Indonesia Motor Insurance Market - Growth, Trends, Covid-19 Impact, and Forecasts (2023 - 2028)

Indonesia Motor Insurance Market - Growth, Trends, Covid-19 Impact, and Forecasts (2023 - 2028)

The impact of COVID-19 on motor insurance is mixed. Bank Indonesia dropped its interest rates to record lows of 3.50% in reaction to the pandemic's economic impact, and it is projected to stay at this level for the foreseeable future. Interest rate risk is a concern for insurers due to investment leverage, product guarantees, and policyholder options. Insurers with a longer tenure of obligations than assets and a strong exposure to negative convex bonds, whose prices do not rise as much as other bonds when interest rates fall, are the most vulnerable to these changes. The Indonesian General Insurance Association or AAUI projects that the performance of motor vehicle insurance will slow this year, despite positive achievements in the first quarter. The coronavirus pandemic will have a considerable impact on motor vehicle insurance performance this year, including other general insurance business lines. The declines in people's purchasing power due to Covid-19 would also hit the performance of motor vehicle insurance. This condition is also feared to reduce public spending on insurance protection.

This property business line recorded the largest market share in the general insurance industry. Underneath it is the Motor business line, credit insurance, personal accident insurance, and marine cargo. However, there has been a downward trend in motorized vehicles at the beginning of the year. The Association of Indonesian Automotive Industries (GAIKINDO) recorded sales of two-wheeled vehicles in the 2nd quarter of 2022 of 2.24 million units, down 8.3 percent (yoy) from the second quarter of 2021 of 2.45 million units. Whereas there is a growth in four-wheeled vehicles which reached 20.0 percent (yoy). In the second quarter of 2022 the number of cars sold reached 4,65,252 units, which increased from the second quarter of 2021 as many as 3,87,844 units.

Overall insurance penetration in the country of 264 million people ranks among the lowest in the world at less than 2% (4.5 million Indonesians carry a policy). Half of Indonesia’s population is under the age of 30, with the number of millennials (aged 17-35) in Indonesia currently at 79.5 million.

As such, regulators are encouraging the use of digital channels in insurance and have publicly voiced that “no regulation is needed to regulate insurance marketing through digital means.”

To date, a number of tech startups operating in the realm of insurance have focused on financial comparison by providing online destinations to buy insurance products from licensed brokers. However, financial comparison startups such as Experian-backed C88 Technologies have largely focused on simpler financial and banking products.

The Indonesian insurance market is expected to be driven by government initiatives, technological advancements and increased vehicel sales.

As of 2020, there are 322 fintech companies in Indonesia, starting from deposits and lending, to payment and capital raising. The top two fastest-growing fintech areas in Indonesia are peer-to-peer (P2P) lending and e-payment. Based on Bank of Indonesia statistics, the value of e-money transactions grew sixfold between 2012 and 2017 to IDR12.3 trillion (USD 840 million).

InsurTech businesses have grown in number in Indonesia over the past few years, particularly in response to mass mobility restrictions at the start of the Covid-10 pandemic in early 2020. InsurTechs raised the majority of their money between 2020 and 2022. InsurTechs make it simple to access insurance goods, typically micro-sized non-life products, but they encounter difficulties entering the market because they lack a licence like traditional insurance companies do. However, the future growth of InsurTechs will mould the routes of distribution in the Indonesian insurance sector.

Companies across the world have huge investments in this segment of the market. In Indonesia Motor Insurance market, companies fragmented over minor shares. The market is likely to grow during the forecast period due to the rise in sales of motor vehicles and many other factors that are driving the market.

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