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The Good Practice in Marketing Microinsurance Product : Evidence

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Article in International Review of Financial Consumers · April 2017

DOI: 10.36544/irfc.2017.1-6

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The International Review of Financial Consumers, Volume.2 Issue.1 (Apr., 2017), 73-87
pISSN 2508-3155 eISSN 2508-464X
ⓒ 2017 International Academy of Financial Consumers

The International Review of Financial Consumers

www.eirfc.com

The Good Practice in Marketing Microinsurance Product: Evidence from

Indonesia
†
Rokhim, Rofikoh, Ruri Eka Fauziah Nasution, and Melia Retno Astrini 1

A B S T R A C T

The purpose of this study is to investigate the good practice of the microinsurance industry in Indonesia, using
a case study of three microinsurance providers, namely Allianz, Prudential, and Asuransi Central Asia (ACA).
In addition, this study also aims to analyze the challenges, of the microinsurance industry in Indonesia. Results
from this study reveal that despite the large market potential for microinsurance in Indonesia, there are challenges
that should be addressed, to boost the growth of the microinsurance industry in Indonesia. To respond to this
challenge, attention should be focused on consumer protection, and consumer appeal aspects. From the three micro-
insurance providers discussed in this study, viable approaches to implement when competing in the microinsurance
market in Indonesia, including market research to understand the behavior of low-income consumers, the extensive
distribution of partners, consumer education practices, and corporate values that demonstrate the dedication of the
company, to serve low-income consumers.

Keywords: Microinsurance, low income market, microfinance, Indonesia

Ⅰ. Introduction izations to differentiate microinsurance from traditional

insurance: (1) Target group (microinsurance is intended
for low-income consumers), (2) Product definition (restrict
The term “microinsurance” has been gaining more the premium by placing a cap on the value insured, so
popularity. It has also received increasing attention from the product is relevant for only low-income consumers),
policymakers and researchers, because of its potential (3) Provider definition (the type of organization that could
to assist with the poverty reduction effort (Biener, Eling, provide microinsurance, including formal insurers, burial
& Schmit, 2014). Microinsurance can boost the achieve- or friendly societies, mutual cooperatives, and commun-
ment of goals declared by leaders of G20 countries, which ity-based organizations), and (4) Distribution channel (a
embraces financial inclusion and social protection, since product is considered as microinsurance, if it distributed
microinsurance incorporates both elements, in its im- by microfinance institutions (MFIs), low-cost retailers,
plementation (Council of The European Union, 2012). or other organizations that typically serve the low-income
According to Churchill and McCord (2012), the defi- market).
nition of microinsurance has become operational, and In Indonesia, the development of microinsurance in-
it should create a distinction, between traditional insurance dustry is at an early stage. However, the Indonesia Financial
and microinsurance. Hence, there are four character- Services Authority (Otoritas Jasa Keuangan/OJK) has
started to demonstrate its commitment to improving access
of low-income consumers, to insurance products. In 2013,
† rofikoh.rokhim@ui.ac.id
The International Review of Financial Consumers, Volume.2 Issue.1(April 2017), 73-87

OJK launched a Grand Design for Development of company. The company entered the Indonesian micro-
Microinsurance, in Indonesia. The Grand Design is in- insurance industry in 2006. Throughout the years, the
tended to facilitate the evaluation, development, and im- company has built its reputation as one of the most commit-
plementation of microinsurance and Sharia Microinsurance1 ted insurance companies that provides microinsurance
in Indonesia. products to low-income consumers.
Regarding the definition of terms, OJK has its character- Because of its rigorous effort in penetrating the low-in-
istics, to define microinsurance. In the Grand Design, come insurance market in Indonesia, Allianz enjoys sig-
OJK stated that there are four requirements of the micro- nificant growth, serving a total of 4,833,000 micro-
insurance product in Indonesia: First, it must be simple, insurance consumers, in 2015 (Allianz SE, 2016). Despite
meaning that the product provides basic coverage from the success that Allianz experience in Indonesia’s micro-
common risks faced by low-income consumers. It should insurance market, there are also challenges that hinder
also have simple features, a simple administration process, the development, of microinsurance companies in general.
and be a simple policy. Hence, it is crucial to present the strategy that has been
Second, it must be easy to obtain (accessible to the implemented by current insurance companies, competing
target market, which are low-income people). Third, it in Indonesia’s microinsurance market. Therefore, compa-
must be economist, or affordable for the target market. nies can assess which approach works best, in Indonesia’s
The insurance company must significantly reduce operat- market.
ing systems related to premiums, so that it can lower The distribution of this paper is as follows. First, we
premiums. Fourth is fast, meaning the insurance provider present three large insurance companies that we consider
should be quick in processing the claim (10 days after use the best practice, in marketing microinsurance prod-
a complete document is accepted), because low-income ucts, along with the type of microinsurance products they
people do not have savings to manage the financial impact offer. These companies are Allianz Indonesia, Prudential,
of a disaster. The authority also set the maximum premiums and ACA. Second, we discuss the challenges in Indonesia’s
at IDR50,000 (US$3.73), with a maximum payout of microinsurance industry, that include the large, but un-
IDR50 million (US$3,731.34). tapped market, and the readiness of the industry to meet
The Grand Design also has a definition, for the poor market demand. Finally, in the discussion portion, we
who are eligible to apply for microinsurance products. evaluate the appeal of Indonesia’s microinsurance market,
According to OJK, low-income consumers are those who the state of consumer protection, and we highlight best
earn no more than IDR2.5 million (US$192) per month. practices that work, in marketing microinsurance products
At the end of 2015, OJK reported that the number of in Indonesia, based on the experience of the three insurance
microinsurance consumers in Indonesia was 22.8 million companies that we discuss.
(Muchlasin, 2015). A population of more than 250 million,
and low penetration rates of insurance products, make
Indonesia a market with the most potential, in Southeast
Asia. Ⅱ. Microinsurance Products in the
Relevant to the potential, the trend in Indonesia reveals Indonesian Market
that the insurance companies that participate in marketing
microinsurance products, are increasing annually. At the
end of 2015, 65 of 140 companies were marketing micro- A. Allianz
insurance products (Muchlasin, 2015). However, the first
insurance company that observed a potential in low-in- Allianz entered Indonesia’s microinsurance market in
come market, was Allianz Indonesia, a private insurance 2006. Until 2015, the company describes the business
of providing insurance for low-income consumers, as
microinsurance. However, they changed the name of that
1 Microinsurance that operated using sharia system, in which the business unit into “Emerging Consumers” in 2015. The
insurance company manages the fund, and after some period, the
change is attributable to the re-purposing of its focus,
company will share the profit (profit-sharing system), in accordance
with the agreement used. from providing only an insurance product, to servicing

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Table 1. Specification of TAMADERA Microinsurance Products

Product name TAMADERA

An abbreviation for “mencipTAkan MAsa DEpan sejahteRA”, or “building a prosperous
future”
Product background From market research conducted among low-income families, that expressed a high
demand for life, and health coverage. They also expressed a strong concern about high
education costs
Product type (e.g life insurance, Endowment
savings, assistance)
Distribution partner type Microfinance Institutions (MFIs)
(e.g. MFIs, banks, retailers)
Launch date November 2010-April 2012
(and end date if any) The company discontinued the product in June 2012, with one of the reasons being that
interest rates were down to four to five percent, which jeopardized the viability of the
product (Prasetyo, 2014)
Product description A product that combines life insurance coverage, critical illness coverage, and a savings
benefit
Group or individual product Group (only available for MFI customers and their spouses)
Covered risk and benefit/ sum In case of any five of critical illnesses (cancer, stroke, heart attack, kidney failure,
insured major burns) happen, the insurance pays IDR2.5 million (US$186.57)
If, after five years, there is no claim from clients, they will receive the full premium,
which a is minimum IDR2.5 million. The usage of this maturity benefit is up to the
client, however Allianz and its distribution partner suggest to use it for children’s
education. Hence, the product is also positioned as micro-education insurance, since it
allows families to invest in a better future. (German and Indonesia Chamber of Industry
and Commerce, n.a)
Early withdrawal possible from year two forward, at 15 percent surrender charge
Premium range The minimum premium of TAMADERA starts as low as IDR10,000 (US$0.75) per week
for 250 weeks per year (50 weeks per year). Two weeks per year are premium holidays
Other comments In terms of consumer education, a specially trained TAMADERA field coordinator of the
MFI is in in charge of client education. However, there is no direct hotline provided for
the consumers. In addition, to ensure the cost effectiveness, a web-based administration
system is in place for automatic processing from enrollment, to invoicing claims
Source: (Allianz SE, 2013)

consumers, and meeting their needs. The range of services Umbrella for My Savings (Payung Tabunganku). The speci-
Allianz offers is expanded to assistance, or mobile saving. fications of these products are provided in Table 1 through
Allianz believes that in meeting the needs of low-income Table 4.
consumers, it will benefit them in the future. Allianz’s Looking at the description of Allianz products above,
reasoning is that low-income consumers will grow into Allianz has several partner types to distribute micro-
the middle-class segment of Indonesian society in the insurance products, such as Microfinance Institutions
future. At that time, Allianz could market its conventional (MFIs), commercial banks, productive cooperatives, tele-
products to them (Allianz, 2015). There are many micro- communication companies, and postal operators (Allianz,
insurance products that Allianz offers to the low-income 2015). Allianz believes that partnering with Microfinance
market in Indonesia. To its products, Allianz conducts Institutions, is the most effective marketing strategy, since
a self-assessment of seven quality criteria, including strong MFIs have experience with the low-income segment.
risk management, other benefits, consumers involved, vol- Currently, Allianz Indonesia is the largest microinsurance
untary, consumer education, product simplicity, and low provider in Indonesia, with close to five million consumers.
transaction costs (Allianz, 2015). However, this paper will This achievement is consistent with its commitment
discuss only four of the microinsurance products developed to serving low-income consumers, by continually seeking
by Allianz namely TAMADERA, “GO-JEK Driver” Health opportunities, and developing new products to meet the
Insurance Plan, Family Umbrella (Payung Keluarga), and insurance needs of the low-income market. In addition,

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Table 2. Specification of GO-JEK Driver Health Microinsurance Products

Product name “GO-JEK Driver” Health Insurance Plan

GO-JEK is an Indonesia hyper-local transport, logistics, and payments startup founded in
2010
Product background GO-JEK is considered as a socially-minded company, hence once they are established, they
ask Allianz to provide them with cost-effective health insurance for their drivers, and
families
Product type (e.g life Comprehensive health insurance
insurance, savings, assistance)
Distribution partner type Direct distribution to motorcycle taxi drivers of “GO-JEK”company
(e.g. MFIs, banks, retailers)
Launch date 10 June 2016
(and stop date if any)
Product description A health insurance product for “GO-JEK” motorcycle drivers and their spouse and children
that covers inpatient and outpatient treatment. The benefit for inpatient treatment includes
coverage for the cost of hospital rooms, consultation visit, surgeries, and other inpatient
treatment. For outpatient treatment, it covers doctor’s consultation cost, medicine prescriptions,
physiotherapy, and basic immunization.
Group or individual product Group
Covered risk and benefit/ sum Inpatient and outpatient treatment
insured Coverage limits apply per treatment
e.g. maximum of IDR25 million (US$1,866) for surgery per hospitalization period
e.g. IDR50,000 (US$3.73) for each General Practitioner outpatient consultation
Basic immunization for children < five years
Death benefit of IDR3million (US$223.9)
Premium range The premium is IDR2,300 ($0.17 USD) per person per day. The daily premiums are paid
automatically from the GO-JEK drivers accounts, so the process is cashless, and hassle free.
The digital process also improves claim settlement duration.
Additional information Allianz offers a cashless facility in Allianz AdMedika hospital network throughout Indonesia.
The company also dedicated a mobile website with informational videos, and product
information. The client service is also ready to serve on a 24/7 basis.
Source: (Allianz SE, 2016), (Project M, 2016)

the company is using online technologies to provide serv- money, and the premium is automatically deducted from
ices for its microinsurance consumers, and to maintain available funds. Using this digital platform, Allianz can
the low transaction costs of its products. Specifically, also provide financial literacy materials, through inter-
in Indonesia, the company has started sending policy active voice response (IVR). The use of IVR technology
renewal reminders, and information, via text messages. lowers the cost of consumer education, since the company
Regarding this matter, it is also crucial to mention, does not have to meet clients in-person, or above the
that Allianz also offers a new product, SEKOCI.SEKOCI, line advertising anymore (Dosiwoda, 2016).
which is the first microinsurance product with a SIM
card. SEKOCI provides cash benefits for the beneficiary,
should the insured die from illness. The benefit is five B. Prudential
times the amount, if the death is cause by an accident.
To make SEKOCI understandable, Allianz developed a Prudential Life Insurance (Prudential Indonesia)
marketing strategy that uses various communication media launched its first microinsurance product, PRUaman, in
to educate clients. In terms of premium payments, the 2013. However, the company did not launch another micro-
company works with Telecommunication Company that insurance product until 2016, when they launched PRUaman
provides electronic money, so clients can pay premiums Sharia, a sharia life insurance product intended to serve
digitally. low-income consumers. The specification of Prudential’s
The consumer only needs to top up their electronic microinsurance product is presented in Table 5.

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Table 3. Specification of Family Umbrella Microinsurance Products

Product name Payung Keluarga (Family Umbrella)

Product background The product is specifically designed to fulfill the needs of micro borrowers who make loans from
Microfinance Institutions (MFI)
Product type (e.g life Term Life (attached to credit accounts), with riders
insurance, savings, assistance)
Distribution partner type Banks, MFIs
(e.g. MFIs, banks, retailers)
Launch date (and date if September 1, 2006 for first product launched
any) November 27, 2013 added an insurance for riders
Product description Compulsory group credit life coverage (available in conventional or takaful/Sharia) with flexible
benefits, and voluntary personal accident riders.
Group or individual Group
product
Covered risk and benefit/ Mandatory base product:
sum insured Risk: death of debtor and spouse (optional)
Benefit: outstanding loan balance, or original loan amount
Additional funeral benefit of up to two times original loan (optional)
Loans: IDR0 – max. IDR200 million
Voluntary rider (available since Dec 13):
The benefits are up to IDR25 million (US$1,866) to cover accidental death, and total or partial
permanent disability, due to a personal accident
Payung Keluarga only covers the loan principal, and the foregone interest is not covered.
Premium range Mandatory base product: IDR100-IDR1 million (US$0.007-US$74.63), depending on loan amount,
tenor, and benefits.
Voluntary rider: IDR8,000-IDR20,000 (US$0.60-US$1.50)
Additional information The product features over 50 possible benefit combinations. However, the MFIs decide which benefits
they want to include in the package, and the chosen package is compulsory for MFIs microloan
borrowers. The company can decide whether they want to cover people aged 61-65, or exclude them.
This age range must pay a higher premium rate, due to a significantly higher mortality risk.
In terms of client education, brochures are provided by some MFIs, and the MFI staff is also equipped
with flip charts, to explain the product in person. However, a direct hotline is not provided, except for
the rider product.
Source: (Allianz SE, 2016), (Allianz Life Indonesia, 2013)

Table 4. Specification of Umbrella for My Savings Microinsurance Products

Product name Payung Tabunganku (Umbrella for My Savings)

Product type (e.g life Term Life Insurance
insurance, savings, assistance)
Distribution partner type Microfinance Institutions (MFIs)
(e.g. MFIs, banks, retailers)
Launch date 1 June 2014
(and stop date if any)
Product description This insurance product is bundled with savings and time deposits of MFIs. The premiums are
usually paid by the MFI, and sums insured, are usually equal to the savings balance (this
means: “the more you save, the more insurance you get”)
Group or individual product Group
Covered risk and benefit/ Death due to any cause
sum insured Benefit can be up to max. IDR200 million (US$14,926) and structured in three different ways:
1. Same amount as savings balance or time deposit amount
2. Fixed amount irrespective of savings balance
3. Amount that has still not been saved in targeted savings plan
Premium range 0.048 percent of sum insured per month for age 17-60
Additional information The product also offers spouse coverage and coverage for consumers age 61-65 with a special rate.
The MFIs explain about the product to their (potential) borrowers, when marketing their savings
product. There are no special education mechanisms for this insurance product. The product is
basically integrated with the MFIs microsavings product, to help ensure low transaction costs.
Source: (Allianz SE, 2016)

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Table 5. Specification of PRUaman Microinsurance Products

Product name PRUaman

Product type (e.g life insurance, Life Insurance
savings, assistance)
Product background PRUaman is developed, based on the results of extensive research conducted by Prudential.
There is a need for financial coverage for the micro borrower and lender (MFIs). Research was
conducted for two years, by collecting data from five provinces, and 13 cities in Indonesia.
Distribution partner type Microfinance Institutions (MFIs)
(e.g. MFIs, banks, retailers)
Launch date (and stop date if any) 17 April 2013
Product description Basically, the product offers financial coverage in the form of collateral to the loan principal,
granted by MFIs to consumers. If an unfortunate event happens to a client, their debt will be
repaid by Prudential.
Group or individual product Group
Covered risk and benefit/ sum There are four insurance packages, that offer different benefits:
insured ∙Package 1: If the insured person dies from any cause during the insurance period, Prudential
Indonesia will pay the remaining balance of loans to MFI.
∙Package 2: If the insured person dies from any cause during the insurance period, Prudential
Indonesia will provide benefits in the amount of the initial loan, to pay the remaining
loan to the MFI, with the rest of the benefits given to heirs (if any).
∙Package 3: If the insured person dies from any cause during the insurance period, Prudential
Indonesia will pay the remaining balance of the loan to policyholders, PLUS the benefits
in the amount of original loan, will be paid to the beneficiary.
∙Package 4: There are two benefits;
Benefit A: If the insured person dies due to illness or natural causes, Prudential Indonesia
will settle the remaining loans to MFIs, PLUS provide compensation in the amount that is
equal to original loan to heirs.
Benefit B: If the insured person dies due to accident, Prudential Indonesia will settle all
outstanding loans to MFIs, PLUS provide compensation in the amount three times the original
loan, to heirs.
Premium range The four insurance package premiums are offered in the minimum of IDR2,000(US$0.15)/year
to IDR10,000(US$0.75)/year. This rate applies equally to MFI clients, regardless of age and loan
tenor.
Source:(Prudential, 2013)

Table 6. Specification of Dangue Fever Microinsurance Products

Product name Dengue Fever Microinsurance (Asuransi Demam Berdarah)

Product type (e.g life Health insurance
insurance, savings, assistance)
Distribution partner type (e.g. Retailers such as Indomaret and Hypermart
MFIs, banks, retailers)
Product description Basically this product provides coverage for consumers diagnosed with dengue fever. The
insurance is sold in a voucher and needs to activated via text message. Each consumer is
allowed to buy more than one insurance policy, and receive benefits up to IDR10 million
Group or individual product Group
Covered risk and benefit/ sum IDR1 million – IDR 10 million for a consumer who is diagnosed with dengue fever.
insured
Premium range There are three insurance package premium options, IDR 10,000/year; IDR25,000/year, and
IDR50,000/year

Initially, there were two partners that assisted Prudential become the first distribution partners, because they have
with distributing its microinsurance product – Mitra Usaha reputation and experience in serving the low-income
Mandiri cooperatives, located in Subang and Karawang, consumers. In 2010, the number of MFI partners that
West Java province. The cooperatives were chosen to distribute PRUaman increased, to more than 10 MFIs

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Table 7. Specification of House and Earthquake Fund Microinsurance Products

Product name House and Earthquake Fund (Dana Rumah & Dana Gempa)
Product type (e.g life General insurance
insurance, savings, assistance)
Distribution partner type (e.g. Retailers such as Indomaret and Hypermart
MFIs, banks, retailers)
Product description Basically this product provides protection for damage caused by fire. The insurance is sold
in a voucher, and needs to activated via text message.
Group or individual product Group
Covered risk and benefit/ sum Benefits up to IDR3,000,000 for a damaged building caused by fire (the sources of fire
insured includes the insured house, neighbors’ house, thunder, aeroplane accident, and explosion)
Premium range The price of premium is IDR20,000, with discount of 30 percent for buying five vouchers

Table 8. Specification of Asuransiku (My Insurance) Microinsurance Products

Product name Asuransiku (My Insurance)

Product type (e.g life Life Insurance
insurance, savings, assistance)
Distribution partner type (e.g. Retailers such as Indomaret and Hypermart
MFIs, banks, retailers)
Product description Asuransiku, is a personal accident insurance product that provides for a death or total
permanent disability benefit, due to an accident. This product was designed exclusively for
the financial literacy campaign
Group or individual product Group
Covered risk and benefit/ sum IDR30 million
insured
Premium range IDR50,000 per year

Table 9. Specification of Stop Usaha Microinsurance Products

Product name Stop Usaha

Product type (e.g life General insurance
insurance, savings, assistance)
Distribution partner type (e.g. Retailers such as Indomaret and Hypermart
MFIs, banks, retailers)
Product description Stop Usaha is one of the microinsurance products that provides coverage for fires, riots,
vehicle impact, earthquakes, tsunamis, or volcanic eruptions coverage, for business premises
Group or individual product Group
Covered risk and benefit/ sum Provide benefit of IDR2.5 million
insured
Premium range IDR40,000 per year

(Kharis, 2016). line with Islamic sharia law. Basically, the benefits and
In 2016, Prudential signed a cooperative agreement risk covered by PRUaman sharia are identical to PRUaman
with a Sharia Bank in Indonesia, to distribute, market, conventional coverage.
and promote all bancassurance sharia from Prudential.
The first product that Prudential distributed through Sharia
Bank’s branch was PRUaman sharia (Jaramaya, 2016).
PRUaman sharia is a microinsurance product that is in

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C. Asuranci Central Asia (ACA) • Si Bijak (Wise); A sharia microinsurance product,

that provides insurance for consumers against the
Asuransi Central Asia, or ACA, is a local private risk of death due to illness, compensation for a funeral
non-life insurer, that offers microinsurance products. ACA due to illness, death in an accident, loss of income
is known as a leader, and a respected private insurance due to fire, natural disasters, theft, robbery in the
company, with 60 years of experience in Indonesia’s in- client’s house, vehicles, or stall or business cart in-
surance market. The company has demonstrated its com- sured in the period of sharia insurance (takaful)
mitment to developing microinsurance in Indonesia, by membership. This product was launch by Indonesia
combining microinsurance with local wisdom, in a unique Sharia Insurance Association in 2014. Low-income
microinsurance product, for Indonesia’s low-income consumers can acquire this insurance product from
consumers. ACA offers a wide range of microinsurance sharia insurance company or other sharia insurance
products that cover dengue fever, earthquakes, fires, and unit. The activation of
micro and small business interruption. • Warisanku (My Heritage); Provides a guarantee against
Most products are offered, using a voucher that must the risk of accidental death, with a compensation
be activated via text message. The distribution channel of IDR10 million to the heirs + funeral expenses,
includes ACA branch offices, post offices, pawnshops, IDR 500,000, and receive funeral expenses of
and retailers such as Indomaret, Hypermart, Boston Health IDR500,000 per person, if death is caused by illness.
& Beauty, and Foodmart. The partnerships with PT Pos • Rumahku (My Home); Provides protection for resi-
Indonesia, and Indomaret, have made ACA’s micro- dential and business venture buildings of micro enter-
insurance products available in 8,600 branches of prises against risk of damage caused by fire, lightning,
Indomaret, and 3,800 branches of Pos Indonesia. The collateral damage from an airplane crash, smoke,
design of the product is simple, because policy holders and death. Compensation of IDR5 million is awarded
only need to input a Personal Identification Number (PIN), to the owner, if the building is destroyed due to
to be listed online, and the claim process can also be fire, IDR500,000 for the tenants of the building, and
completed through a short message service (SMS) grief compensation up to IDR5 million for the heirs.
(Gunawan, 2013). The details of microinsurance products • Stop Usaha Erupsi (Eruption); Provides protection for
offered by ACA are presented in the following table. an object (1) business (kiosk, stalls, cart, individual
retailer, bicycle, motorcycle, and boat); (2) Venture
capital/business goods (business equipment/products),
D. Generic Insurance Products risk of damage due to fire, lightning bolt, collateral
damage from an airplane crash, smoke, riot, hit by
There are several generic microinsurance products de- a vehicle, and volcanic eruption.
veloped by cooperating institutions such as insurance com- • Stop Usaha Gempa Tsunami (Tsunami); Provides a guaran-
panies, insurance associations, and the Indonesia Financial tee for an object (1) business (kiosk, stall, cart, in-
Services Authority (OJK), through its program Asuransi dividual retailer, bicycle, motorcycle, and boat); (2)
Mikro Indonesia (Indonesian Microinsurance): Venture capital/business goods (business equip-
ment/products), risk of damage due to fire, lightning
• Si Peci (abbreviation for “Penuh Cinta” or “Insurance bolt, collateral damage from an airplane crash, smoke,
filled with love”); A life insurance that provides com- riot, hit by a vehicle, earthquakes, and tsunamis.
pensation in the amount of IDR5 million, when the
consumer dies of illness, and IDR25 million if the
consumer dies due to an accident. This insurance
was developed based on input from several life in- Ⅲ. Challenges for the Microinsurance
surance companies, and not directly from the results Industry in Indonesia
of market research. Several life insurance companies
incorporated in Indonesia Life Insurance Association,
distribute this product to clients. Microinsurance is a relatively new industry, in

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Indonesia. Despite huge potential for growth in the future, pectations are unmet.
there are challenges and barriers, that restrict the growth Outside Indonesia, a study by Giesbert and Steiner
of the microinsurance industry in Indonesia. These chal- (2014) in Southern Ghana, reveals that clients have un-
lenges are sourced from the demand, and supply side, realistic expectations of insurance benefits, expecting
of the microinsurance industry. compensation for a significant variety of damages, that
are not covered by the policy. Initially, expectations lead
to a highly-perceived opinion about the value of
A. Large Potential, But Untapped Market microinsurance. However, as soon as consumers’ percep-
tions are altered, the value is diminished. Third, the demand
Indonesia is home for 238 million people. Of this for microinsurance products, depends on the availability
population, 53 percent lives under the poverty line, with of alternative risk mitigation tools, such as regular savings,
less $2 consumption per day (Allianz, GTZ & UNDP, asset liquidation, arisan, family, and community assistant.
2006). Based data from the Central Statistic Bureau (BPS) These tools are more commonly used, and widely prac-
in 2007, approximately 108 million people (or 66 percent) ticed, by low-income consumers in Indonesia.
are estimated to be in the labor force. The employed From the explanation, it can be concluded that despite
population is approximately 97.6 million, with only 37 of significant potential for marketing microinsurance prod-
percent of the employed are in formal economy and approx- ucts, there are several fundamental factors, that prevent
imately 63 percent of those employed, are in various the growth of the microinsurance industry in Indonesia.
forms of rural and urban employment. These factors include a low level of financial literacy,
A significant number of informal worker do not have consumers’ misconception of the value of microinsurance,
a formal insurance mechanism, to cover them from risk, and the lack of availability, of alternative risk mitigation
such as illness or an accident, since the formal insurance tools.
plans only provide coverage for the formal sector. In
addition, social insurance primarily covers employees in
large private sector companies, and public sector employ- B. Industry Readiness
ees (Jonatan, 2010). Based on this data, it is revealed
that there is significant potential for marketing micro- The players in microinsurance industry consist of in-
insurance products in Indonesia. surance companies such as PT, ACA Central Asia (ACA);
However, microinsurance providers have been unable PT Asuransi Allianz Life Indonesia; PT Asuransi Kredit
to address this significant potential market, because of Indonesia; and PT Asuransi Jiwasraya. In addition, PT
several factors. First, the level of financial literacy in Pos Indonesia also offers microinsurance products
Indonesia is low. Based on the National Survey on (Rokhim, et.al, 2016). According data from OJK (2015),
Financial Literation conducted by the Financial Authority there are 65 of 140 insurance companies providing micro-
Services (OJK), only 18 percent of Indonesian consumers insurance products. This data indicates that major players
are aware of, and understand, the value of insurance prod- in the microinsurance industry in Indonesia are commercial
ucts and services. Low financial literacy is not only a insurers.
major obstacle in Indonesia, but also in countries such According to Llanto, et.al (2006), commercial insurers
as India, Ghana, and Philipina. have strengths and weaknesses, in offering microinsurance
Second, the low level of financial literacy affects con- products. Primary strengths are substantial insurance ex-
sumers’ perception, of the value of microinsurance pertise, financial strength, and access to global reinsurance
products. There is limited empirical study on consumers’ markets. In addition, commercial insurers may reduce
perception, of the value of microinsurance products in cost of producing insurance, through economies of scale.
Indonesia. One of the few studies, is a survey conducted However, commercial insurers have limited understanding
in 2006, by Allianz, GTZ AND UNDP on microinsurance and access to low-income populations. There is also poten-
in Indonesia. The survey reveals that consumers have tial conflict between profit motive, and development
unrealistic expectations regarding the benefits of micro- objective.
insurance, which leads to disappointment, when the ex- To serve the low-income population, most micro-

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insurance providers use the Partner-Agent Model. For insurance industry in Indonesia, from demand and supply
example, PT Asuransi Allianz Life Indonesia, and PT sides, it is crucial to highlight two key issues, related
Prudential Life Insurance, work with MFIs to offer micro- to these challenges. For demand side, the low level of
insurance products, while PT ACA Central Asia works financial literacy, combined with a misconception about
with local retailers, such as Indomaret and Hypermart. microinsurance value, have become major challenges that
In the Partner-Agent model, an established insurance com- prevent consumers from buying microinsurance products.
pany works with a distribution channel, that actively serves The implementation of clients’ coverage can overcome
low-income clients. The Partner-Agent model is these challenges. However, efficiency and viability of
cost-efficient. However, the major challenge is to train the microinsurance industry, becomes the primary consid-
partners’ staff, to explain insurance in ways illiterate eration, for industry players. Analysis of consumer appeal,
low-income consumers, can understand (Llanto, et.al, relative to microinsurance products, will provide insight,
2006). on how to attract new players to enter the industry. The
Another challenge faced by the microinsurance in- analysis will be based on the case study, of three micro-
dustry, is product development. Most providers find it insurance providers in Indonesia, discussed above.
difficult to design suitable products, for various risks
faced by low-income consumers. The low-income pop-
ulation is more vulnerable, and requires unique product A. Customer Protection
designs, that can cover against specific risks. The design
of microinsurance products should consider demography Consumer protection, refers to terms of fairness, or
and geography factors, which is difficult to conduct. by reference, to the qualities that effective consumer pro-
Related to this, because of the lack of historical data, tection exhibit (such as transparency, or prompt claims
about risk faced by the low-income consumers, the risk processing). Regarding microinsurance products, consum-
underwriting and premium setting process, is difficult er coverage refers to effective use of microinsurance prod-
to conduct. ucts, by low-income consumers, to cover against risks.
It is noteworthy that as most commercial insurers in Consumer coverage is essential in developing micro-
Indonesia apply the Partner-Agent model, there is a poten- insurance products, since it helps consumers from low-in-
tial that viable actuarial principles are not properly come households with low financial literacy, to understand
practiced. A study on microinsurance in the Philippines, microinsurance products, and build trust in the products.
revealed that microinsurance programs are not being man- Effective consumer coverage will directly impact con-
aged, according to viable actuarial principles, and therefore sumers, since it ensures they will benefit from micro-
increases the risk, since it assumes that clients’ insurance insurance products. It also generates indirect consequences
needs are homogenous, and unchanging (Llanto, et.al, in the long term, by expanding coverage of microinsurance
2006). products, and adding value to stakeholders in the value
The discussion above indicates that despite growth chain (Zimmerman, Magnoni, and Camargo, 2013;
in the microinsurance industry, the industry has serious Microinsurance Network, 2014). Among general princi-
challenges to be overcome. These challenges include in- ples of consumer coverage include (1) Fair and equal
adequate expertise working with the low-income segment, interaction between insurers and consumers, at all stages
product development, a lack of data for risk underwriting of their relationship, (2) Disclosure and transparency,
and premium setting, and the choice of effective dis- (3) Financial education and (4) Complaint management.
tribution channels. As the primary issue from the demand side is consum-
ers’ low level of financial literacy, the consumer coverage
effort must primarily focus on financial education, partic-
ularly education about microinsurance products. A finan-
Ⅳ. Discussion cial education program will assist consumers with under-
standing the function of microinsurance products, the
specific right and obligation of clients and insurers, to
Having discussed major challenges in the micro- the claim process, and other pertinent knowledge. It is

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important to note that financial education must not only the relational partner, each can appeal to the other, which
cover financial literacy, but also focus primarily on micro- can lead to superior loyalty, and performance, in the
insurance specific products. It is also crucial to include relationship (La Roca, Caruana, & Snehota, 2012). The
the distribution channel in this program. assumption of consumer appeal is that a buyer becomes
From the case study of the microinsurance providers so appealing to a supplier, that the supplier offers a desir-
in Indonesia, all provide financial literacy education for able price (Lusch & Brown, 1996).
their consumers. For example, Allianz conducts a financial From the supplier’s perspective, the knowledge of the
education product titled “Family Financial Education exchange partner’s capabilities and attitude, are crucial,
Program.” This program fosters financial literacy among to enable the firm to invest their resources in the most
adults, and empowers low-income consumers, to move effective manner. Therefore, identifying key factors that
towards a viable financial situation. This program includes influence the appeal of parties in client-supplier relation-
Allianz employees (mostly from other teams, than the ships, will provide mutual benefits, as these factors can
microinsurance team) that make voluntary visits to MFI serve as a basis for management attention and a viable
staff and consumer groups, to train them interactively allocation of resources. One of the key questions relevant
about basic financial models such as financial planning, to the microinsurance industry, is if microinsurance prod-
savings, credit, and insurance. In addition to providing ucts can deliver value to the low-income population, while
financial education for low-income consumers, Allianz also being viable to the microinsurance provider.
also developed the “trainer for trainer” concept, that is Given that the low-income population has awareness
used for MFI partners, so that they can become coaches about the microinsurance products cannot be directly trans-
for others. lated that they have willingness to buy the product. A
Regarding ACA, most financial literacy programs are study by Llanto, et.al, (2006) in the Philippines, reveals
conducted through campus events, where the target audi- that the affordability factor is a major obstacle, for low-in-
ence is not specifically low-income consumers. For the come consumers desiring to buy insurance. This is true
low-income segment, a socialization program titled for Indonesia as well. A survey conducted by USAID
“Cerdas Berasuransi Bersama ACA” (Smart Insurance with and SEADI in 2013 revealed that 45 percent of respondents
ACA) has been conducted. The program involves social stated that a lack of money is the primary reason, they
activities, charity programs, and distribution of free micro- do not buy insurance products.
insurance vouchers. In addition, ACA conducts training The affordability issue includes the premium payment,
for pawn shop front liners, since pawn shop officers in and the burden of making regular payments thereafter.
rural areas, interact with consumers more frequently. In addition, most microinsurance consumers are informal
All microinsurance providers in this study also use worker that have irregular income, which makes it more
brochures, as part of consumer education. Although there difficult to meet regular payments. This reveals that the
is no empirical evidence on the effectiveness of such low-income population needs a microinsurance product,
programs, the financial education program by PT Allianz with a low premium. Low-income consumers will buy
Indonesia, is considered an appropriate mechanism to microinsurance products only if the premium paid, is
appeal to consumers. In addition, the participants of the equivalent to the actual claim, or future loss.
programs are not only consumers, but also from Allianz However, from the supply side (commercial insurers),
and MFI staffs. the premium assessed to consumers includes transaction
costs, administrative costs, and margin for the companies.
In addition, since low-income consumers are more vulner-
B. Client Appeal able, the claim ratio is higher, for microinsurance products.
This is also relevant, to the microinsurance industry in
Client appeal is referred to as a condition in which Indonesia. Based on OJK findings (2015) microinsurance
the appeal of one party (the consumer) has been defined claims have increased 1155 percent from IDR40.79 billion
broadly, as the ability to generate interest, and appeal in 2014, to 512.2 billion in 2015. The loss ratio for the
to another party (the supplier or seller). The condition microinsurance industry in 2015 was 58.45 percent, which
is that when either buyer or the seller is appealing to is relatively high. These barriers have prevented other

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Table 10. The Performance of Allianz’s PK Business 2006-2012

2006 2007 2008 2009 2010 2011 2012

Premium (EUR) 3,000 17,000 70,000 150,000 215,000 370,000 865,000
Number of in force insured per 6,596 35,521 183,800 184,175 269,375 396,039 1,264,302
31 Dec
Number of MFI distribution 1 8 15 24 29 69 84
partners
Claim ratios 75% 80%
13-month partner persistency 100% 100% 93% 74% 69% 90%

viable players, from entering the microinsurance industry. premiums from 2006-2012. Microinsurance policies ac-
Regarding this question, a report published by ILO’s count for 19 percent of total insurance policies, offered
Microinsurance Innovation Facility provides evidence that by Allianz. It can be inferred that although the premium
microinsurance is viable for insurance providers, and that for microinsurance product is low, however, its potential
it offers value to consumers. Based on the report, 33 growth is promising. In addition, with the Indonesian
of the world’s 50 largest insurance companies are offering economy steadily growing, many microinsurance consum-
microinsurance. This indicates that insurers are reasoning, ers are expected to advance economically, in the coming
that microinsurance can be viable, particularly relative years. Therefore, in terms of profitability, the micro-
to life, and personal accident insurance. Another example insurance market in Indonesia is said to be appealing,
of the viability of the microinsurance business, is a case since there is potential profit from sales volume, rather
study by AIG Microinsurance in Uganda. than profit from margin per sales.
It has been reported that AIG Microinsurance covered
approximately 1.6 million people, and microinsurance
premiums accounted for nearly 17 percent of its Ugandan
unit’s profits. A $1,000 life insurance policy sells for Ⅴ. Approaches to Marketing
$1 a year in Uganda, making it affordable to low-income Microinsurance Products
consumers. It is estimated that approximately 135 million
low-income consumers worldwide, are covered by
low-cost insurance. To make microinsurance viable, there After the discussion about several microinsurance prod-
are three requirements for microinsurance providers to ucts from three different companies, there are lessons
achieve viability. learned, that we should note, as one of the best practices
These requirements include acquiring and keeping large in developing microinsurance products in Indonesia.
numbers of clients, managing claim costs effectively, and Initially, it is necessary to list possible obstacles for the
completely rethinking the traditional insurance process. industry, in marketing microinsurance products. An un-
From the three microinsurance providers discussed in educated and dispersed geographic location of the market,
this study, PT Allianz Utama Indonesia, has the largest are among prominent challenges, for insurance companies
microinsurance consumer base. Its famous product, in Indonesia. It is also critical to consider factors that
Payung Keluarga or Family Umbrella, has attracted more affect consumers’ level of interest in purchasing micro-
than one million clients. The number of insured con- insurance products.
tinuously increased from 6,956 in 2006, to 1,264,302 Based on the survey conducted by Asuransi Mikro
in 2012. Following the increase of insured, the premium Indonesia (Indonesian Microinsurance), the suitability of
also increased from €3000 in 2006, to €865,000 in 2012. the product with consumer’s needs, benefits offered, and
The details of Payung Keluarga’s (PK) business perform- a clear understanding of the products, are among factors
ance is presented in the following table: that could make microinsurance products appealing
From the table above, it is revealed that there is a (Asuransi Mikro Indonesia, 2016). However, insurance
significant increase in the number of insured, and total companies should also consider geographical contours

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of the consumer’s location, especially since Indonesia’s come market, in different geographic locations in
geographical profile is diverse. This could be relevant, Indonesia. The low-income market tends to trust MFIs,
with the types of products that consumers desire. For since they are familiar with MFIs. Hence, distribution
example, the consumer who lives in a region prone to partners are the key, to ensure that insurance products
earthquakes, will be more interested in earthquake reach a large consumer base.
insurance. We believe that consumer education is one of the
The insurance companies, that want to enter this market, key factors that contributes to the growth of the micro-
should conduct initial market research for insight about insurance industry in Indonesia, since it could encourage
the consumers’ needs that have not been met. Since in- greater demand for insurance products, and also enables
surance is an intangible product, any product designed consumers to buy insurance products. The only company
without market research, to understand preferences of that has implemented an education strategy for each of
a target market, is likely to be less appealing. Risk percep- the products, is Allianz. For example, they provide an
tion analysis, product attribute preferences, knowledge informational video on a mobile website, to educate
level, perceptions, attitude towards insurance, and consum- GO-JEK’s drivers about the health insurance plan, that
er willingness to pay, are several key elements to guide Allianz provides for them.
a company, in designing appropriate products and market- Meanwhile, for the Family Umbrella product education,
ing messages (see MicroSave Optimising Performance the MFI staffs are equipped with flip charts to present
and Efficiency Series). the product to their consumers. (Allianz SE, 2016).
Allianz Indonesia conducted a small-scale “customer Therefore, insurance companies should not depend on
conversion” research project November 2013-December the government, to educate potential consumers. They
2014, to validate the probability of marketing voluntary must be willing to make an effort in gaining low-income
insurance products in addition to mandatory credit life market knowledge, and the trust of the low-income market,
insurance. Of the three voluntary products types that they in their products. It is worth noting that as the market
offered (personal accident, fire with personal accident leader in the microinsurance industry, Allianz has an
benefit, and hospital cash), personal accident was the aggressive strategy to develop this business unit.
most popular one among clients (Prasetyo, Escaping the They have developed microinsurance values, which
Credit Life Trap: Learning Diary on an Upselling Pilot are passion, quality, fairness, and transparency. These
Project in Indonesia, 2015). Although other factors should values guide them in providing the best service to low-in-
be considered when designing a new microinsurance prod- come consumers. To further evaluate the performance
uct for low-income consumers, the results of marketing of their microinsurance product, Allianz has assessment
research serve as key data in the decision-making process tools, for evaluating the quality of their microinsurance
for insurance companies. products. They rank their microinsurance products with
Furthermore, a market-oriented company is more likely scores from highest to the lowest. Therefore, Allianz can
to profit in the long-term, because they provide superior enhance features of their microinsurance products, accord-
value to meet consumers’ needs, know the strength and ing to results of the assessment.
weakness of their competitors, present a new service to
impact the market environment, and reveal coordinated
reactions (Narver and Slater, 1990 in Kazemian et al.,
2016). In addition, to expanding and improving the dis- References
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