Indonesia' House of Representatives ratifies the Seventh Package of Commitments on Financial Services under the Association of Southeast Asian Nation Framework Agreement on Services today - Photo by ASEAN Secretariat

JAKARTA (TheInsiderStories) – Indonesia’ House of Representatives ratifies the Seventh Package of Commitments on Financial Services under the Association of Southeast Asian Nation Framework Agreement on Services (AFAS) today. The protocol is a stage of cooperation in the opening of ASEAN financial services market access for the non-life insurance industry.

On June 23, 2016, Indonesia and other ASEAN members signed the protocol in Hanoi, Vietnam. With the approval of this regulation, Indonesia allows ASEAN members to partner with local service providers to establish insurance companies in Indonesia, especially conventional and sharia non-life insurance.

In this partnership, the assignment limits, trade limits, and the movement of natural person refer to the provisions of laws and regulations. Based on Law Number 7 of 2014 concerning trade, international trade agreements need to be submitted to the parliament for decision.

Based on the draft law, the enactment of this regulation will open up opportunities for domestic financial service providers to expand markets in the ASEAN region and create healthy competition in the domestic financial services market. Recently, there are still few national insurance firms that have branch offices or business units abroad due to various terms and conditions made by each countries.

With the legalization of AFAS as the act, it opens the opportunity for Indonesian insurance companies go international.  Furthermore, by ratifying the protocol, Indonesia will commit to liberalizing its non-life insurance market by allowing the companies from other ASEAN countries to open branches in the country.

The role of financial and insurance sector in ASEAN countries is very diverse. In Indonesia, the financial and insurance sector contribute 8.9 percent to the country Gross Domestic Product (GDP), lower if compared to Singapore that reach 12.87 percent. This shows the opportunity of financial services investment is widely tremendous in Indonesia.

Indonesia remains a dynamic market for insurers, and one in which COVID-19 is likely to have little lasting impact. Allianz Global Insurances report saw, the coronavirus will keep the insurance industry in weak health this year.

Despite having started 2020 on a solid footing – 2019 premiums growth was the strongest in four years – it now looks to a somber year ahead. As economic activity slows in the aftermath of the coronavirus pandemic, premiums income is expected to shrink by 3.8 percent globally and by 4.7 percent in Western Europe, warned the report.

However, 2021 might be better. Allianz economists forecast next year’s growth returning to the 2019 levels of 4.4 percent, driven by Asia. As in all walks of life, the pandemic will change insurance too. Most importantly, it will accelerate digitalization in the industry, make sustainability a key factor, and speed up the shift of insurance power to Asia from the West.  

Asia’ deepening importance in the insurance world was highlighted once again last year, when premiums growth in the region (excluding Japan) doubled to 6.8 percent. North America and Western Europe, the other big markets, too had a reasonably good 2019, with growth of 4.2 percent and 4.3 percent, respectively. In Western Europe, the ‘Big 4’ – the United Kingdom, France, Germany and Italy – cornered nearly three-quarters of the premiums of EUR1.06 trillion (US$1.25 trillion) written in the region.

According to Allianz, expectedly, 2020 will have no such positive energy. Global premiums income is seen shrinking by 3.8 percent. Reversing last year’ gains, life insurance premiums could contract by 4.4 percent, while P&C could decline by 2.9 percent. Should these forecasts materialize, the hit would be thrice as big as that after the global financial crisis of 2008, when global premiums shrank 1 percent.

“2020 is lost to the virus, no doubt about it,” says Allianz chief economist Ludovic Subran in the report.

Yet, there’s light at the end of tunnel. Once the world recovers in 2021, global premiums growth should settle at 4.4 percent over the next decade. 

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Written by Editorial Staff, Email: theinsiderstories@gmail.com