Post on 19-Jul-2020
Insurance Business DevelopmentOver Regulation Anxiety
28 Oct 2016
22nd Indonesia Insurance RendezvousBali, 26 – 29 October 2016
HighlightIndonesiaInsuranceIndustry
Hot topics inaccounting
Risk andregulations
Contents
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Market Risk
RegulationAccounting
What is going on…..
Challenges inthe Indonesian
InsuranceIndustry
Regulations, laws and accountingstandards
• Government increased effort to prepare aframework for Indonesian insuranceindustry development
• Compliance with stringent tax regulations• Limitation of foreign ownerships• Implementation of insurance standards
(SFAS 62, SFAS 28/36) and insuranceregulations which have vary interpretationsdue to unclear implementation guidance.
Competitive landscape
• Insurance industry in Indonesia shows alarge opportunity for growth in thefuture (low market penetration, largenumbers of people who areunderinsured/uninsured)
• The insurance industry in Indonesia isfragmented considering the largenumber of players
• Limited underwriting capacity ofdomestic insurers (shifting premiums tooverseas)
Trend towards auto insurance andunit-link products
• Auto insurance cover and unit-linkproducts has become more popular andis preferred by consumers in Indonesia.
• Companies not offering auto insurancethrough multi finance/bancassuranceand unit-link products appears to growat a slower pace.
Distribution network and talent
• Traditional ways versus bancassurance.• Distribution channel competition.• Bancassurance becomes more common
and popular in the recent trend.Strategic initiatives is one of the key ingrowing customers base.
• Scarcity of talents for insuranceexpertise
Financial market
• Interest rate – volatile interest rates will create challenges tofinancial performance
• Volatility of exchange rates• Limited availability of investment portfolios
Insurance Penetration and Density in Indonesia
• In general, life insurance segment is affected by the growth of population and life density.Whereas non-life insurance segment is affected by the nominal GDP and non-life density.
• As shown in the graphs below, the primary factors affecting the life and non-life insuranceindustry in Indonesia show an increasing trend in the next five years period.
Projected Growth of Primary Factors in the Indonesian LifeInsurance Industry
Projected Growth of Primary Factors in the IndonesianNon-Life Insurance Industry
-
10
20
30
40
50
60
70
80
90
100
248
250
252
254
256
258
260
262
264
2014 2015F 2016F 2017F 2018F
inU
SD
pe
rc
ap
ita
inm
illi
on
Population Life premium per capita
0
5
10
15
20
25
30
35
-
200
400
600
800
1,000
1,200
1,400
1,600
2014 2015F 2016F 2017F 2018F
inU
SD
pe
rca
pit
a
inU
SD
bil
lio
n
GDP Non-life premium per capita
Source: BMI, EIU Source: BMI, EIU
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Market Risk
RegulationAccounting
What are the risks facing the industry for the next2-3 years?
\ Weighted average response
How well prepared to address top risks?
the Company
the industry
Risk – comparison to global industry views
1 Regulation
2 Market conditions
3 Macro-economy
4 Human talent
5 Distribution channels
6 Investment performance
7 Interest rates
8 Product innovation
9 Change management
10 Natural catastrophes
1 Regulation
2 Macro-economy
3 Interest rates
4 Cyber risk
5 Investment performance
6 Change management
7 Guaranteed products
8 Distribution channels
9 Natural catastrophes
10 Quality of risk management
Indonesia Global
What regulation needs more clarity?
\ Weighted average response
Accounting & TaxPolitical & Legal
Regulations in Indonesian Insurance Industry
There is development of limiting singleshareholders ownership, similar to thebanking industry.
Increasing Minimum CapitalRequirement
Need to strengthen the enforcement,especially bankruptcy law
Need to continuous improvement foragency regulations and relations
Minority interest (local families andassociated business culture)
Differences in GAAP (valuation of assets,goodwill, others) and its impact on thedeal value from a buyer’s perspective
Alignment between regulations andaccounting standards including taxregulations
Related party transactions
Compliance with stringent taxregulations
Tax audits and associated exposures
Extensive tax withholding requirements
Increasing attention to transfer pricingissues
Regulation: Data on-shoring actions
\ Weighted average response
0%
10%
20%
30%
40%
50%
60%
70%
Take concrete steps now andwill finish in year
Already taking some stepsnow and will continue
Not yet but plan to do No
Life P&C/Non-Life
Increasing legal and compliance risk in 2016?
Effective function to assess and mitigaterisk?
Risk management strategy in place?
Risk management focus areas
\ Weighted average response
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Market Risk
RegulationAccounting
Hot topics in InsuranceAccounting matters
• Volatility of interest rate. Interest rate used in theinsurance technical reserves calculation. High interestrate/discount rate will be resulted lower interest rate,vice versa. Significant impact to long-term insurancecontract and/or traditional life products.
• Long-term versus Short-term insurancecontract. Classification of insurance contract willimpact to revenue recognition and technical reserves.Diverse interpretation among insurance industryplayers.
• Availability of investment portfolios. Gapping onthe duration ratio for block of assets to the specificinsurance products.
• Accounting treatment for bancassurance feesand deferred acquisition costs. Some insurers payupfront to banks or distribution channel provider inexchange of exclusive rights for its distribution channel.Variable commission should follow revenuerecognition-stream.
• Discount premium and acquisition costs:Treatment and presentation to the financial statements.
Thank you