AIG Indonesia’s president and CEO, Jon-Paul Jones, recently spoke to AmCham Indonesia about the challenges facing the non-life insurance industry in the country, and what the industry can offer. He also shared the company’s sharpened focus on growing Commercial insurance for the coming year.
View source version on AmCham Indonesia's website: http://www.amcham.or.id/fe/5448-newsmaker-interview-jon-paul-jones
With a 46-year presence in Indonesia, AIG, one of the world’s largest insurance companies, recently announced its decision to withdraw from the consumer insurance market in Indonesia and focus on the commercial insurance side of the business. President Director Jon-Paul Jones explained the decision to AmCham Indonesia and why he believes it’s the right strategy to strengthen the company’s position in Indonesia, leveraging its global reputation as an insurer with extensive expertise, innovation and capacity.
The key takeaway: AIG is here to stay and looks to grow its business with a sharpened focus on its comprehensive range of commercial insurance solutions.
AmCham Indonesia: Tell us about AIG Indonesia.
Jon-Paul Jones: AIG has been present in Indonesia for 46 years. The years tell of our commitment to the Indonesian market. We are very proud to help our customers with increased certainty over their business risks with a comprehensive range of products and services. Our AIG Indonesia business is 80 per cent focused on our commercial and multinational customer needs, with the remaining focused on consumer insurance. Our strength is local expertise, but also the network that we have with AIG being such a large global organization. So the response and extensiveness that we get from that network allows us to operate effectively across many countries and provide the benefits to Indonesia – including the regional and global expertise and consultation support available.
In Indonesia, we focus upon providing large scale and complex cover for our domestic and multinational commercial customers. Our distribution channels are extremely extensive and robust here; we have distribution networks that include insurance brokers, professional insurance agents, and also reinsurance companies. We also partner with a number of Indonesian insurance companies to provide our financial strength and product expertise.
Of course the other thing that we offer here in Indonesia is the expertise that we have as Team AIG. Since 2014, we’ve been running an initiative known as the AIG Academy. This is one important part of our contribution towards financial literacy and helping to develop the insurance market here. The academy has at least four programs each year which are attended by a large number of insurance brokers, sometimes other insurance companies, and often members of the media. Through these academy seminars, we provide our risk and product knowledge, and claims advice, to improve awareness of how insurance can help reduce fear of the future. Earlier this year, the academy conducted a knowledge sharing session about the advantages that can be offered by cyber insurance. Taking feedback from attendees about topics of interest, we recently conducted detailed briefings on the risks associated with tunneling construction, which were very relevant to recent infrastructure investments in Indonesia such as the MRT construction.
Does AIG’s recent decision to withdraw from the consumer insurance market point at the challenges of the insurance market in Indonesia?
Many insurance companies are attracted to Indonesia because of the low insurance penetration rate, which is only approximately 0.5 per cent, and the macro-economic potential looks abundant with opportunity – significant business expansions, infrastructure investments, and also the population opportunity. You have increasing wealth and a growing middle class which should look to insurance protection as their asset bases expand. But the reality is that the insurance market is not growing as was anticipated in any of those segments. For instance, if you assess the auto and travel insurance segments over the past 12 months, both segments have actually contracted by eight to nine per cent. To date in 2016, the growth for the non-life insurance market overall is flat compared to 2015.
We’ve been here a long time in Indonesia, and invested considerably in the business. To put things in perspective, our consumer insurance business is less than 20 per cent of our total business here in Indonesia. We have had some success — we were voted the best private general insurance company, we got other great awards and great product ratings. However, with the size of the non-life insurance market at approximately $4.2 billion, and more than 70 non-life insurance companies in the market, retaining the focus on the consumer insurance segment and creating scale would be a tough and likely long term objective. At AIG, we aspire to be our clients’ most valued insurer. To ensure we bring the greatest value to our clients, we took the decision to withdraw from consumer insurance, but sharpen our focus on delivering growth through commercial insurance solutions.
What is your business strategy in Indonesia?
Our contribution to Indonesia is to continue to focus on where we can offer best value to our customers: financial strength, the expertise, servicing our multinational customers, and the product range that we have around commercial business. That is really the heart of AIG and that’s why we focus on that in Indonesia. We see growth, and we see huge opportunities to support infrastructure construction and management in the country.
Another contribution we make is to work with our competitors by bringing our financial strength, the capacity to take on large scale risks that may not always be so easily accomplished by domestic insurance companies as well as the expertise and product range we have. For our commercial business, some 40 per cent of our business is from supporting local insurance enterprises.
We’ve also got some unique products in Indonesia. We were the first to market cyber liability insurance, and more recently we have offered IPO and merger and acquisition insurance products. These products are prime examples of the global expertise AIG brings to our markets across the world.
What is your view on the ownership provisions as mandated by the Insurance Law?
When the Insurance Law came out in 2014, it had minor changes in the wording, but those minor changes have potentially considerable impact on foreign insurers. There is the suggestion of an 80:20 [foreign to local ownership ratio]. The difference would be that in the past, you could invest across shareholders non-proportionally. This may no longer be possible, so it is more important than ever to ensure shareholder partnership has mutual commitment.
We’ve been actively searching for partners in Indonesia over the past 12 to 18 months. But it is not proving easy to find shareholders because you are not looking only for a money investor, you are looking for someone that can help you, and also where we can help them – mutual benefits coming from the relationship. With so many conglomerates in Indonesia already having an insurance company, they might not need another one. This is a challenge for many joint venture insurers, both in the life and non-life insurance sectors, who are all searching for partners at the same time. The OJK (insurance regulator) acknowledges the challenge and has been actively engaging insurance companies on this topic. Nonetheless, we will continue with our search, and look to continued support from the OJK as we progress.
How do you see AIG in Indonesia in the near future?
For the immediate term, we are focused on ensuring our decisions on business change are professionally managed for our consumer policyholders, who will continue to have our professional service until their policies expire and all claims are completed. We are also pushing ahead with our commercial insurance strategies – such as supporting the government’s infrastructure plans, whether for the energy, maritime, road, rail and tunneling projects.
Last but not least, we are delivering our commitment with great support from our people, who are among the most experienced, dedicated and innovative in the insurance industry.
AIG Indonesia is here to stay and looks to the future by growing its business with a sharpened focus on its comprehensive range of commercial insurance solutions.