Challenges Facing Indonesia’s Mandatory Vehicle Insurance
The Indonesian General Insurance Association (AAUI) has expressed concerns about the forthcoming mandatory vehicle insurance policy, scheduled to take effect in January 2025. The Financial Services Authority (OJK) is spearheading this initiative, which will require all vehicles, including motorcycles and cars, to carry third-party liability insurance.
AAUI’s executive director, Bern Dwyanto, highlighted potential challenges from both consumer and industry perspectives.
“[Financial] literacy and inclusion among Indonesian consumers is still low,” Bern stated, suggesting this could deter people from insuring their vehicles. He also pointed out that the increasing number and complexity of insurance products could make it difficult for consumers to make informed choices.
From an industry perspective, the relatively low insurance penetration rate in Indonesia poses another challenge. According to the OJK and the 2022 ASEAN Insurance Surveillance report, Indonesia lags behind other Southeast Asian countries in this area. For instance, Indonesia’s insurance penetration rate stands at 2.7 percent, compared to 12.5 percent in Singapore and 4.6 percent in Thailand.
Bern noted that while Indonesia’s rate is higher than the Philippines (2.5 percent), it is still behind Malaysia (3.8 percent). He emphasized that third-party liability insurance is already mandatory in many advanced economies.
Despite these challenges, the mandated insurance is expected to ease the Indonesian government’s financial burden related to compensating victims of car accidents. However, Bern emphasized several key factors for the government to address before implementation. These include effective allocation of supervisory resources and aligning supervisory regulations with international standards.
He concluded that insurance industry ecosystem development is vital, alongside digital transformation and regulatory improvements.
