Executive Summary

Key insights and market outlook

The Indonesian Deposit Insurance Corporation (LPS) is set to implement the Insurance Policy Guarantee Program (PPP) in 2027, a year earlier than the original 2028 schedule ⁴

. This program is expected to increase public trust in the insurance industry, which has been marred by numerous cases of insurance companies failing to pay claims. The guarantee is expected to cover 90% of insurance policies, with a coverage limit between Rp500 million to Rp700 million ¹.

Full Analysis

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Deep Dive Analysis

LPS to Implement Insurance Policy Guarantee Program in 2027

Boost to Indonesia's Insurance Industry

The Indonesian Deposit Insurance Corporation (LPS) is accelerating the implementation of the Insurance Policy Guarantee Program (PPP) to 2027, a move that is expected to significantly boost public confidence in the insurance industry ⁴

. The program, mandated by Law No. 4/2023, aims to address the declining trust in the industry due to numerous cases of insurance companies failing to pay claims ¹⁴.

Key Features of the Program

The PPP will provide three types of guarantees: claim guarantee, portfolio transfer to healthy insurance companies, and policy redemption if transfer is not possible ¹

⁴. The coverage limit is expected to be between Rp500 million and Rp700 million, which is estimated to cover around 90% of insurance policies in Indonesia ¹. This means that the majority of policyholders will be protected in case of insurance company failures.

Impact on Public Trust

The LPS believes that the implementation of PPP will have a positive impact on public trust in the insurance industry, similar to how deposit insurance has boosted confidence in the banking sector. Before LPS operated, the average growth of third-party funds in banks was around 7.7% per year, which jumped to 15.3% after the deposit insurance program was implemented ¹

². A similar pattern was observed in Malaysia, where the insurance premium growth rate increased from 5.5% to 9.7% after implementing a similar guarantee program ¹.

Current State of Indonesia's Insurance Industry

Despite its potential, Indonesia's insurance industry insurance is still underdeveloped compared to other ASEAN countries. As of 2024, the insurance penetration rate in Indonesia was only 1.40%, significantly lower than Malaysia (3.80%), Thailand (5.10%), and Singapore (7.40%) ³

. The LPS is optimistic that the PPP will help bridge this gap by increasing public trust and encouraging more people to purchase insurance products.

References