This weekly newsletter chronicles top digital themes and trends playing out in SE Asia, especially Indonesia. We will decode policy and regulatory changes affecting digital economy sectors, crunch earnings data of top players, track developments related to gig economy workers and attempt to piece together ecosystem buildouts in some of the fastest-growing, venture-backed plays. You can access the previous 35 editions of the Vantage Point weekly posts here.
Executive Summary
- PasarPolis transitions to full-stack insurtech play
- Moving beyond payments
- Cimory’s latest fundraising is a hat tip to its focus on growth
PasarPolis transitions to full-stack insurtech play
Indonesia’s insurance market continues to attract interest from both traditional players as well as tech platforms on account of the country’s low rates of penetration and consequently high growth potential.
Insurance penetration in the country, with a population of 270 million, ranks among the lowest in the world at less than 2%, with only 4.5 million Indonesians carrying a policy, according to Mordor Research.
The market potential is huge given half of Indonesia’s population is under the age of 30, with the number of millennials (aged 17-35) presently at 79.5 million. Also, gross insurance premiums in Indonesia make up 1.99% of GDP versus 3.9% of GDP for Emerging Asia while insurance density stands at $82 per capita versus $207 for Emerging Asia.
These statistics indicate that there is a lot of room for growth in a country where insurance adoption is largely confined to upper-middle-class customers.
The rise of insurtech – digital distribution channels, messaging platforms, and online sales channels – has helped broaden the insurance market in Indonesia.
As of March 2022, there were some 152 insurance companies and 227 insurance intermediaries operating in Indonesia. Life insurance was the biggest segment at 40% of total gross insurance premiums in 2020, with social insurance coming next with a 39% share and non-life insurance and reinsurance at 19%. Mandatory insurance accounted for 2.6% of overall premiums, while gross contributions from Sharia insurance were equivalent to 3.2% of total insurance income.
One of the top three insurtech players in Indonesia, PasarPolis, became the first official full-stack insurance ecosystem after it signed a strategic collaboration with Tap Insurance. The latter recently gained a full licence from the OJK to operate as an insurance underwriter.
The company claims having a full-stack ecosystem will simplify the process and make it more affordable for customers. It will also use advanced technologies and data to streamline its underwriting and claims processes.
Founded in 2015, PasarPolis has a total of 60,000 registered agents, working with 50 insurance partners plus 40 ecosystem partners including Tokopedia, Gojek, Traveloka, Xiaomi, and IKEA Indonesia.
PasarPolis, which started as an aggregator of insurance policies, moved to provide microinsurance products through a partnership with one of its investors, Gojek. Microinsurance products offer individuals coverage starting from as low as IDR8,000 ($0.53) a month.
In order to boost the distribution of these products, the company launched PasarPolis Mitra, providing agents with customer relationship management software, helping them to become more effective in selling products.
PasarPolis has raised a total of $59 million to date from a roster of investors that include East Ventures, GoTo, Traveloka, Alpha JWC Ventures, Intudo Ventures, Leapfrog Investments, SBI Investment, Xiaomi, and IFC. Its investors like GoTo, Traveloka, and Xiaomi, provide valuable ecosystems for distributing insurance or insuring products.
The platform’s main competitors are Fuse and Qoala, with Fuse having raised $70 million in new funds to date and Qoala closing its Series B round at $65 million last year. Fuse has a strategic collaboration with Grab, providing it with a valuable regional ecosystem.
From a scale perspective, the gross written premiums of insurtech players remain a very small portion of Indonesia’s insurance industry, which reached $18 billion in 2020. The three biggest international insurance companies operating in Indonesia include Prudential, Allianz, and AIA, and each of these had gross written premiums of between $1 billion and $1.5 billion, according to OJK data.
Fuse is the only digital player that has revealed its gross written premium number at $105 million in 2021, claiming a market share of 2% in general insurance.
PasarPolis claims it is not fixated with headline gross written premiums but instead focuses on profitability, claiming that it is EBITDA positive on all products.
Being a full-stack insurer will allow PasarPolis to own the whole customer experience and become more flexible in creating products, according to the company. Creating independent products means that it will compete with heavyweight insurance companies rather than being their technology partner. This could lead to potential conflicts of interest.
Furthermore, as the larger offline players decide to move aggressively into the digital space, they are more likely to tap into the experience and technology of insurtech players, which could serve as a tailwind for these startups.
Insurtech firms tend to focus on distribution and claims, with full-stack players also involved in underwriting, finance and reinsurance. This means that insurtech players normally work with insurance companies that do the underwriting, which determines the premium price for the customer.
Insurtech firms work like wholesale brokers enabling customers to choose insurance plans, which makes them dependent on the underlying insurance company and its willingness to underwrite policies.
The advantage of being a full-stack player is that it allows much greater flexibility in creating and pricing products.
The move will allow PasarPolis to create much smaller premium-payment products for customers based on reams of data from its strategic partners. It does not necessarily cannibalise its existing partnerships with insurance companies, given different target markets.
It is more likely to help smoothen its customer’s journey and enable it to build on its existing ecosystem without having to always rely on third parties for pricing risk.
Moving beyond payments
Indonesia’s fast-growing fintech sector is at a turning point.
Well-funded startups are increasingly having to move out of their core businesses to seek out more profitable veins of business.
Xendit has openly stated that it will not stay exclusively in the payments business but move into other value-added businesses from fraud prevention, back office, and sub-ledger services to even lending even though there is still room for expansion in digital payment services.
While payment gateway service is an inherently low-margin business, it does lend clear visibility of customer transacting history, which, in turn, provides valuable data to assess underlying customers.
Access to this data enables Xendit to better understand other services it can offer to potential customers, be it bookkeeping, BNPL, or lending. The company has already invested in Indonesia’s Bank Sahabat Sampoerna to help provide funding and grow its lending business over time, although this is at an early stage.
Xendit has also been extending its services into other markets including initially the Philippines in 2020, and most recently Malaysia, with the aim of replicating its success in Indonesia. It is also close to kicking off its business in Thailand and Vietnam.
Xendit recently started offering its payment gateway solutions for SMEs in the Malaysian market in January 2023, investing an undisclosed amount into Payex, a Bank Negara Malaysia-licenced payment gateway provider.
Xendit has already secured funding from Penjana Kapital, a fund supported by the Malaysian government, which will help it to navigate the Malaysian market. In May 2022, Xendit raised $300 million in funding from Coatue and Insight Partners.
The platform already has a well-developed ecosystem of more than 3,500 active customers including numerous digital economy players such as Traveloka, Ninja Van, and Grab, and a large base of SME clients.
To give an idea of the scale of its operations, Xendit recorded 200 million transactions in 2021 with a value of over $15 billion. Its main competitors in Indonesia include GoTo’s Midtrans, which is probably slightly smaller, as well as Doku, backed by Emtek Group.
Xendit’s regional expansion is primarily driven by its customers, who also have a regional presence including online travel agents Traveloka and Tiket.com. Xendit has also made acquisitions in both the Philippines and Malaysia to provide it with a springboard for growth.
The platform is looking into other services such as ledger management, fraud detection system, and e-KYC systems but banking-as-a-service will enable Xendit to provide services such as current and savings accounts through one platform, with the next stage being lending.
Barriers to entry for payment services in Southeast Asia are fairly high given its complex local regulations and the requirement for players to integrate their platforms with every bank, wallet, and retail outlet in each country. Amid this backdrop, Xendit’s move into the region, through strategic acquisitions, seems like a sensible one.
Cimory’s latest fundraising is a hat tip to its focus on growth
Despite the ongoing funding winter, there is a fair amount of dry powder in the market looking to invest in high-growth companies with strong and differentiated local brands.
Case in point: PT Cisarua Mountain Dairy, or Cimory — the IDX-listed dairy products and foods company in which the global private equity firm General Atlantic invested $130 million earlier this month.
The investment, equivalent to a 5.64% stake, suggests that companies with sustained growth and improving profitability can still attract investor interest.
Cimory had released a strong set of numbers for the first nine months of 2022, clocking sales of 4.7 trillion rupiah (around $310 million) — up 76% YoY — primarily driven by higher volumes from dairy products and consumer foods, with the latter seeing exceptional sales growth of 125% YoY. Dairy products comprised 56% of 9M 2022 sales, with premium foods accounting for the rest.
Cimory, which went public raising around $255 million in December 2021, will use the proceeds from the General Atlantic investment to develop and innovate products, expand and strengthen its distribution network, and ramp up digital marketing efforts.
The company’s original philosophy was to help improve the local dairy farmer’s yields, which are around half of that in the West. It was founded in 2006 out of what was then a restaurant business with a modern dairy theme, with the first outlet outside Jakarta. This outlet had a mini-factory, initially producing dairy products for the restaurant.
The initial investment for its main factory came from the founding family, with an additional 350,000 euro grant from the Dutch government. This enabled the company to set up its main factory in Sentul, just outside Jakarta.
The company’s initial move into yoghurt was driven by the need to differentiate its products since the main focus of the market was on ultra-high temperature (UHT) milk. It started off producing yoghurt drinks in 70 ml to 240 ml units and now has a 70% market share in this space. It then moved into yoghurt pouches in 2019, providing a convenient way to consume the product. Cimory has launched 12-13 flavours in its yoghurt pouch range, including mango sticky rice, blueberry, strawberry, and brown sugar.
Cimory’s target customer base is the 18-35 year-olds, and although parents may buy for kids, the company does not promote for kids directly. It has moved its entire advertising spend to social media with no billboards or TV ads, setting it apart from other staples companies.
Its main competitor in this space is Greenfields, but consumers often find its products too sour for the Indonesian palate.
In early 2020, the company started selling sausages in bulk to supermarkets and hypermarkets. It then developed Kanzler — a ready-to-consume beef sausage, which has proved to be very popular. Cimory has now extended the Kanzler range to include ready-to-eat meatballs.
The company is laser-focused on growing new capacity across the board, especially for UHT milk, which is a relatively new market for Cimory. This is an attractive space given the low penetration rates for dairy products in Indonesia.
Cimory has taken a differentiated approach to UHT by launching a range of confectionary flavours including chocolate mint, hazelnut, almond, and low-sugar chocolate. It is also targeting the high-end market by selling at a 5-7% premium to its competitors.
It is focused on modern trade distribution (54% of sales), with around 40% of sales still going through Indomaret and Alfamart stores alone, but the company has been growing general trade as well.
General Atlantic is no stranger to the Indonesian consumer space, having invested in Pt Map Boga Adiperkasa Utama, which runs Starbucks in Indonesia and a number of other F&B operations. It also has a war chest of around $2 billion to put to work in the Southeast Asian region.
There are a number of other players in the Indonesian consumer space that are also raising money or aiming for an IPO — Kopi Kenangan, which is returning to profitability after the pandemic hit; SATURDAYS, with its omnichannel approach to sales; and Hypefast, which helps Indonesian fashion brands go online through multiple channels.
All of the above-mentioned brands are already or close to being profitable, have a strong and differentiated local brand plus have shifted the business into the offline space to sustain growth and improve profitability.
This combination of factors makes them attractive to investors even in the current climate, where Southeast Asia, specifically Indonesia, is a bright spot amid, what some have called, the warm winter for funding.
Angus Mackintosh, a consulting editor with DealStreetAsia, is responsible for the publication’s Southeast Asia digital economy weekly newsletter and its monthly research reports. Angus is also the founder of CrossASEAN Research and publishes on Smartkarma.