AM Best expects robust premium growth, but medical inflation continues to weigh on earnings.
Indonesia’s non-life insurance sector will likely maintain a stable outlook, but rising claims costs and competition continue to weigh on insurers’ profitability.
In its October 8 report, AM Best said “prospective premium growth is expected to remain robust,” but profitability remains constrained by claims inflation and competitive market conditions.
The stable outlook will be supported by economic growth and regulatory measures, according to AM Best.
Indonesia’s real gross domestic product (GDP) growth is forecast to ease from 5.1% in 2025 to 5.0% in 2026, according to the International Monetary Fund.
Domestic demand, private investment, government spending and infrastructure development are expected to support economic activity.
However, weaker global demand, lower prices for key exports and higher energy costs pose risks to the economic outlook. Inflation is expected to rise from 1.9% in 2025 to 3.0% in 2026.
Bank Indonesia raised its policy rate by 25 basis points to 5.75% in June 2026 amid pressure on the rupiah and rising commodity prices.
Regulatory changes are also expected to affect insurers’ capital requirements and risk management. Under OJK Regulation No. 23 of 2023, insurers and reinsurers must meet higher minimum equity requirements in phases, with the first phase taking effect on 31 December 2026.
Most insurance and reinsurance companies had met the initial minimum equity requirement of $14m (IDR250b) as of July 2026.
However, AM Best said meeting the requirement would remain a challenge for financially weaker non-life insurers with limited financial flexibility.
The industry is also preparing for a new risk-based capital framework, with regulatory reporting expected to begin in 2027.
The framework aims to make solvency requirements more sensitive to risk and bring them closer to international standards.
Health insurance remains a key source of demand, but medical inflation and increased healthcare utilisation continue to pressure earnings. Insurers have responded with pricing adjustments, stricter benefit management and changes to product features.
A regulatory update is expected to help manage these pressures. OJK Regulation No. 36 of 2025, effective 22 March 2026, allows optional copayments for new and renewed indemnity-based health policies.
Insurers must still offer at least one product without copayment, whilst copayments on eligible policies are capped at 5% of claim costs, subject to prescribed limits.
AM Best said the measure “may improve non-life insurers’ risk profiles by encouraging greater cost-sharing and reducing utilisation-driven claims pressure”, helping to stabilise earnings.
Credit insurance has also faced weaker performance, with rising non-performing loans and higher paid claims worsening its loss ratio.
Mandatory risk-sharing measures between financial institutions and insurers are expected to improve risk profiles, although underwriting results may remain volatile in the near term.
Despite these pressures, the health insurance segment’s claims experience improved in the first half of 2026.
Insurers also continue to benefit from access to domestic and international reinsurance markets.
AM Best said reinsurance remains an important tool for managing earnings volatility and protecting insurers against catastrophic losses, particularly in property and engineering insurance.