Indonesia's life insurance sector hopes to pave the way in establishing public-private partnerships (PPPs) to fund infrastructure developments in the country and the wider Southeast Asia region, Ms Evelina Pietruschka, President Commissioner of WanaArtha Life, told Asia Insurance Review.
Ms Pietruschka, who is also Secretary-General of the ASEAN Insurance Council and who was attending the recently-concluded World Economic Forum in Davos, Switzerland, believes the ASEAN insurance industry has a key role to play in bridging the infrastructure gap in the region. She hopes that Indonesia can take the lead in creating a viable partnership model between the insurance industry and the public sector.
“The World Economic Forum is supporting Indonesia through a business working group to assess what public-private partnership projects can be done, and so far two projects have been discussed and we are left to finalise some of the technical details,” she said, adding she was hopeful that the projects can get off the ground in the next one to two years.
Ms Pietruschka added: “We hope through our discussions in Davos, we can come up with the right PPP model that can be replicated in other ASEAN markets in order to generate the funds that would help drive infrastructure development.”
The Asian Development Bank estimates that Southeast Asia requires up to US$60 billion in additional investment yearly to bridge its current infrastructure gap.
Issues to overcome
Due to the long-term nature of life insurers' liabilities, insurance funds have the ability to invest for longer durations which suits the profile of infrastructure investments.
However, there are obstacles to be overcome to facilitate greater flow of funds between the insurance sector and the capital markets in the ASEAN region, including the need to standardise legal frameworks to allow for greater certainty for institutional investors in the region.
In that regard, the Indonesia insurance industry has been working with key stakeholders to reduce some disincentives that may hinder investment from insurers.
“In terms of accounting treatment, we have recommended to the government that companies that invest in infrastructure would not incur risk capital charges,” said Ms Pietruschka.
She also pointed out that the industry had successfully lobbied for insurers to be given more flexibility in determining their investment options.
Previously, Indonesian life insurers were required to invest at least 30% of their funds in government bonds in order to support government infrastructure development programmes. But a limited supply of the bonds had meant that insurers were forced to buy the securities in the secondary market – at a time of high prices and declining yields.
However, in the middle of last year, the Financial Services Authority (OJK) expanded the options for the required investment to include infrastructure bonds issued by state-owned companies.
AIC to play supportive role
Moving forward, the AIC plans to be the bridge to drive conversations between ASEAN member states and their local insurance companies to encourage vital investments into infrastructure projects throughout the region.
Later in November this year, the AIC will be organising the ASEAN Insurance Summit in Kuala Lumpur where issues of long-term investments, disaster-risk financing and digitalisationwould feature high on the agenda.