1 Chapter I Introduction I.1 Background According to 5 years historical data of Indonesian Life Insurance Association – Asosiasi Asuransi Jiwa Indonesia (AAJI), the insurance industry recorded slow total premium income with compound annual growth rate up to 0.98%. Although Covid-19 pandemic has hampered the growth of life insurance industry resulting in a decline in premium income by 2.2% in 2020 compared to 2019 (AAJI, 2022), nevertheless, the insurance penetration are remains struggling to raise in year-on-year basis for the past 5 years. (Mutia, 2022) Figure I.1 Life Insurance Premium Income (Source: e-reporting AAJI, 2022) Figure I.2 Indonesia Insurance Penetration (Source: KataData, 2022) 2 Moreover, based on the results of the 2019 National Financial Literacy and Inclusion Survey conducted by OJK, the rates of insurance literacy and inclusion were remained at a relatively low compared to banking industry on nationally. Insurance literacy and inclusion were at 19.40% and 13.15% while far beyond national level at 38.03% and 76.19% which reflects the limited access and use of insurance (OJK, 2019). Insurance companies throughout the world are constantly looking for new area to sell their products, although insurance is a legacy business and facing several challenges in today’s market which required the ability of an insurance company to be able to adapt and innovate due to: 1. increasing competition, as insurance industry is highly competitive and constantly striving to differentiate themselves and offer more attractive products and services to customers. 2. changing customer expectations, as customers are becoming more demanding and expect personalized products and services, which pushed insurance companies to keep up with changing expectations to remain relevant. 3. technological disruption, the raise of insurtech companies with their advance technology are transforming the way of how insurance product distributed and sold to the customers. Therefore, it is important to DELI to understand the opportunity of digital insurance industry in Indonesia and behaviour of Millennials and Generation Z as target market. A population census data based on 2022 Statistical Yearbook of Indonesia shows that 70.72% of Indonesian population in productive age range of 15 to 64 years old (BPS - Statistic Indonesia, 2022). The Generation Z who born between 1997 to 2012 and Millennials born between 1981 and 1996 are the largest generation in Indonesia with 27.94% and 25.87% of the total population (IDN Research Institute and Populix, 2022). The results of the 2020 Population Census show that Generation Z dominates the population of Indonesia. There is a total of 74.93 million or 3 27.94% of the total population of Indonesia. Generation Z is currently estimated to be between 8 and 23 years old. Not all members of Generation Z are currently of working age, but in approximately seven years, the entire Generation Z will enter the working age. The largest population composition is found in the working-age group, which includes Millennials with a total of 69.38 million or 25.87%. Figure I.3 Millennials and Generation Z Population Percentage in Indonesia (Source: Population Census, 2022) Indonesia entering the demographic dividend in 2021 and will lead Indonesia achieve its golden period in 2045 due to the productive-age population account for close to 71% and its birth rate continue to decline. The window for a demographic bonus was opened in 2012 and will be closed in 2036, with the peak happened in 2021 (Suhariyanto, 2021). A demographic dividend for Indonesia is predicted to be a catalyst to stimulating the economic growth and will be a potential for DELI to focus on tapping the Millennials and Generation Z as prospective target market. Referring to the research suggestions on 2022 Indonesia Millennials Report stated that, government and financial service provider shall go beyond financial literacy, provide actual nudges to help Millennials secure their future. Instead of berating Millennials for not saving and failing to own a 4 home or start an investment, help them from falling deeper into the temporal discounting bias (IDN Research Institute and Populix, 2022). Figure I.4 Segmentation Size of Life Insurance Industry (Source: DELI and Nielsen, 2021) Furthermore, in research conducted by DELI and Nielsen in 2021, as depicted in Figure 1.4, it was revealed that the mass market segment consists of two primary target segments. The research, which involved 1,688 participants, unveiled that Generation Z constitutes 34.30% of the segment, closely followed by Millennials at 32.26%. Generation X and Baby Boomers make up 21.88% and 11.56% of the segment, respectively. These findings highlight the significant presence of younger generations within the mass market. Interestingly, the study also delved into life and health insurance ownership, shedding light on a noteworthy trend. Specifically, the research unveiled that Generation Z and Millennials possess a mere 5% and 9% ownership of life and health insurance, indicating a substantial gap when compared to Generation X and Baby Boomers. This discrepancy emphasizes the untapped potential within the younger generations for the life insurance industry. GEN-Z MILLENNIALSGEN-XBABY BOOMER Population Percentage34.30%32.26%21.88%11,56% Gender Male:59%, Female: 41%Male:67%, Female: 33%Male:65%, Female: 35%Male:62%, Female: 38% Averageage (y.o) (1997 -2012) 23.5 (1981 -1996) 32.0 (1965 -1980) 48.3 (1946 -1964) 64.1 Ownershipof Life & Health Insurance (self-purchased) 5% 9% 18% 13% Intention (T2B) (NETT)*71% 80% 75% 79% Premium willing to pay (Rp)* 295.864 299.674 738.633 538.633 * NETT Insurance : Life insurance (conventional/sharia), health insurance (conventional/sharia) SIZE OF THE SEGMENT 14% PRIMARY TARGET MARKET EXISTING MARKET 22%33% 31% POPULATION 5 URBAN CITIES 1,020,209 5 URBAN CITIES 991.833 5 URBAN CITIES 541,021 5 URBAN CITIES 178,404 5 Moreover, the study investigated the purchase intentions of life insurance products, both conventional and sharia-compliant, among respondents. Impressively, 71% of participants expressed a keen intention to purchase insurance, with an even higher figure of 81% observed among the respondents. Furthermore, the respondents indicated a willingness to pay a premium price ranging from IDR 295,864 to Rp 299,674. Intriguingly, the size of the Generation Z and Millennial segments is noteworthy, accounting for a combined 64% of the population within the mass market segment. This compelling statistic underscores the substantial influence and potential of these two segments. The data also revealed a heightened intention among non-insurance users from these segments to obtain insurance coverage. When extrapolated to a larger scale, the total estimated population of the primary target market across the 5 (five) main urban cities (Jakarta, Bodetabek, Surabaya, Medan, and Makasar) reaches a significant figure of 2,012,042 population. This indicates a substantial and untapped market opportunity for the life insurance industry within these key urban cities. I.2 Company Profile I.2.1 Company’s Description Delta Echo Lima Insurance Group Limited, a pseudo name, is a leading multinational life insurance company in Asia-Pacific and has a presence in 18 markets – wholly owned branches and subsidiaries in Mainland China, Hong Kong SAR, Thailand, Singapore, Malaysia, Australia, Cambodia, Indonesia, Myanmar, New Zealand, Philippines, South Korea, Sri Lanka, Taiwan, Vietnam, Brunei and Macau SAR, and a 49% join venture in India. It is world’s 2 nd largest insurer by market capitalization, a market leader in Asia based on life insurance premiums and holds leading positions across the majority of its markets. DELI Group meets the long-term savings and protection needs of individuals by offering a range of products and services including life insurance, accident and health insurance and savings plans. The DELI Group also provides employee benefits, credit life and pension services to corporate clients. Through an extensive network of agents, partners and 6 employees across Asia, DELI Group serves the holders of more than 41 million individual policies and over 17 million participating members of group insurance schemes with total assets of US$303 billion as of 31 December 2022. PT DELI is one of the leading life insurance companies in Indonesia and is a life insurance company registered with and supervised by the Financial Services Authority. DELI in Indonesia is a subsidiary of the DELI Group. DELI offers a variety of insurance products, including insurance with Sharia principles, which include life insurance, health insurance, personal accident insurance, insurance linked to investments, employee welfare programs, and the Pension Fund program (DPLK). These products are marketed by experienced and professional salespeople through various distribution channels such as Agency, Bancassurance, Corporate Solutions (Pension & Employee Benefits), Direct Marketing, and Telemarketing. I.3 Business Issue Despite the growth of Indonesia population, the challenge of insurance industry is mainly due to low and stagnant insurance penetration and inclusion over the years, including the negative perception of insurance. According to internal research of DELI, the main issues are: Figure I.4 The Challenge of Insurance Industry (Source: DELI internal research, 2021) According to Q1 2023 Insurance Market Data by Indonesia Financial Services Authority (OJK) the total asset of life insurance company slightly 7 dropped to 0.89%, following is the list of top 10 insurance companies with the largest assets: Figure I.5 Top 10 Insurance Company with Largest Assets (Source: OJK, 2023) Moreover, despite DELI having secured the position of the fourth largest asset among insurance companies in Indonesia, it has not been regarded as the preferred insurance provider by Indonesian customers when it comes to purchasing insurance products based on Statista data published in 2022. Figure I.6 Indonesian Preferred Insurance Providers (Source: Statista, 2022) This indicates that despite their significant market presence, DELI has not been successful in capturing the loyalty of the Indonesian customer base in Company A, 67 Company B, 58,74 Company C, 52,58PT DELI, 45,15 Company D, 38,73 Company E, 37,02 Company F, 21,19 Company G, 22,17 Company H, 25,24 Company I, 21,62 TOTAL ASSET (IN TRILLION) Company A 27% Company B 17% Company C 15% Company D 12% Company E 8% PT DELI 5% Others 16% PREFERRED INSURANCE 8 comparison to other insurance providers.