Indonesia property insurance to rise in tandem with demand for nat cat products
Indonesia property insurance to rise in tandem with demand for nat cat products | Insurance Business Asia
Property
Indonesia property insurance to rise in tandem with demand for nat cat products
The latest research from GlobalData forecasts a CAGR of 8.7% to more than $2 billion in 2027
Property
By
Kenneth Araullo
Indonesia’s property insurance sector is poised for substantial growth, with a projected compound annual growth rate (CAGR) of 8.7% from IDR26.6 trillion (US$1.7 billion) in 2023 to IDR37.1 trillion (US$2.4 billion) in 2027 in terms of gross written premiums (GWP).
These trends are all attributable to heightened demand for natural catastrophic (nat cat) insurance, favourable government policies, and a push towards cleaner energy sources. According to GlobalData’s insurance database, the property insurance market is set to expand by 7% in 2023 and 7.8% in 2024.
Indonesia’s insurance sector at large is set for prime growth rates. Another GlobalData insight had the country’s market at a CAGR of 6.4% in the next few years, attributable mostly to regulations relating to increased merger and acquisition (M&A) activities.
In 2022, Indonesia experienced a total of 3,531 nat cat events, marking a 4% increase compared to 2017. This included 28 earthquakes, 1,524 floods, and 1,062 other extreme weather events. These events resulted in a property insurer loss of IDR2.2 trillion (US$151.1 million) in 2022, as reported by the National Disaster Management Agency (NDMA).
To mitigate the impact of climate change, Indonesia introduced parametric insurance for takaful insurers in October 2022. This insurance aims to protect farmers from extreme weather events. This move is expected to further boost property insurance growth, given that agriculture contributes 12.3% to the country’s GDP in 2022, according to Statistics Indonesia.
“Indonesia’s susceptibility to Nat-Cat events like floods and earthquakes will drive the growth of property insurance policies, which offer coverage for extreme weather occurrences, particularly in 2023,” said Sutirtha Dutta, insurance analyst at GlobalData.
Besides natural disasters, inflation drove up reinsurance rates in Indonesia. In 2022, domestic reinsurers saw property reinsurance rates increase between 5% and 40%, further supporting property insurance growth in 2023, Dutta said.
More capacity for nat cat events
Indonesia Re, the country’s leading reinsurer, expanded its acceptance capacity from US$175 million to US$615 million by incorporating catastrophic protection of up to US$440 million. Climate change’s adverse effects on the frequency of catastrophic events, coupled with heightened demand from ceding companies, led to increased premium rates for reinsurers. This in turn led to higher pricing and stricter proportional reinsurance terms.
“Favourable government policies to boost post-pandemic housing sector recovery, alongside initiatives for renewable energy development, will also drive property insurance growth,” Dutta said.
Relaxation of the loan-to-value (LTV) ratio for property loans to a maximum of 100% resulted in a 7.5% surge in housing loan demand during H1 2023, as per PT Bank Tabungan Negara Tbk (Bank BTN).
Furthermore, a memorandum of understanding (MoU) between state-owned power generation company PT Perusahaan Listrik Negara and Germany’s development bank KfW is set to elevate the country’s renewable energy-based electricity generation capacity to 27,571 MW. This anticipated rise in infrastructure investments will further bolster property insurance growth.
“An increased frequency of nat cat events, inflation, higher reinsurance premium rates, combined with government efforts towards cleaner energy sources, will drive the expansion of Indonesia’s property insurance industry, paving the way for increased penetration over the next five years,” Dutta said.
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