National inclusion rate increased by 8.91 points from 76.19% in 2019 to 85.10% in 2022. From data released by OJK on November 24, insurance industry is ranked 2nd (two) after banks with inclusion rate of 16.63%. Even though it is considered very low as compared to banks whose inclusion has reached 74.03%, an increase of 3.48 points is a separate achievement for national insurance industry which was able to grow during the Covid-19 pandemic.
When compared to current national literacy rate of only 49.68%, there is a gap of 35.42%, which means that they do not fully understand and are skilled in using their financial products and services. However, insurance sector actually shows the opposite atmosphere. Insurance sector literacy rate recorded a higher index than inclusion level, which was 31.72% or 15.09 points higher than insurance industry inclusion. This seems to illustrate that low insurance inclusion is not entirely due to lack of insurance literacy in the community.
So, what causes low insurance inclusion?
Basically, insurance in Indonesia has not become a primary need. In fact, on several occasions it has been seen that insurance is a tertiary need, which is one group with the need for luxury goods. Though, insurance is a global business that often becomes an index of a country's success in managing people's welfare. This of course cannot be separated from level of the economy in Indonesia which is still uneven. Therefore, level of need and level of the economy are one of strong factors that make insurance inclusion in Indonesia still low. Resulting from these two things, insurance industry must be able to create various innovations in terms of products and services in order to provide trust, comfort and security to customers. Insurance industry cannot work alone in making efforts to increase inclusion, role of regulators is needed in supervising good governance, as well as establishment of institutions that are able to ensure comfort and safety of customers in the future. As economic growth continues to increase, it is time for all stakeholders in insurance industry to collaborate to create an insurance-savvy society.
Is insurance literacy important?
Insurance itself is a complex financial service product and not easily understood by ordinary people. Many types of insurance that cover certain risks require a separate understanding of each existing product. Education and outreach are deemed obligatory to be a routine agenda for insurance industry to provide understanding. Unlike other financial service products, insurance products have many provisions regarding benefits of purchased product. An increase in literacy of 12.32 points is certainly a symbol of success of national insurance industry players, both companies and related insurance associations. Not only playing a role in increasing inclusion, providing continuous literacy also helps prevent disputes from occurring in the future.
Need for insurance protection?
With a basic understanding of insurance protection, someone will certainly understand that there is a risk of financial loss that can occur at any time, so insurance protection is a must have. In some cases, need for insurance arises because of situations that require a person to have insurance, such as applying for credit, cargo, traveling, and so on. If you look at the past few years, Covid-19 pandemic has also contributed to increasing national insurance inclusion, especially in health insurance products. Indirectly, people who are haunted by a sense of uncertainty begin to understand the importance of insurance protection that can guarantee their unexpected risk costs such as illness which will eventually become a necessity in protecting themselves. This is evident from data released by The Indonesian Life Insurance Association (AAJI), where the number of life insurance insureds until end of September 2022 increased by 28% when compared to the same period last year.
Government role in insurance inclusion?
Increasing inclusion certainly cannot be separated from role and efforts of the government in encouraging its growth. Being the Indonesian Financial Services Autority, OJK always organizes Financial Inclusion Month (BIK) every year which is held in an integrated, massive and sustainable manner in all regions of Indonesia with aim of encouraging achievement of financial inclusion target of 90 percent by 2024.
Establishment of financial services sector institutions such as Financial Services Sector Alternative Dispute Resolution Institution (LAPS SJK) will certainly greatly help increase the public's sense of security and comfort in the financial service products they purchase, including insurance. The government's role is increasingly felt with the plan to form a Policy Guarantee Agency (LPP) which is certainly the best solution that can be provided to protect rights of insurance customers from possibility of default.
Synergy of efforts and solutions made by both stakeholders and regulators in increasing insurance inclusion will certainly be very influential. For that we need active role of all parties to make it happen.