Clearly the opportunity here is huge. Yet while social networks have amassed millions of young users in just a few years, the insurance industry continues to suffer from low penetration. As a share of its total economy, nonlife insurance premiums in Indonesia are just 2%, which is lower than in many of its neighbours and underscores the significant potential for growth available to insurers that can unlock it.
Insurance companies in the developed markets of Europe and the US look at the size of the potential in Indonesia with envy.
“Where else can you find such an opportunity?” asks Jasmine Miow, head of Southeast Asia at Peak Re. “Insurance companies in Indonesia are sitting on a goldmine, so they shouldn’t be overly risk averse in going after these younger customers.”
Doing so requires an understanding of how expectations have changed among the younger generation. Some sectors are already showing the way. More than 25% of the population now use mobile banking, while 40% have purchased products or services online. And these numbers are growing each year.
Disruptive companies such as ride-hailing service Go-Jek and online retailer Lazada have demonstrated how digital strategies can be an effective way to win over these customers and displace established businesses. While insurers are protected to some extent from disruptive threats due to higher regulatory barriers to entry, complacency is not an option.
Partnership
Needless to say, taking advantage of Indonesia’s digital opportunity is not without its challenges. The cost of developing digital distribution channels or innovative digital products can be high and the knowhow to implement such an approach does not exist within most traditional insurance companies. Already faced with tough competition and a growing regulatory burden, few insurers want to spend extra effort convincing sceptical shareholders to embrace an expensive new business model.
Such concerns are reasonable. But one way for insurance companies to surmount them is to tackle digitisation in partnership with established technology firms. Merging the digital expertise of an established tech player with the knowledge that insurers have about their customers is the most efficient approach to harnessing this opportunity.
The good news for insurers is that innovation does not have to mean re-inventing the wheel. Winning over the younger generation is about simplifying the product and the message, and communicating effectively through the appropriate channels. This is easier said than done, of course, but it is also not rocket science. The key is to make the effort to reach out to and engage with these younger customers.
“The younger generation is already quite advanced, but insurance companies tend to be slow to react,” says Miow. “Given the pace of change in today’s economy, they need to be more modern and forward-looking instead of just doing the same thing. If they take the time to understand these new customers they will be rewarded.”
Increasing penetration is not only about distributing through digital channels, but also about lowering the unit cost. International consumer goods companies, for example, have successfully marketed products such as shampoo in developing Asian economies through a simple yet every effective strategy: smaller packages. The product they sell in London or Los Angeles is the same as the one they sell in Surabaya or Aceh, but offering it in sachets substantially lowers the unit cost and therefore increases the product’s ability to penetrate households in low-income areas.
Insurers could benefit from a similar approach, and while this does not necessarily require a digital channel, it is well suited to such an approach. For example, several companies in other markets are exploring on-demand protection as a way to target younger customers — or sachet marketing for insurance.
Big data
Investing in a digital channel can also have additional benefits beyond appealing to a younger, connected generation.
“An online strategy gives insurers ownership of their customer data and allows them to do much more sophisticated analysis,” says Miow. “When policies are sold through brokers or agents, they don’t necessarily have direct access to this information, while selling through banks can be very costly.”
There are of course costs involved with investing in digital, but the data that can be gathered through this channel feeds into a better understanding of both the customer and the product. The extraordinary valuations for social networks such as Facebook, for example, are based largely on the value of big data in the digital economy.
At the moment, Indonesia’s young demographic has not been successfully targeted. Most of the foreign joint ventures are focused on writing risks at the other end of the spectrum, while the domestic market remains fragmented and focused on the traditional nonlife portfolio.
For companies that are willing to reach out and grab this opportunity, sophisticated Asia-based reinsurance providers such as Peak Re can help to free up the capital needed to make investments and offer advice on effective strategies.
Jasmine Miow
Principal Officer
Peak Re Labuan branch
Peak Re
General enquiry:
Tel: +852 3509 6666