Jakarta. Indonesia's general insurance industry is facing mounting pressure in its credit insurance business as claim costs outpace premium growth and higher interest rates threaten to worsen loan quality, raising concerns about profitability and risk exposure across the sector.

The credit insurance loss ratio climbed above 100% again in the first quarter of 2026, signaling that insurers paid out more in claims than they collected in premiums, according to data from the Indonesian General Insurance Association (AAUI).

The association reported a claim ratio of 102% during the January-March period. Credit insurance claims rose 17% from a year earlier to Rp 4.2 trillion ($236 million), while premium income increased only 3.2% to Rp 4.1 trillion.

The deterioration comes despite Indonesia's relatively strong economic growth, suggesting that gains in the broader economy have yet to fully translate into stronger business conditions and household purchasing power.

"The question is whether economic growth has truly reached the real sector," AAUI Chairman Budi Herawan said in Jakarta. "This remains a shared challenge."

Rising Credit Risks
The worsening claims trend coincides with signs of weakening credit quality in Indonesia's financial sector.

Data from the Financial Services Authority showed gross non-performing loans in the banking sector increased to 2.14% in March 2026 from 2.05% at the end of 2025. Loan-at-risk ratios also rose to 8.94% from 8.77%.

The financing industry experienced similar pressure. Gross non-performing financing climbed to 2.83% from 2.51%, while net non-performing financing edged up to 0.8% from 0.77%.

AAUI Deputy Chairman for Statistics, Research and Analysis Heri Supriyadi said the rising claims ratio serves as a warning signal for the industry, adding that insurers may become more selective in underwriting credit insurance if current trends continue.

"Insurance companies are not only collecting premiums, but they also face rising reserve requirements as claims increase," Heri said. "This ultimately puts pressure on industry profitability."

New Accounting Rules Increase Pressure
The implementation of PSAK 117, Indonesia's latest insurance accounting standard, is also expected to encourage insurers to focus on business lines with healthier and more measurable risks.

According to Heri, the new accounting framework requires insurers to hold larger reserves for riskier businesses, making credit insurance portfolios with high claim rates less attractive.

"This standard encourages the industry to enter higher-quality businesses," he said. "If the risk is too high, companies need to reconsider because it will increase reserve burdens."

Higher Interest Rates Add Risks
Higher interest rates are adding another layer of concern.

Bank Indonesia's tighter monetary policy and elevated benchmark interest rates could weaken borrowers' repayment capacity, particularly among companies experiencing limited growth.

"When interest rates rise, companies with weak growth become increasingly vulnerable in meeting their obligations," Heri said. "This has the potential to increase problematic loans."

Although not all bank loans are covered by insurance, deteriorating credit quality across the financial system could still lead to higher insurance claims.

Bank Indonesia has raised its benchmark BI Rate to 5.75%, bringing cumulative rate hikes to 100 basis points over the past month.

Portfolio Consolidation Under Danantara
At the same time, the government is reportedly encouraging the consolidation of credit insurance and guarantee portfolios among several state-owned enterprises under Danantara Indonesia, the country's sovereign wealth fund.

The initiative aims to centralize risk management within institutions specializing in credit guarantees, including state-owned guarantor Jamkrindo.

Under the proposed structure, general insurers would increasingly focus on traditional insurance lines, while credit guarantee businesses would be handled by specialized institutions.

"Going forward, general insurance companies will focus on business lines that match their characteristics," Heri said. "Credit insurance will be managed by institutions that specialize in guarantees."