Jakarta. The upcoming mandatory vehicle insurance is set to face challenges ahead, according to the Indonesian General Insurance Association (AAUI).

The Financial Services Authority (OJK) is planning to impose a mandatory third-party liability insurance on all vehicles, including motorbikes and cars. This policy is set to enter into force in Jan. 2025. AAUI’s executive director Bern Dwyanto said this policy would likely meet some challenges from both the customer and industry’s standpoint.

“[Financial] literacy and inclusion among Indonesian consumers is still low,” Bern recently said, while adding this could make people hesitant to get their vehicles insured.

Some people might have a hard time choosing their insurance product as there are now more options than ever. The complexity of each product also differs, thus making it harder for people to understand. From an industry standpoint, the insurance penetration in Indonesia is still low, thus many people are still unaware why it is important to have vehicle insurance. According to the OJK and the 2022 ASEAN Insurance Surveillance report, Indonesia’s insurance penetration is still somewhat falling behind other Southeast Asian countries. As a case in point, the level of Indonesia’s insurance penetration is at 2.7 percent, compared to Singapore’s 12.5 percent and Thailand's 4.6 percent.

“Indonesia’s insurance penetration stands at 2.7 percent. This is higher than that of the Philippines [2.5 percent], but we are still behind Malaysia [3.8 percent]. But compared to advanced economies, third-party liability insurance has become mandatory,” Bern said.

Despite these challenges, this upcoming mandatory insurance can help lessen the government’s financial burden when it comes to compensating victims of car accidents. However, there are some things that the government needs to take note of before this policy comes into effect. For instance, regulators should allocate their supervisory resources effectively and efficiently.  There is also a need to adjust the supervisory regulations with international standards.

“We also need to develop the insurance industry ecosystem. Followed by digital transformation as well as regulatory and supervisory improvements,” Bern said.