AM Best revises Indonesia’s non-life insurance segment to stable

Global credit rating agency AM Best has confirmed that it has revised the outlook to stable from negative for Indonesia’s non-life insurance segment, owing to a number of factors that include solid growth prospects, the potential for compulsory third-party liability (TPL) insurance for motorists, and regulatory changes that are expected to enhance the sector’s long-term financial stability.

In a new report released by the agency, AM Best also highlights two moderating factors: pressure remaining on underwriting conditions in core business segments, and elevated pricing risk due to swift growth of the electric vehicle market.

It’s important to note that Indonesia’s economy grew by 5% in 2023 and is expected to remain robust over the near term, which according to AM Best, will be supported by steady domestic demand, as well as rising business investment and fiscal spending.

Looking back at the first quarter of 2024, Indonesia’s non-life insurance segment reported solid top-line results, which followed the growth momentum it achieved in 2023, with the property, credit, health and motor lines of business being the key drivers.

Further, AM Best noted that it expects demand for commercial insurance to increase over time under the Indonesia government’s “Golden Vision 2045.”

In fact, this strategy has reportedly been designed to help transform the economy through a series of plans to modernise and develop Indonesia’s existing infrastructure and increase renewable energy production.

In addition, a regulatory proposal which will require motorists to have TPL insurance is also expected to further boost insurance demand, given the fact that motor TPL insurance is currently purchased on a voluntary basis.

Chris Lim, associate director, AM Best, commented: “Given the regulatory push to implement the policy in 2025, motor insurance demand is expected grow significantly over the medium term and help narrow the country’s insurance protection gap.

“Nonetheless, successful implementation of the proposal will require effective product design, robust risk management, and adequate pricing strategies to mitigate potential underwriting challenges.”

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