Big Paper GBE Yodhi

PAPER OF GENERAL BUSINESS ENVIRONMENT

EXTERNAL ENVIRONMENT ANALYSIS OF PT ASURANSI JIWA ADISARANA WANAARTHA

Lecturer: Prof. Dr. Basu Swastha Dharmmesta, MBA

Yodhi Kharismanto 12/341305/PEK/17394 International Class  –  Batch  Batch 60

Master of Management Universitas Gadjah Mada Yogyakarta 2011

Table of Contents ........................................................................................................... 7 CHAPTER I: INTRODUCTION ............................................................................................................

1.1.

............................................................................................................................. ............................................................ 7 Background .................................................................

1.2.

.................................................................................................................. ................................................. 7 Problem Statement .................................................................

1.3.

................................................................................................................. .................................................. 7 Research Objective ...............................................................

1.4.

Research Methods ................................................................................................................... 7

................................................................................................... ...................................... 9 CHAPTER II: COMPANY PROFILE .............................................................

2.1.

................................................................................................................ .................................................. 9 About the Company ..............................................................

2.2.

............................................................................................................... ................................................ 10 Vision and Mission ...............................................................

2.3.

.................................................................................................................. ............................................... 10 Company‘s Company‘s Value...................................................................

2.4.

............................................................................................................................... ...................................................................... ... 11 Awards ............................................................

.................................................................................... ......................... 13 CHAPTER III: BUSINESS ENVIRONMENT ...........................................................

3.1.

........................................................................................................................ 13 Demographic .........................................................................................................................

3.1.1.

................................................................................................................... ............................................... 18 Opportunity ....................................................................

3.1.2.

.......................................................................................................................... 19 Threats. ..........................................................................................................................

3.1.3.

................................................................................................... ..................................... 19 Business Implications ..............................................................

3.2.

..................................................................................................................................... ...................................................................... 20 Social...............................................................

3.2.1.

................................................................................................................... ............................................... 23 Opportunity ....................................................................

3.2.2.

.......................................................................................................................... 23 Threats. ..........................................................................................................................

3.2.3.

................................................................................................... ..................................... 24 Business Implications ..............................................................

3.3.

.............................................................................................................................. ...................................................................... ... 24 Cultural ...........................................................

3.3.1.

................................................................................................................... ............................................... 27 Opportunity ....................................................................

3.3.2.

.......................................................................................................................... 27 Threats. ..........................................................................................................................

3.3.3.

................................................................................................... ..................................... 27 Business Implications ..............................................................

3.4.

Domestic Political ................................................................................................................. 28

3.4.1.

................................................................................................................... ............................................... 31 Opportunity ....................................................................

3.4.2.

.......................................................................................................................... 31 Threats. ..........................................................................................................................

3.4.3.

................................................................................................... ..................................... 32 Business Implications ..............................................................

3.5.

International Political ............................................................................................................32

3.5.1.

................................................................................................................... ............................................... 37 Opportunity ....................................................................

3.5.2.

.......................................................................................................................... 37 Threats. ..........................................................................................................................

3.5.3.

................................................................................................... ..................................... 38 Business Implications ..............................................................

3.6.

................................................................................................................................... ...................................................................... 38  Natural.............................................................

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3.6.1.

................................................................................................................... ............................................... 43 Opportunity ....................................................................

3.6.2.

.......................................................................................................................... 44 Threats. ..........................................................................................................................

3.6.3.

................................................................................................... ..................................... 44 Business Implications ..............................................................

3.7.

....................................................................................................... .................................... 45 Information Technology ...................................................................

3.7.1.

................................................................................................................... ............................................... 50 Opportunity ....................................................................

3.7.2.

.......................................................................................................................... 51 Threats. ..........................................................................................................................

3.7.3.

................................................................................................... ..................................... 51 Business Implications ..............................................................

3.8.

.............................................................................................................. ................................................ 52 Process Technology ..............................................................

3.8.1.

................................................................................................................... ............................................... 54 Opportunity ....................................................................

3.8.2.

.......................................................................................................................... 54 Threats. ..........................................................................................................................

3.8.3.

................................................................................................... ..................................... 55 Business Implications ..............................................................

3.9.

....................................................................................................................... 55 Governmental ........................................................................................................................

3.9.1.

................................................................................................................... ............................................... 57 Opportunity ....................................................................

3.9.2.

.......................................................................................................................... 57 Threats. ..........................................................................................................................

3.9.3.

................................................................................................... ..................................... 57 Business Implications ..............................................................

3.10.

Economic Development .................................................................................................... 58

3.10.1.

................................................................................................................... ............................................... 61 Opportunity ....................................................................

3.10.2.

.......................................................................................................................... 61 Threats. ..........................................................................................................................

3.10.3.

................................................................................................... ..................................... 61 Business Implications ..............................................................

3.11.

Regional Economy ............................................................................................................ 62

3.11.1.

................................................................................................................... ............................................... 63 Opportunity ....................................................................

3.11.2.

.......................................................................................................................... 63 Threats. ..........................................................................................................................

3.11.3.

................................................................................................... ..................................... 64 Business Implications ..............................................................

3.12.

............................................................................................. .................................... 64 Industry & Sectoral Policies .........................................................

3.12.1.

................................................................................................................... ............................................... 65 Opportunity ....................................................................

3.12.2.

.......................................................................................................................... 66 Threats. ..........................................................................................................................

3.12.3.

................................................................................................... ..................................... 66 Business Implications ..............................................................

3.13.

.............................................................................................. 66 Monetary & Fiscal Policies ...............................................................................................

3.13.1.

................................................................................................................... ............................................... 69 Opportunity ....................................................................

3.13.2.

.......................................................................................................................... 69 Threats. ..........................................................................................................................

3.13.3.

................................................................................................... ..................................... 70 Business Implications ..............................................................

CHAPTER IV: CONCLUSION AND RECOMMENDATION .......................................................... 71 4.1.

............................................................................................................................ .......................................................... 71 Conclusion ..................................................................

4.1.

.................................................................................................................. ............................................... 73 Recommendation ...................................................................

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4.2.

Future Condition of the Industry ........................................................................................... 74

REFERENCES .......................................................................................................................................... 75

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List of Tables Table 3.1. World Population .............................................................................................................13 Table 3.2. Land Area of Indonesian Region...................................................................................14 Table 3.3. Population and Population Density of Indonesian Provinces

.................................. 16

Table 3.4. Human Development Index Indonesia ..........................................................................18 Table 3.5. What the generation Y thinks ......................................................................................... 21 Tabel 3.6. Gross Regional Domestic Product DI Yogyakarta in million rupiah ....................... 62 Table 3.7. BI rate in Indonesia from January 2011 –  May 2013 ................................................. 68 Table 4.1. Research Summary .......................................................................................................... 71

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List of Figures Figure 3.1. Growth of new PRI vs FDI flows in developing countries....................................... 35 Figure 3.2. Demand of Political Risk Insurance ............................................................................ 36 Figure 3.3. Spread of disasters from 1815 –  2013 in Indonesia ................................................... 3 9 Figure 3.4. Spread of disasters from 1815 –  2013 by each Province in Indonesia .................... 39 Figure 3.5. Spread of disasters from 1815 –  2013 by the Type of Disasters Province in Indonesia..............................................................................................................................................40 Figure 3.6 Web 1.0 and Web 2.0

.................................................................................................... 4 6

Figure 3.7. WanaArtha Life Website ............................................................................................... 4 7 Figure 3.8. Software Risk Management Steps ...............................................................................53 Figure 3.9. World Corruption Perception Index 2012...................................................................56 Figure 3.10. Disposable Income of Housholds in Indonesia ........................................................ 59

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CHAPTER I: INTRODUCTION

1.1.

Background Insurance is a part of everyday life. Insurance provides protection for people and

companies with protection against large financial losses due to damage or loss of property. In exchange for periodic payments or premiums, individuals and companies that are guaranteed to be compensated or replaced under the terms of the insurance policy. Insurance industry is one of the emerging industries in Indonesia. There are several insurance well-known insurance companies in Indonesia. People in Indonesia are now more aware about the usefulness of subscribing on particular insurance. There so many insurance  products in Indonesia, for example life insurance, car insurance, and so on. WanaArtha Life insurance is one of the insurance companies in Indonesia. There are two types of WanaArtha Life insurance, common insurance and sharia insurance. Under the name PT Asuransi Jiwa Adisarana Wanaartha, WanaArtha Life insurance company has spread in various regions in Indonesia. In running the business activities, WanaArtha Life insurance faces several external  business environments. This paper will talk about the several external factors that may impacts the company and identify the threats and opportunities behind that factors. Furthermore, it will also talk about the implication for the business itself that impact the PT Asuransi Jiwa Adisarana Wanaartha‘s business activities.

1.2.

Problem Statement What are threats and opportunities generated by external factors to PT Asuransi Jiwa

Adisarana Wanaartha and their implications to company business?

1.3.

Research Objective The objectives of this research are to identify threats and opportunities generated by

external factors related to PT Asuransi Jiwa Adisarana Wanaartha and to identify their implications to company business.

1.4.

Research Methods To answer above research question, the researcher conducts literature study which

analyses secondary data gathered from the company data, governmental statistical data, and other data. To ease the analysis company‘s extern al factors, the researcher limits the 7

discussion on these topics below: demographical, social, cultural, domestic political, international political, natural, information technology, processing technology, governmental, economic development, regional economy, industrial and sector policies, and monetary and fiscal policies. From each topic, the researcher will analyze company‘s external factors to

identify threat and opportunity and then will discuss their implication to the company. Besides that, for the simplification of the writing, furthermore the company name will be simplified as WanaArtha Life which is also the brand name of the company.

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CHAPTER II: COMPANY PROFILE

2.1.

About the Company PT Asuransi Jiwa Adisarana Wanaartha or more commonly known as WanaArtha

Life has been serving Indonesia for more than 38 years since it was first established in 1974. It offers indonesian market with a range of life and health insurance products both as a captive product as well as an individual product. Traditional life insurance product and insurance with an investment linked product are also offered to cater the unique needs of every individual. Owned by a reputable business group, Faden Consolidated Companies and also the foundation of Department of Indonesian Foresty, Sarana Wanajaya and managed by experienced profesionals within life insurance industry, WanaArtha Life is keen to be a  partner of Indonesian community‘s future financial planning. In order to achieve that, since

early 2010, WanaArtha Life has been continuously enhancing the level of services towards its customers by refurbishing its standard operational procedure based on international best  practice and applying the web based technology for life insurance daily operational system. Besides that it is well understood that the exposure towards our products is another importan role, therefore WanaArtha Life is expanding its distribution channels into three types of distribution channels: namely the distribution line agency, bancassurance and corporate. WanaArtha itself has two party who own the shareholder of the company. The majority of the shareholder is from PT Faden Consolidated Companies who own 97.2 % and the rest by Yayasan Sarana Wanajaya. Below is the proportion of the company‘s shareholder. Shareholder proportion :

PT Fadent Consolidated Companies 97.2% Yayasan Sarana Wanajaya 2.8%

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2.2.

Vision and Mission

Vision

Being a well-respected life insurance company providing products that are flexible and affordable to targeted individual and business community. Mission 

Providing competitive life insurance products and services which are attractive to our target segments;



Consistently meeting the service requirements of our customers and partners;



Achieve corporate sustainability by balancing interests of policy holders, shareholders, employee and the community;



Maintain corporate social responsibility for financial planning and education and environmental awareness;

2.3.

Company’s Value

Moral Integrity

Comply to all norms and rules regulated within the company and society where honesty, discipline and responsible are required. Team Work

Work together to accomplish company's goal with the best quality. Optimistic

Always have a positive thinking and spirit for everyone success. Knowledgeable

Highly knowledgeable and constantly expanding the skills and abilities to the next level. Care

Compromise and understand others and surrounding's interest. Open Mind and Dedication

Willing to accept new changes and professionally committed to undergo every task.

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2.4.

Awards Media Asuransi Magazine

2012  The Best 

2011  The Best 

 Life Insurance Company  Equity Rp 250 Billion –  Rp 750 Billion

 Life Insurance Company  Equity Rp 100 Billion –  Rp 250 Billion

Investor Magazine

2012  The Best 

2012  Special Awar d 

 Life Insurance Company  Asset Rp. 1 Trilion –  Rp 3 Trilion

 Life Insurance Company  Based on Investment Growth  Performance over 5 years

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InfoBank Magazine

2012 Very Good

2011  Very Good 

 Life Insurance Company  Financial Performance of 2011

 Life Insurance Company  Financial Performance of 2010

Business Review Magazine

2012 

 Life Insurance Company Asset Rp 2 tr il iu n  –  Rp 5 tri li un  F in ancial Perf ormance of 2012 

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CHAPTER III: BUSINESS ENVIRONMENT

3.1.

Demographic Population and Population Density

According to the data from World Bank, Indonesia is the world's fourth most  populous nation. Table 3.1 shows the number of population in terms of the amount rank. As seen, the position number 1 is China, and the following are India, United States, Indonesia and Brazil. Census population in 2010 held by Badan Pusat Statistik Indonesia also showed us that Indonesia had 237.6 million people (Badan Pusat Statistik, 2010)

Table 3.1. World Population (World Bank, 2013)

13

Table 3.2. Land Area of Indonesian Region (Badan Pusat Statistik, 2013)

14

Beside its huge of population, Indonesia also has a very large region. Table 3.2 shows that the country has more than 1.9 million km2 of land area and divided by lot of islands. The table 3.2 above shows us about land area comparison among 33 provinces in Indonesia in  percentage form. It can be seen from the table 3.2 above that the largest province is Papua which has 16 percent of all Indonesian land area. From the information above, it can be concluded that provinces located in Papua (Papua and Papua Barat), Kalimantan (West Kalimantan, Central Kalimantan, East Kalimantan, South Kalimantan), and Sumatra (Aceh,  North Sumatera, West Sumatera, Riau, Riau Islands, Jambi, South Sumatera, Bangka Belitung Islands, Bengkulu, Lampung) region have wider land area compared to those located in Java (DKI Jakarta, West Java, Banten, Central Java, DI Yogyakarta, East Java). In contrast, the land area comparison among provinces in Indonesia is not directly  proportional with the population comparison among Indonesian provinces. It seems Java Island that approximately has less than 8 percent of total Indonesian land area is the most  populous region in the country (57.48% of total Indonesian people). However on the other hand, Papua and Maluku region which has more than 25 percent of all Indonesian land area has only few people (2.6% of total Indonesian people). Table 3.3 shows the population and  population density among provinces in Indonesia. It can be concluded that the most populous  provinces in Indonesia are West Java, East Java, and Central Java. It also can be concluded that the population in Indonesia isn‘t spread evenly.

From the density point of view, it can be seen from the table 3 that the population density mostly focus on Java Islands, especially DKI Jakarta. As we know, Java Island  proportion to the the Indonesian land area is small (6.77%) compared to the other islands. The huge Island, such as Kalimantan (28.48% of Indonesian land area) only contribute few number of population density. From this perspective, it can be seen that Java has the huge  proportion of population denstiy even though it has small portion of the Indonesian land area. In brief, it can be concluded that the population density in Indonesia isn‘t spread evenly.

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Table 3.3. Population and Population Density of Indonesian Provinces (Badan Pusat Statistik, 2013)

Human Development Index

On the other aspect, according to the UNDP, in the Human Development Report 2011, Indonesia had medium human development with the score 0.617 which made Indonesia was at position number 124 from 187 countries. It is little bit differ from the Badan Pusat

16

Statistik calculation who calculate that Human Development Index of Indonesia in 2011 was 0.7237 (Badan Pusat Statistik, 2013). The different calculation doesn‘t make the meaning is different. Human Development Index (HDI) itself is a composite index of four indicators: life expectancy rate, literacy rate, average length of school participation, and per capita expenditures (Badan Pusat Statistik, 2013) From the data of Indonesian HDI, it means that Indonesia has the medium human development Index. Although Indonesian HDI is on the medium level but it gives advantages to the business. The medium of Indonesian HDI shows the condition of Human development in Indonesia. Compare to the previous year, the HDI of Indonesia increases year by year. Table 3.4 shows the increasing HDI of Indonesia and its provinces. The increasing of Indonesian HDI indicates that Indonesia has the incremental of HDI. One thing that should be emphasized is that indicates that the education and the income in Indonesia are getting better year by year, by assumming that the increasing of Indonesian HDI because of the contribution of all indicators increase. This condition is a good sign for WanaArtha Life to do the business in Indonesia. Relate to the increasing of Indonesia HDI and education, it is good sign for WanaArtha Life to run their business. As we know in today‘s era that insurance is important to hedge our risk in life, but not everybody aware about that. According to Andy Timo,  penetration of insurance in Indonesia itself to society is still 4 per cent (Dewan Perwakilan Rakyat Republik Indonesia, 2013). It means that there are still few people in Indonesia who are aware about insurance. So that the increasing of Indonesian HDI is a good sign because the education of Indonesian people will also increasing and there is a possibility that the  better the education the better knowledge of Indonesian people about the importance of insurance for their life and the better chance for WanaArtha Life to penetrate more. On the one hand, the number of Indonesian HDI is also a good sign because it indicates that the standard of living of Indonesian people is getting better. There is a  possibility that this condition will giving a positive complications for WanaArtha Life to offer and sell their insurance product to the customer. It is targeted that the better the standard of living of Indonesian people, the more importance or urgency of Indonesian people to have insurance for their life.

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Table 3.4. Human Development Index Indonesia (Badan Pusat Statistik, 2011)

3.1.1. 

Opportunity

 More penetration

Since the penetration of insurance in Indonesia is still low (4%), it is beneficial for WanaArtha Life to penetrate more. The HDI index shows the increasing number year  by year, so that it is targeted that the education and the knowledge of Indonesian 18

 people is getting better. The better that indicator, the easier or better chance for WanaArtha Life to penetrate and socialize about the importance of insurance. On the one hand, the standard of living in Indonesia increased from year to year. It is targeted to give positive complication for the penetration of insurance. The better the standard of living, the greater possibility of Indonesian people to have insurance  because they aware about the importance of the urgency of having insurance for their life. 

 Easiness to explore the market in the huge population and huge population density area

There are so many regions or provinces in Indonesia that have huge population number or huge population density number. This condition gives positive impact for the WanaArtha Life because it is easy for them to explore the market. This is because its huge population number and it gives huge potential target customer. It is also located in particular area (like Java Island), so that it easy for WanaArtha Life to  penetrate and explore the market. 3.1.2. 

Threats

 Hard to sell the product in rural area The population and the population density in Indonesia isn‘t not spread evenly across

country. This is hard for WanaArtha Life to penetrate and explore the market, especially in rural area. WanaArtha Life needs to conduct extra effort to explore the rural area. 

 More cost to penetrate or explore the market more in particular area The population and the population density in Indonesia isn‘t not spread evenly across

country. In particular area who only have small portion of population will have negative impact for WanaArtha Life. It will additional cost for the company because the effort is greater to explore the market. It‘s hard for the company to achieve

economics of scale because the number of potential target customer is smaller since the population is smaller too. 3.1.3.

Business Implications

WanaArtha Life should focus on the area that relatively has high population,  population density and high HDI number. It will give positive impact for WanaArtha

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Life because it easy for them to explore or exploit the market since the customer or  potential customer is greater in that particular area. So that, it is easy for WanaArtha Life to achieve economics of scale. Therefore, it is recommended for WanaArtha Life to open branch offices to help the company in exploring or exploiting the market in that particular area.

3.2.

Social

Work Environment of WanaArtha Life Insurance Company

WanaArtha Life was established since 1974. Because of this condition, the work environment of the company was set for the Generation X before. Generation X‘s characteristics are different from the generation Y‘s characteristics. They usually more loyal

than the generation X. Over the time, after more than 30 years of running the business, of course WanaArtha Life insurance had employee from the generation Y era. They have to hire people that originally come from the generation Y in order to help them in running the business activities. On the other hand, several generations X people that worked for the company had retired. As a company that had been set as the generation X work environment, of course this is one of the problem for the company. They are different. The ways the company has to treat are also different. The work environment of WanaArtha Life insurance company is also has to be changed as a reaction to face this phenomenon. Generation Y

What is generation Y? Generation Y is a group of more than 70 million, comprised of teens and young adults born between 1981 and 2000. They are the children of the Baby Boomers and, at a young age, members of Generation Y are already causing the world to take them seriously. These so called ‗‗Millennials‘‘ are privileged in a way different from any generation before them (Goldgehn, 2004) Generation Y is one of the phenomenon in the world. They are group of people that  born between 1981 and 2000. This phenomenon is affecting the business activity. Todays, lot of company‘s employees consists of people from the Generation Y. From the company‘s

 perspective, especially the company that has been run for a long time since the previous generation had established, they have to ready to react differently in order to treat the generation Y properly in the business work environment.

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Generation Y have their own characteristic that differs them with the previous generation. Because of this characteristic, the organization (firm, institution, etc) have to take into account how to treat them in the right way. The organization have to form the right strategy to make the business environment work is as proper as possible for them to work with. The generation Y is different from the previous generation. That is why the organization also has to react and treat differently in order to gain advantage from their involvement in the business activity. In this condition, WanaArtha Life insurance company has to change their business environment to fit this condition. WanaArtha Life insurance has to give what the most of generation Y wants, so that the WanaArtha Life could gain the advantages from their involvement in the business activity. Basically, Generation Y wants to know why! Today‘s youth are curious, they want the facts, they want the hard data, and most of all they want the truth (Goldgehn, 2004). This generation is very creative and very flexible. They were raised during a period when the world has welcomed and protected. Their parents was relatively rich to cover their daily life need. It means that meaningful of work is more important rather than the salary itself for the generation Y. Table 3.5 shows us the most common of generation Y thinks about the certain category in working. From this table, we can say that they want the meaningful of job tasks. They want fair work environment for one of another employee. They want flexibility of time to do their other activities besides working. At last, it can be concluded that the meaningful of work is very important for them. They don‘t care to much about the salary. What they do care

is the benefit of what they got from that salary. Table 3.5. What the generation Y thinks (Meier & Crocker, 2010) Category atmosphere autonomy feedback growth interesting work leadership location mobility  policy

Description work environment attitudes or culture freedom to make decisions job-related communications opportunities to learn, training & development work-related issues that are task-oriented issues relating to management style or effectiveness geographical site travel opportunities/obligations rules & regulations 21

 promotion relationships respect responsibility salary schedule stability support

opportunities to advance, career development issues that target co-worker relationships feelings of being valued obligations to perform any issues regarding pay or benefits work hour issues, flexibility of hours long-term career, continuity of work & earnings help & encouragement from company, manager, or co-workers

This idea also coherent with the idea from a research titled ―Generation Y: Comparison between Asia and the rest of the World‖ by Justine James, Sally Bibb, Simon

Walker in 2008. They believe that there are similar characteristic between generation Y in Asia and the rest of the world are looking for from the employer, which are (James, Bibb, & Walker, 2008) 

Having the chance to learn and develop.



The opportunity to do work that excites them.



Having a job aligned to their talents.



Having a mentor at work. It is essential for the generation Y to have meaningful work. They don‘t care too

much about how big the salary is. If they are think that their job is not that meaningful enough and they don‘t see so much benefit, it is more likely for them to quit from that job. So

that, it is essential for the manager to understand them and trust them because that is the one of the main reasons why generation Y leave organizations where-ever they are in the world (James, Bibb, & Walker, 2008). James, Bibb, and Walker also argue that being trusted is the key to keeping this generation motivated and engaged at work. This is undoubtedly more important during times of economic downturn as people become more insecure about their jobs and concerned about changes that may happen in their organizations. After those elaborations, it is essential for the WanaArtha Life insurance company, especially for the manager to know about the characteristic of Generation Y. The manager should oversea how to treat them well to gain win-win solution both for the sake of the company and the generation Y itself. Because, if the company or the manager can treat them well, it will bring advantages that the company never had before. It is basically because the generation Y is relatively more creative than the generation X. They have more ideas for the 22

company‘s sake. They are a generation   that is motivated, educated, and have higher

expectations than ever before (Meier & Crocker, 2010). Therefore, it is beneficial for the company‘s innovation processes.

Since WanaArtha Life insurance still changing the work environment from the generation X era to the generation Y era, it is important for the manager to implement the  proper work environment to answer what the generation Y wants. The manager should form the proper work environment in order to gain the advantage of having the generation Y employees. Or besides, they will quit and look for another job that suit them. 3.2.1. 

Opportunity

 More capable employees from generation Y

WanaArtha Life insurance could get more capable employee from the generation Y if the company could establish the proper work environment for them. The generation Y is more motivated, educated, and has higher expectations. It is beneficial for the company‘s

growth. 

 Advantages from Generation Y employees They are more creative, flexible and have more ideas. It is good for the company‘s asset  because they are more active and aggressive to do the work. It is support the company‘s innovation processes since the today‘s era, value innovation is very important to compete

with one another business. 3.2.2. 

Threats

Possibility to lose the Generation Y employee The is a possibility of the company that they will losing their generation Y because they will pursuing the job that fit them more.



Fight with the other company to get the capable employee Today‘s era, the searching of the capable employee is become tighten. WanaArtha Life

will fighting against the other companies who look for the capable employee to be their valuable assets. The other companies may bigger or stronger than the WanaArtha Life insurance company. The implication is that the WanaArtha Life should has strong  bargaining power to get and to keep the employee as their valuable assets for the company. Besides, the company will lose them and that means an additional cost. 

Tradeoff between Generation X and Generation Y 23

It is undeniable that the generation X still exists in WanaArtha Life insurance company. So that, the creation of proper work environment would be more confusing. There will be a trade-off between the generation X and the generation Y in forming the chosen work environment. 3.2.3.

Business Implications

According to the data above, the business implication for WanaArtha Life insurance company to face the opportunities and the threats are: 1) Change the managers or the leaders that situasionally fit the generation Y‘s phenomenon. 2) It is time for the WanaArtha Life to change the paradigm from the generation X to the generation Y paradigm. 3) Creating the proper generation Y work environment.

3.3.

Cultural

System of Insurance Agent

What is the system of insurance agent? It is simply one of the system that used by the insurance company in promoting, selling their insurance product to the customers. They use the system agent in order to promote and sell their insurance product. Just like the salesman or saleswoman that we are commonly met in the certain time or place, the insurance agent is almost just the same. They offer the insurance company product to the customer. They do it  by several medias, such as by phone, by email, or directly meet the potential customers. The system of insurance agent is commonly used by most of the insurance company in Indonesia even in the world. The agent will be in charge to search the potential customer and convince them to buy the company‘s insurance products. The agent furthermore will gain

 benefit from the commission if successfully convince and attract that particular customer to  buy the company‘s insurance products and the company will gain benefit from the customers who buy the company‘s insurance product. Today, this system is not only being used by the

insurance company but also by the other company such as automotive company. Today‘s era, the successful insurance agent could gain millions of rupiah from

convincing and attracting the customers to buy the insurance product from his/her representative insurance company. 24

The Problems of Insurance Agents in Indonesia

In today‘s era, the competition of insurance company in Indonesia is more tighten.

Many insurance companies compete one another to attract more customers. Indonesia who has the emerging of middle class phenomenon is become one of the prospect market. Furthermore, this competition may induce the unhealthy or unfair competition emerges. The insurance agent as the person who directly meet with the customer become more aggressive to attract more people for his/her sake and also for the sake of his/her company. As a result, many of insurance agent will do whatever it takes to attract customers. As the customer point of view, many of them are disappointed with the insurance agent. Many of them argue that the insurance agent only said the beautiful point at the  beginning but didn‘t say about the consequences that the customer may face. Frans, Chief of BMAI (Badan Mediasi Asuransi Indonesia) said that many people‘s point of view claimed

that insurance is consisted with lot of lies. They (the insurance agent or insurance company) were not honest and did what they had promised before (Kompas, 2012). On the one hand, many people also comment that the ways of insurance agent in attracts or contacts with the potential customers are not polite. Even if they use the proper media, such as by phone, email, direct visit, or so on, sometime they violence the independent right of the particular customer. Sometime, some people don‘t want to be distracted with the

 bunch of unimportant message such as the insurance offering. They argue that if they need, they will directly go to the insurance office, so that the insurance agents don‘t have to bother

them with bunch of offering of the insurance products. The Culture in Indonesia

Indonesia is a various country. Indonesia consists of many regions, tribe, language, and so on. The people in Indonesia are so diverse. That is what makes the market penetration in Indonesia can diverse from one another area. Indonesia is also adapting the east culture that well known has personal trait such as friendly, not individualistic, helping each other, high tolerance, and so on. Even, Indonesia used to has a ―gotong royong‖ term in Soeharto

era, which means a conception of sociality familiar to large parts of Indonesia and Malaysia (Wikipedia, 2013).

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Indonesia itself has several key concepts and values in the social life. According to the Communicaid, in their article entitled ―Doing Business in Indonesia‖ said about the key concepts and values of Indonesian culture, which are (Communicaid, 2009): 1.

Communication Style - Indonesians tend to communicate in a subdued and indirect

manner. They do not always say exactly what they mean. Indonesians speak in a subtle tone and therefore it is up to the listener to pick up on communication subtleties by  paying attention to body language and gestures. Indonesians are polite and diplomatic in their speech and will make great efforts not to offend others. Indonesians will do anything to save face even if it means avoiding confrontation or telling others what they want to hear rather than dealing with immediate issues. 2.

Time  - Time in Indonesia is approached in a very relaxed and flexible manner.

Indonesians do not rush through business negotiations and often do not take the time to  plan everything in great detail. Punctuality is not always observed, as Indonesians do not like to feel hurried and do not have the western sense of urgency. The Indonesian attitude towards time is reflected in that, to them, time is not money. They may show less interest in profit or material success but rather building relationships. 3.

Conformity   - Indonesia is a collectivist society that places higher importance on the

group than the individual. Your Indonesian counterparts will always place family and community concerns over that of the business or individuals. 4.

Religion - Indonesia currently is the world‘s largest Islamic nation Muslims pray five

times a day and in some workplaces in Indonesia there are separate rooms for daily  prayers. There are however varying degrees to which Islam influences Indonesian  business culture, but it is essential to remember its influence when working with Indonesian counterparts. Ramadan is a major Islamic tradition that includes fasting for an entire month. Although foreigners are not required to fast, it is considered impolite to eat or drink in front of others during this time. That is why some people in Indonesia sometime don‘t like salesman/saleswoman

including the insurance agent. Some insurance agents forget to approach them in respect with the Indonesian culture. Some insurance agents may opportunist. They only think about their  benefits rather than both benefit the agents and the customers. Indonesian people are upholding respect and honesty. They don‘t want to be hurried

to make a decision. They want the insurance agent have a respect in promising or selling their 26

 product. Most Indonesian people are also religious. They are mostly Moslem. They usually move away the negative think when the agent starts to promote a particular product for them. But, they will abandon it if they had the experience of being tricked before by the other  particular agent or salesman/saleswoman. From this perspective, the insurance agent should adapt with the Indonesian culture. How the Indonesian culture need and want. Hopefully, WanaArtha Life Insurance is originally from Indonesia, so it is easy for them to adapt with the Indonesian culture. However, the culture in each area/region in Indonesia may different one another. So that, the other issue that WanaArtha Life insurance should adapt is each unique culture area/region. 3.3.1. 

Opportunity

The insurance agent system

The insurance agent system is still superior in gaining more customers and expand market share for the insurance company like WanaArtha Life. The WanaArtha Life could give new value innovation to the system of insurance agent. Of course this innovation should give value added to the customer. 

Skepticism of Insurance agent could be seen as the opportunity to re-seize the potential customer

The skepticism or disappointed from Indonesian people of insurance agents for the  particular insurance company because of bad experience could be taken into account as a  possibility of WanaArtha Life to re-seize that potential customer. 3.3.2. 

Threats

Skepticism of insurance agent system

The skepticism of insurance agents by Indonesian people will drawback the company and affects its performance. 

 Insurance agent system is very competitive

There is a probability that other well-known insurance agent in Indonesia will take place the role of this industry because this system is very competitive. 3.3.3.

Business Implications

After those elaborations, it is clear that if the company should aware about the Indonesian culture, especially WanaArtha Life plays in the Indonesian culture. The system of 27

insurance agent is very superior for the insurance company in order to gain more customer and expand market share. However, the company should aware about the approach of that  particular agent in promoting or selling the insurance product. Over time, this culture will  bring the opportunities and threats for the WanaArtha Life. Furthermore, the business implication for WanaArtha Life insurance company to face the opportunities and the threats are: 1)

Creating the rule of insurance agency in order to meet the company‘s, industries and culture‘s standard.

2)

Give new value for the customer. The value innovation could be reach by innovate in 3  platforms, which are product, service and delivery (Kim & Mauborgne, 1995).

3.4.

Domestic Political

Insurance Company

The commons sense of the establishment of insurance is because there are uncertainties of life. Insurance plays in the role of life uncertainty. Because of uncertainty,  people tend to be afraid of what would be coming next. People are afraid that something bad will happen in the future. No one will know what would happen in the future. Is it good? Or is it bad? This thinking, that usually people tend to think about what if bad things happen in the future and affect our one particular aspect, is the common paradigm of business opportunity to cover the uncertainty of life. Because of this issue, there is come up a business model that will cover the uncertainty that would happen in the future. Furthermore, insurance will answer all those  problems. The basic business of insurance company is to cover the uncertainty of people or  business that would happen in the future. For example is life insurance for people, or the fire insurance for the business. Insurance Law

Insurance is governed in the law number 22 of 1992 about Insurance Business. This law is governed all about business insurance activities and all elements of insurance business activities. This law hasn‘t been changed until present.

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However, recently the house of representative of Indonesia (DPR) has a bill about insurance business. After years of using the old law, they feel that the law about insurance  business has to be changed because lot of articles stated on the laws need to be revised. According to Vice Chairman of Commission XI of DPR, Andy Timo, said that Commission XI of the House of Representatives will soon discuss the draft revision of the business of Insurance Law number 2 of 1992 on Insurance Business. The bill aims to harmonize the  positions and institutional Otoritas Jasa Keuangan (OJK) by January first 2013, because of that, Bapepam LK and all insurance businesses will be in one setting which is from OJK (Dewan Perwakilan Rakyat Republik Indonesia, 2013). One of the issues in promoting bill about insurance business is about the ownership of insurance company in Indonesia. According to Andy Timo, general insurance reached 80 companies, 47 life insurance companies, 5 Sharia life insurance companies. Unfortunately is that almost 80 percent owned by foreign investors. He also said that capital issue is still an obstacle for local insurance businessman, therefore, the government want to issue a useful and comprehensive law and required by the insurance industry (Dewan Perwakilan Rakyat Republik Indonesia, 2013). It indicates that many players in insurance company in Indonesia are basically from foreigners, and the people who enjoy the benefit are mostly from foreign investors. That is why government needs to revised the law. One of them is because of this reason. On the one hand, insurance industry is one of promising industry. Andy Timo said that, growth of insurance in Indonesia reached 20 percent annually. It indicates that the Indonesian insurance market potential is very large, as the penetration of insurance to society is still 4 per cent were aware of insurance. Furthermore, the potential market in Indonesia is still big and lot of opportunity for insurance company or new company to enter this business (Dewan Perwakilan Rakyat Republik Indonesia, 2013). Beside the focus of ownership issue, the other issues of promoting new law are how to educate the society to be more aware about insurance. Like I‘ve mentioned before, the

 penetration of insurance business in Indonesia is still low, only 4%. It means there are lots of  big opportunities to maximize the profit in insurance industry. The other issue is about how to deal with the customer protection. Furthermore, this bill will include the protection of consumers in which insurance companies are obliged to guarantee the participants of the  Lembaga Penjamin Simpanan  (Deposit Insurance Agency).

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The Ownership of Insurance Company

The previous law, law number 2 of 1992 about Insurance Business, stated that in chapter VII about the Ownership of Insurance Company, article 1, that insurance company is only be established by: a. Indonesian citizen or Indonesian legal entity that fully owned by Indonesian citizen and or Indonesian legal entity  b. Insurance company who the ownership as referred to in letter a, by insurance company who subject to foreign law From this article, it can be said that there are no particular restriction for the foreign investors or companies to invest in the insurance company. From this perspective the foreign investors can invest in the insurance company as long as the insurance company is established by Indonesian company. It isn‘t matter how much the portion of the foreign

investors, as long as it is established by Indonesian citizen or Indonesian legal entity, and it is already formed as an insurance company subject to its foreign law, the foreign investors can  play in the insurance industry in Indonesia. That is why most of insurance industry is owned  by foreigner. It indicates that at that time there were capital scarcities to establish new or to  play in the insurance industry; therefore they need capital injections that one of them came from foreign investors. On the bill of Insurance Business, they change the content for the Ownership of Insurance Company. It is stated in article 1, chapter III about Legal Entity And Ownership Insurance Company that Insurance companies can only be owned by: a. Indonesian citizen or Indonesian legal entity that fully owned by Indonesian citizen and or Indonesian legal entity  b. Indonesian citizens or Indonesian legal entity as referred to in letter a, along with foreign citizens or foreign legal entity shall be the Insurance Company that has a similar business or parent company that one of its subsidiaries is engaged in similar Insurance Business. From this new perspective, it can be seen that government try to hold the foreign investor part here but they don‘t close the opportunity of for eign investor to play in the

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insurance industry. Government tries to hold the foreign investors part and give the opportunity for the local investors to more involve in this industry. The foreign investor can also involve in this business only if they have insurance company or parent company that one of its subsidiaries is engaged in similar Insurance Business and along with Indonesian citizens or Indonesian legal entity. It indicates that government want to more involving the local player in this industry. They don‘t stop the foreign investment but they try to hold on the part of foreign investors. On the next part of the bill article also have said that foreign nationals can be the owner of the Insurance Company only through transactions on the stock exchange. It means that government wants to add transparency in the process of owning the Indonesian insurance company from foreign investor. From the previous law, the foreign investors have no obligation through the stock exchange. From this perspective, it indicates also that government also tries to minimize the foreign workers in the insurance company since mostly insurance companies are owned by foreign investors. Government wants to involve more the local worker for this industry and limit the number of foreign workers.

3.4.1. 

Opportunity

The decreasing of foreign investors that play in the insurance business in Indonesia

There will be a possibility that the foreign investors that play in insurance business in Indonesia decreases. This is because the draft bill that has been explained before. This is a good condition because there is a limitation of foreign investors to play in insurance industry in Indonesia so that WanaArtha Life has the greater chance to compete and explore the market. 3.4.2. 

Threats

Capital scarcity

Capital scarcity since the part of foreign investors is going to be limited. It will be hard for the company to get lot of capital from the foreign investors if their part is limited. The other resource is would be from the local resource, such as debt from the national bank, or IPO. 31

3.4.3.

Business Implications

The portion of WanaArtha Life insurance itself mostly comes from PT Fadent Consolidated Companies. The portion of WanaArtha Life insurance can be derived as follows (Wanaartha Life, 2012): a. Yayasan Sarana Wanajaya 97.2%  b. PT Fadent Consolidated Companies 2.8% Related to the issue of the ownership of insurance company, it means that WanaArtha Life don‘t have so much impact about the ownership issue since most of ownership are owned by the national citizens. However, the big question come up about the owner of PT Fadent Consolidated Companies who almost own all the shares of WanaArtha Life. It is still a question about the data of that company, since there is not to many information regarding that company. If it is found that, PT Fadent Consolidated Companies own the part or even all the shares, there is a possibility that it will be affected with the regulation of the limitation of foreign investors. Besides that, it would be hard for WanaArtha Life to get lot of funding from the foreign investors if the bill passes. The part of the foreign investors would be limited. So that, the other way to get more funds or capitals come from the national bank debt, IPO, or  basically from internal resource.

3.5.

International Political The commons sense of the establishment of insurance is because there are

uncertainties of life. Insurance plays in the role of life uncertainty. Because of uncertainty,  people tend to be afraid of what would be coming next. People are afraid that something bad will happen in the future. No one will know what would happen in the future. Is it good? Or is it bad? This thinking, that usually people tend to think about what if bad things happen in the future and affect our one particular aspect, is the common paradigm of business opportunity to cover the uncertainty of life. Because of this issue, there is come up a business model that will cover the uncertainty that would happen in the future. Furthermore, insurance will answer all those

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 problems. The basic business of insurance company is to cover the uncertainty of people or  business that would happen in the future. For example is life insurance for people, or the fire insurance for the business. Talking about uncertainty, politic is also about uncertainty of life. Politic always goes up and goes down unpredicted. It‘s hard to predict what would be coming next in the political side. Politic makes many companies have to aware of the possibility that would happen next  because of politic. There are many things that would happen because of politics, for example labor riot because of the policy of the minimum rate of labor wage who was happened in the middle of 2012. This kind of thing of course hurt the company especially manufacture company that operated in that area because most of the labor participate or forced to  participate in that action. Political environments are not only from domestic side, but politic also comes from the international side. Many things had happened in 2012 and it affected directly or indirectly the company activities. According to MIGA‘s journal, World Investment and Political Risk 2012 that global economic growth estimates for 2012 indicate a continuing fragile recovery. The ongoing sovereign debt crisis and recession in the euro zone, curtailed bank lending and domestic deleveraging, fluctuating but elevated commodity prices, and the ongoing political turmoil in the Middle East and North Africa have slowed the initial rebound that followed the 2008 global financial crisis. This slow progress has had an impact on developing countries, which initially fared well in terms of rebounding growth rates, private capital flows, and foreign direct investment (FDI). From this perspective, it indicates that international political turnover not only affects the country itself but also the company itself and the potential of foreign direct investment. It clears that political turn around affects the existence of business activities of the particular company in the particular country. Because of the possibilities of political risk that would happen, nowadays comes up a  paradigm of new business opportunity of insurance called ―political risk insurance‖. Political

risk insurance basically comes up to cover all the possibilities that would happen because of the political environment from both nationally or/and internationally. According to MIGA, (Multirateral Investment Gurantee Agency), 2013, Multinational enterprises and banks face a number of risks when conducting business overseas. Some of these risks can be removed or mitigated by conducting due diligence on the parties involved 33

and on the economic viability of the proposed business. Other risks are harder for investors or lenders to predict. These include some commercial risks and, non-commercial — or political —  risks. At the end, they said that political risk insurance (PRI) is a tool for businesses to mitigate and manage risks arising from the adverse actions — or inactions — of governments. As a risk-mitigation tool, PRI helps provide a more stable environment for investments into developing countries, and to unlock better access to finance (MIGA, 2013). From those explanations, it indicates that Politic Risk Insurance helps business to overcome the risk possibilities that comes from the political issue. PRI helps business a lot to run their activities because PRI will relatively cover the uncertainty of political risk. PRI also helps country because by providing PRI will help the country to easier get the foreign direct investment because PRI will relatively guarantee the stability of political issue. It is superior for Indonesia who is a developing country who needs lot of foreign direct investments to help Indonesia develop lot of things. It is also superior for Indonesia, since the stability of political issue in Indonesia still questionable. Because of this issue, the Political Risk Insurance industry has grown year by year. Between 2008 and 2011, issuance of political risk insurance (PRI) has increased by 29  percent for Berne Union members, an increase that has exceeded that of foreign direct investment (FDI) flows into developing countries over the same time period (MIGA, 2012). Berne Union members itself was founded in 1934 in order to promote international acceptance of sound principles in export credit and investment insurance and to exchange information relating to these activities. Today, the Berne Union has 86 members, including Prague Club members, comprising mainly export credit agencies, multilateral organizations, and private insurers. The PRI industry expanded in 2011 and evidence from the first half of 2012 indicates that this trend is continuing. The PRI industry, as a specialized line of insurance, is affected  by the demand for PRI itself, as well as by changes in capital availability in the broader insurance market. Figure 3.1 shows about PRI by Berne Union Members and FDI Flows into developing countries.

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Figure 3.1. Growth of new PRI vs FDI flows in developing countries (MIGA, 2012) From the figure 3.1 above, it clears that there are increasing growth of PRI. It can be seen from the gap and the growth between the PRI and the FDI of developing country. It indicates that the increasing of PRI can be assumed as, first the increasing of global political risk perception, because lot of business think that the political risk is increasing and more unstable so that they need more PRI to cover the losses possibility. Second, there is more capital scarcity in the financial sector because in some cases PRI may relieve capital charges in financial institutions. The demand of PRI year by year is also relatively increasing. According to MIGA, with trends largely pointing to growth in investment into developing countries and heightening awareness and perceptions of political risk among investors, demand for PRI has increased sharply since 2005. The year 2011 showed the strongest increase in absolute terms since the onset of the financial crisis, with new investment insurance issued by members of the Berne Union reaching a new record (Figure 3.2). By the first half of 2012, the Berne Union issuance level was still growing strongly and is expected to reach an even higher level than in 2011. Issuance for the first half of 2012 alone was near the level for the full year in 2009 and higher than the level of each year prior to 2007.

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Figure 3.2. Demand of Political Risk Insurance (MIGA, 2012)

In brief, according to figure 3.2, it indicates that year by year the demand of PRI has increased. It indicates also that many businesses or companies now are aware to cover their  business from the uncertainty of political risks. They know more aware that PRI is tool to mitigate the risk, especially political risks. In Indonesia itself, there are no many insurance companies play in PRI field. According to Budi P, insurance companies who play in this field in Indonesia are PT Asuransi himalaya Pelindung, PT Bintang General Insurance and Pool TS. He also said that the growth of PRI that offered by Indonesian insurance companies in the last 3 years are still low. In 2008-2009 the growth was about 10%, little bit increased than the previous year, 2007-2008, who was about -7%, and the previous year, 2006-2007, was about 18% (Budi, 2013). According to Viva news, the use of insurance-related political risk is relatively low. This condition is caused by the domestic reinsurance capacity is limited and the cost of  premium in risk management. In addition to the limited capacity of domestic, international reinsurance capacity is also very selective. While insurance companies in the country that has the capacity to meet the demand is still very limited (Kalsum & Ahniar, 2009).

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From those 2 perspective, it indicates that, first the demand of PRI internationally are increasing. More businesses or companies are more aware to protect and cover their business from the political risk. Second, Indonesian political risk insurance players are few. There are no many players in this field. It indicates that there are still emerge a question mark about this  business opportunity. It can be assumed that many insurance company are still afraid to grab this opportunity. They don‘t have the capabilities and the resources to catch up this opportunity and they don‘t prepare enough to compete with foreign insurance company who

already offer the PRI. Many insurance company in Indonesia, including WanaArtha Life insurance are  prefer to play in the profitable side of insurance, such as life insurance. If we look deep about the insurance product that they offer and relate to the political risk, they tend to offer the insurance product as the possibility result of political risk and affects the business activity. For example fire insurance. Fire can be happened as the result of politic instability, like what happened in 1998 in Indonesia. Many companies were burned because of the protests and riots.

3.5.1. 

Opportunity

The increasing demand of political risk insurance

From the explanation above, the demand of political risk insurance increases from year to year. This is a good opportunity for WanaArtha Life if want to enter and offer this product. The condition of Indonesian political environment which still in huge uncertainty will be an attractive aspect to get the potential customer.

3.5.2. 

Threats

The political condition in Indonesia is on the very high uncertainty

As explained before, the political environment which still in huge uncertainty. Of course this is a huge threat for the company if they want to play in this area. Thi political environment in Indonesia is very unstable, and this is very risky for the insurance company like WanaArtha Life to play in this area.

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3.5.3.

Business Implications

From the explanation above it clears that the demand of PRI is increasing year by year. But on the other hand the Indonesian insurance companies who offer the PRI are still few. This is because they still look that offering PRI, especially for the Indonesian political condition is still unprofitable. Statistically shows that politic in Indonesia is still unstable and this would makes the PRI also risky to be applied, although there are so many markets if insurance company offers PRI. For WanaArtha Life itself, they should avoid to offer the Political Risk Insurance  product. There are two main reasons. First, it will be risky for the company because the  political condition in Indonesia is very uncertainty. Seconds, the resources and the capabilities of the company hasn‘t good enough to play in this area. It needs high investment of capital to build the resources and also the capabilities needed.

3.6.

Natural

Disasters in Indonesia

Indonesia is one of most populous country in the world. According to the data from World Bank, Indonesia is the world's fourth most populous nation (World Bank, 2013). Not only the population, Indonesia is also the country who also has so many natural disasters that may emerge, such as flood, earthquake, tsunami, etc. Figure 3.3 shows the bar chart of each year in Indonesia from 1815 - 2013 about the incidents and the victims. From figure 3.3, it can be concluded that from each era, the incidents and the victims of disasters in Indonesia had increased. It means that the disasters that happen in Indonesia were more often each era. From the figure 3.3 also, there is a  possibility that the trend about disasters in Indonesia will increasing year by year. The uncertainty of the natural conditions, global warming, economic and social condition, and the increasing of Indonesian population are some factors from so many factors that may increase the incidents and the victims of natural disasters in Indonesia.

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Figure 3.3. Spread of disasters from 1815 –  2013 in Indonesia (Badan National Penanggulangan Bencana, 2013) On the one hand, if we are looking from the spread of the disasters in each region or  province in Indonesia, Central Java was the province who has the most incidents since 1815 –  2013, followed by West Java and East Java. Figure 3.4 bellow shows us the table of the spread of the disaster in Indonesia based on each province. From the tables it can be concluded that Java Island was the the region that has the most disasters incident compare to other islands in Indonesia.

Figure 3.4. Spread of disasters from 1815 –  2013 by each Province in Indonesia (Badan  National Penanggulangan Bencana, 2013)

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From the type of disasters, flood is the most incident that happened in Indonesia. Figure 3.5 shows the type of disaster incidents and the victims of that particular incident in Indonesia. From the figure 3.5, it can be concluded that the most frequent disaster was flood and the disaster that took the most victims was an earthquake. From the figure 3.5, we can see also that most of the disaster happened was natural disasters, such as earthquake, tsunami, and so on. From the figure 3.5 also shows that natural disasters took the most victims in Indonesia.

Figure 3.5. Spread of disasters from 1815 –  2013 by the Type of Disasters Province in Indonesia (Badan National Penanggulangan Bencana, 2013)

From the data above, it clears that disasters in Indonesia are increasing year by year. The victims are also increasing year by year. The incidents that happened in Indonesia are mostly because of natural disaster such as flood and also the disaster that took the most victims are natural disasters, such as earthquake and tsunami. From this issue, it can be expressed that there are still so many uncertainty in Indonesia because of the incident of disaster in Indonesia. Sometime it is hard to predict disaster especially natural disaster such as earthquake. The number, the power and the time of the disaster is also hard to predict. It means we have to be prepared as well as possible to face the disaster. Furthermore, not only as personal that have to be prepare to face the disaster that might happen, but also from the other bigger elements such as a company, organization or even country itself has to be prepare for the disaster that might happen. From the other word, 40

disaster may equal to the risk. The disaster that may emerge equal to the risk that may emerge also. Because of the possibility of the risk that may arise, it means that the preventive actions are needed in order to be prepared to face the disaster even for the worst. One of the  preventive actions that may suitable for this issue is by hedging the risk. The way to hedge the risk for this issue is through insurance. Insurance Product for Natural Disaster

As mentioned before that disaster that may emerge is equal to the risk that may emerge and affect particular person, business or other elements. From this issue, it sounds that there is uncertainty that may arise. This uncertainty emerges because the uncertainty also of the disaster that may happen since it is hard to predict disaster that may affect us. That is why, in today‘s era, insurance is very popular to cover all of those uncertainty. Insurance will

hedge the risk of the possibility of the disaster that may happen and affect us as a person, a  business man, and any other that may be affected because of this possibility. Insurance is a way to cover the uncertainty that may happen and natural disaster is one of it. Insurance company usually has a product to cover the natural disaster that may affect personal person or a business activity. Like, other insurance company, WanaArtha Life also has a insurance product take care about the tragedy that may happen because of natural disaster. WanaArtha Life products at this present time are about the life and health insurance for personal person or group and the derivative product that may correlate with the life or health of that particular person or particular person in the group. For example the main insurance is life insurance of a person and the derivative insurance is the education insurance of the kid of that particular person that may affected because of that particular person pass away and cannot fulfill his/her job to pay the regular tuition fee of their kid. Trend of Natural Disaster Insurance in Indonesia

The trend of natural disaster insurance in Indonesia is increasing year by year. We can see that from the occurrence of natural disasters in Indonesia. Because of the occurrence of natural disasters in Indonesia are increasing, it means the trend of natural disaster insurance is also increasing.

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According to PT Sentana Mitra Kualita, an insurance broker and consultant, The number of natural disaster risk insurance applicants increased significantly, since the magnitude of potential natural disasters in Indonesia. They cited from Suwanto Somawidjaya, Regional Manager Sinar Mas Insurance Region III Jabar dan Jateng, that there was a significant increase in the number of applicants or natural disaster insurance membership in the category of all risk although the numbers are still below the fire insurance and motorcycle insurance ownership. He said that the awareness of the people to provide protection to their  property to be one of the growth drivers of all risk insurance for natural disasters such as flood, earthquakes, and landslides (PT Sentana Mitra Kualita, 2013).  Not only that, even the government argues that they need insurance of natural disaster. Cited from tempo.co, that The government plans to include hedging natural disaster insurance in the Act the State Budget 2014. This effort is a solution to avoid the uncertainty of funding from the disaster that cannot be predicted. Head of Fiscal Policy Agency, Bambang Brodjonegoro, said that this action is the easiest way by paying the insurance rather than only rely on the state disaster reserve fund (Tempo, 2013). From those perspectives, it clears that the trend of natural disaster insurance is increasing. People are more aware about the uncertainty of natural disasters and the  possibility that they will be affected, not only life but also their property of life. It means this is one of the business opportunity for the insurance company. Insurance company, like WanaArtha Life insurance, could see this as a big opportunity to expand and increase their  profit and market share. The growth of insurance in Indonesia is very promising. The market is still huge in Indonesia. According to Andy Timo, Vice Chairman of Commission XI of DPR, said that, growth of insurance in Indonesia reached 20 percent annually. However the penetration of insurance to society is still 4 per cent were aware of insurance (Dewan Perwakilan Rakyat Republik Indonesia, 2013). It indicates that the awareness of insurance in Indonesia is still low but there are people who more aware to the prospect of having insurance. There are big opportunities for insurance company to maximize theirs profit in Indonesian market. On the one hand, another issue is the trend of natural disaster insurance in Indonesia. As I mentioned above that the trend of natural disaster insurance in Indonesia is increasing. Even, the Indonesian government plans to use natural disaster insurance to hedge the risk of natural disasters in Indonesia that occur unpredictably. 42

From those issues, WanaArtha Life insurance has lot of opportunities to enlarge their  business since the penetration of insurance company in Indonesia still 4% but the market grows year by year. It is also can be combined by the phenomenon of the increasing trend of natural disaster insurance in Indonesia. At last, it can be concluded that WanaArtha Life insurance could see this as a big opportunity for their business. However, not only the opportunity that WanaArtha Life may face, but also threat may also emerge. Since there are so many companies play in the insurance industry, it indicates also that there is a possibility that other competitor might see this as an opportunity also. Furthermore, WanaArtha Life isurance may prepare to compete to that particular competitor. 3.6.1. 

Opportunity

 More penetration

By looking for the fact that the penetration of insurance in Indonesia until 2013 is still 4%, it means that there is a chance to penetrate more about the awareness for Indonesian  people about insurance. WanaArtha Life can see this as an opportunity to market their  product and also share knowledge about the importance of insurance. This action is taken in order to gaining more potential market in Indonesia and also to market their product itself 

The trend of natural disaster in Indonesia increased

The trend of natural disaster insurance in Indonesia is also good opportunity for WanaArtha Life insurance to expand their business. According to the data above, tells that trend of natural disaster insurance in Indonesia has increased year by year, it also means that there is an opportunity for WanaArtha Life to offer product insurance related to this issue. 

Cooperation with the government

There is an opportunity for WanaArtha Life insurance also in the insurance for group or large institution such as business or even governemnt. As mentioned above that government planned to have insurance of natural disaster to hedge the risk that may emerge. Of course this is big opportunity for WanaArtha Life insurance. WanaArtha Life insurance could enter business to business market which hasn‘t been entered by WanaArtha Life insurance. To cover the lack of resource in order to play in this market, I would like to recommend for WanaArtha Life insurance to joint venture or strategic  partnership with other insurance company, especially from outside who have strong

43

financial capital because it needs lot of financial capital. By having cooperation with outside insurance company, it will beneficial for WanaArtha Life insurance to increase their productivity and to compete with other competitors. It also beneficial for outside  partner to enter the indonesian market which is promising market. 3.6.2. 

Threats

Tight competition from competitor

The threats may come from the other competitor. Since Indonesian market is still  promising, it means that many insurance companies will maximize this condition to gain more profit. 

 Potential huge claim

Since the trend of natural disaster in Indonesa increases year to year, there will be a  probability that the huge claim because of natural disaster emerge. 3.6.3.

Business Implications

According to the Investor.co.id, in 2012 the best insurance for life insurance with asset above Rp 15 trillions was PT Prudential Life Assurance, asset between Rp 5  –  15 trillion was PT AXA Mandiri Financial Services, asset between Rp 3 –   5 trillions was PT Panin Life and asset between Rp 1  –   3 trillion was PT Asuransi Jiwa Adisarana Wanaartha (Investor, 2012). From that data above, it indicates that the performance of WanaArtha Life relatively good. They got the best insurance business from the life insurance category with the asset between Rp 1 –   3 trillion. It means the performance of the WanaArtha Life was relatively good but they only have a few assets compare to the other company such as AXA or prudential. This condition doesn‘t make the WanaArtha Life in bad or good

condition. By assuming that the assets are the supportive assets, it means that there is a chance of other company to be more superior than WanaArtha Life since they have more resources (assets). The other implication is that WanaArtha Life should keep explore the market since the natural disaster in Indonesia (uncertainty) is increasing every year. It means the market is very huge. Furthermore, it is a must for Wanaartha to re-insurance the company in order to hedge the risk.

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3.7.

Information Technology

Web 2.0

In this century, Web 2.0 is commonly used by most of websites in the world. Web 2.0 itself is a term that is used to denote several different concepts: Web sites based on a  particular set of technologies such as AJAX; Web sites which incorporate a strong social component, involving user profiles, friend links; Web sites which encourage user   – generated content in the form of text, video, and photo postings along with comments, tags, and ratings; or just Web sites that have gained popularity in recent years and are subject to fevered speculations about valuations and IPO prospects (Cormode & Krishnamurthy, 2008). However, Web 2.0 wasn‘t basically a social network. It was different between Web 2.0 and

social network. Web 2.0 is both a platform on which innovative technologies have been built and a space where users are treated as first class objects. The platform sense consist of various new technologies (mashups, AJAX, user comments) on which a variety of popular social networks such as Facebook, MySpace etc (Cormode & Krishnamurthy, 2008). Other definition of Web 2.0 was come from O‘Reilly in 2005. He emphasized Web 2,0 as viewing

the Web as a platform (O'Reilly, 2007). Before Web 2.0 was emerge, there was Web 1.0 who commonly used by web site at that time. Web 2.0 was basically the modification from the Web 1.0. The essential difference  between Web 1.0 and Web 2.0 is that content creators were few in Web 1.0 with the vast majority of users simply acting as consumers of content, while any participant can be a content creator inWeb 2.0 and numerous technological aids have been created to maximize the potential for content creation (Cormode & Krishnamurthy, 2008). The transformation or differences of Web 1.0 and Web 2.0 can be described as follows (O'Reilly, 2007). Figure 3.6 shows the basic change of Web 1.0 and Web 2.0

45

Figure 3.6 Web 1.0 and Web 2.0 From that perspective, it means that the contents of Web 1.0 is created by the author of the website and the visitor can only enjoy the provided contents, but in contrast in Web 2.0 there were participants influence in the creation of the contents of the website. The emerging of social media gives a huge impact in rolling the Web 2.0 website. To differ between Web 1.0 and Web 2.0, Web 2.0 has several characteristics and distinguishes it from Web 1.0. Through the application of Web 2.0 services and technologies  basic model of interaction between companies and customers has changed from ―sending‖ to ―sharing‖. This model is characterized by (Kiryakova, Yordanova, & Angelova, 2011): • Increasing visibility and influe nce of companies; • Changing the way customers interact with each other; • Communities that are created around a brand, product or service; • New opportunities for rendering an account the customers‘ views and recommendations; • Improving interaction  between employees.

In practice, even there is a study about the differences between Web 1.0 and Web 2.0, it is hard to recognize whether the particular website consider strictly as Web 1.0 or Web 2.0. For example, Amazon.com launched in the mid-1990s and has gradually added features over 46

time. The principal content (product descriptions) is curated rather than user-created, but much of the value is added by reviews and ratings submitted by users. Profiles of users do exist, but social features such as friend links, although present, are not widely adopted. Each  product has a wiki page associated with it, but these are little used. Other sites also contain a mixture of the old and the new (Cormode & Krishnamurthy, 2008). Another heuristic to aid distinguishing Web 2.0 and Web 1.0 can be based on time: the term ―Web 2.0‖ was coined

around 2004, and many of the first truly Web 2.0 sites began emerging in late 2003 and early 2004 (Cormode & Krishnamurthy, 2008). WanaArtha

Life

itself

has

its

own

website

that

can

accessed

on

www.wanaarthalife.com/. Figure 3.7 below shows the home preview of the website. If go deeply through the website, it can be seen that the website provide lot of information about the company and about their product and their offering. The information can be classified as a rich information because it is provide information that needed by the visitors/customers.

Figure 3.7. WanaArtha Life Website (Wanaartha Life, 2013) However, if talking about the type of the web, it is hard to say whether WanaArtha Life website is consider as Web 1.0 or Web 2.0. If based on time, WanaArtha Life website is 47

a Web 1.0. As checked in who.is which provides domain data, WanaArtha Life website (www.wanaarthalife.com) was created in July, 15th 2000. So that, based on time it is consider as Web 1.0 because it is created before 2003. However, if relate to the characteristic of the website, Web 2.0 can be classified into two aspects: social/business and technology (Kiryakova, Yordanova, & Angelova, 2011) as follows. • Architecture of participation

Web 2.0 provides a Web architecture that encourages user participation in the process of creating and sharing content and collaboration between users. • Personalization of Web resources

In the Web 2.0 model users play an active role in managing Web resources. They have the tools to manage resources that are relevant to their needs; personalize content and resources according to their preferences; choose a way of navigating among them; choose the means for notification when there are changes and etc. • The power of Long tail

In Web 2.0, each user can create its own products –   information, music, and video, designed for both personal and business goals. These products are in digital form, thanks to technologies used to create them and are available anytime and anywhere. This reduces the expenses associated with them. • Deployment of Rich applications

The definition of rich in this case is associated with the deployment of applications, providing a rich set of features and capabilities for interactivity directly in Web browsers. These applications and technologies provide opportunities for reducing the number of queries from client machines to servers and therefore reduce the traffic between them. On the other hand complicated Web applications can be deployed and complex business services can be delivered. • Constant beta release

 New features can be added to each Web application in the process of its use. The users themselves contribute to the development of applications because they test each new feature 48

and can help to analyze various errors and bugs. There is a rapid and continuous feedback. This model avoids the creation of different versions of software; the need to update to new versions and related problems of different nature. • Syndication of information and services

Web 2.0 provides opportunities for reuse of information resources. It is possible thanks to the use of Web applications that make syndication of different applications and services (offered  by different suppliers) possible. Web 2.0 technologies create information and resources not only for consumers but also for reuse by other software applications. From those perspectives of the Web 2.0 characteristics, it can be concluded that WanaArtha Life website is classified as Web 1.0. The main reason is that the user creation in this website is very low. There is no particular or special space for user creation or interaction in this website. All of the contents are provided by the author, in this case is provided by the company. The information inside is provided as an information needed for the visitors/customers. All the contents can only creatively be changed by the author only. One segment where the user can participate with is only on the contact part. The visitors/users can participate by filling the information in order to contact to the company for the particular purposes. From this elaboration, it can be concluded that WanaArtha Life website is a Web 1.0. There is nothing wrong with this classification. By using Web 1.0 doesn‘t mean that the

website is bad or obsolete. This action basically based on the company point of view. From this example, the option whether chooses Web 1.0 and Web 2.0 can be grouped from the  paradigm of the importance and the control (customer/user point of view). So that, it can be grouped as (1) degree of importance and (2) degree of control. Relate to the WanaArtha Life website, the degree of control of users is relatively low. They want to control all the website activity themself. It seems because the characteristic of the website is content only that makes the user participation is low. On the one hand, the culture of Indonesian people is sometime unusual with the Web 2.0 unique style. From the target customer point of view, most of them are adult that already have their own personal funding and born before 1990‘s. It means, there is a huge possibility that they commonly used to deal with the Web 1.0 rather than Web 2.0 49

From the degree of importance, the importance of using Web 2.0 is also relatively low. They consider that by implementing or not implementing Web 2.0 doesn‘t give to many negative impacts for the company. By implementing Web 1.0, the company can still run their  business well. However, by implementing the Web 2.0 will give advantages to the company. The main advantage is can increase the customer participation. The customer can share their ideas about insurance or about the company. Such ideas are like testimonials, discussion, etc. By transforming the website, the customers can interact as if directly to the company and to the other customers. But, of course the disadvantage is about the control. The company should have controls to the website so that the degree of the cutomer‘s participation can be limited.

Because the users participation can also be a boomerang for the company. Any negative comment or participation from the customer may affect the activity of the company, such as  brand image.

3.7.1. 

Opportunity

Customer’s participation

By participating the customer into the activity, it will give positive impact for the company. Customer may feel that they are contributing or involving to the part of the company activity (in this case is through company‘s website). Furthermore, it impact the

 positive brand image of the company. 

 Enlarge the brand awareness of the company

By participating the customer, there is a possibility that the brand awareness of the company will enlarge. It is like word of mouth process. Participating the customer means that participating the other relation of that particular customer. The network will become  bigger as the participation is bigger. 

 Enhance the website usefulness

The website will not only as a website that provide a content that provided by the author. The usefulness of the web will increase if the company implements the Web 2.0. The more people will use the website as the participation increases.

50

3.7.2. 

Threats

 Degree of control 

The problem of implementing Web 2.0 is about the control. The degree of control should  be limited so that the participation is on the boundary of the company‘s regulation. The lack of control will give bad impacts to the company, for instance bad comments or testimonials that will affect the company‘s brand image 

 Monotone web

If the company keep pursuing to use Web 1.0, the web will become monotone. It only  provides the contents that needed by the customer. The customer only access it only if they need the information inside. 3.7.3.

Business Implications

Sometime, not all the website need to be revised to the Web 2.0. It depends on the importance of the company point of view. For example, like the corporate website, usually it is content based. It only provides the needed content for the users or visitors of the website. But, on the other hand, the company who offers a particular product, some of them use the Web 2.0 in order to enhance the customer participation. For instance, Starbucks (http://mystarbucksidea.force.com/apex/ideaHome). Through its blog, the company enables its customers to offer and share ideas for new drinks, food, even the design of cafes. Other users have the opportunity to discuss and evaluate the ideas. Each user feels personally involved in developing new products and the company has a generator of ideas and suggestions. In this case, WanaArtha Life website, there are no particular special participation from the customer through their website. The only participation is come from the contact us  part. From this phenomenon point of view, it is recommended that WanaArtha Life implement a few of Web 2.0 style. The appropriate participation that the user can interact in this case is like the discussion part. The user can feel free to discuss anything about insurance and their experience about risk in relation of life insurance and their life. From this point of view, the purpose is that allowing the customer to personally involve in the certain part of company‘s business activity. It will enhance the engagement of the company and the

customer. However, WanaArtha Life should remember about the degree of control if they want to to implement the Web 2.0 and create the regulation or the appropriate boundary.

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3.8.

Process Technology

Risk Management Software

Insurance business is a business that always deals with a risk. They play with the risk. They play with the uncertainty in this life and offer their product, called insurance. They insure the uncertainty in our life, one of them is life. We don‘t know when we are going to

 pass away and some people are worry if they are pass away they will left behind unfinished  business in the world, such as pay the education payment for their children, financing the needs of his/her family, etc. So that, insurane business is a very risky business. They need to know the degree of the risk before they play. They have to play with statistic in order to play safe in this business. Wrong decision will lead them to huge lost. That is why lot of the insurance business usually have the proper risk management, and it is a must. They need to know whether their investment to insure something is bad or good decision. The good tools to help the company in order help them to decide the right decision is  by using the risk management service. Risk management service isn‘t only offerd for

insurance business or industry, but also for other industries such as banking, government, and etc. For insurance company like WanaArtha Life, it is a must to have risk management software. It helps them in making the decision so that they minimize the action of wrong decision by playing with historical and present data on the field. One pattern that emerged very strongly was that the successful project managers were good risk managers. Although they generally didn't use such terms as risk identification, risk assessment, risk management planning, or risk monitoring, that's what they were doing. And their projects tended to avoid pitfalls and produce good products (Boehm, 1991). It means that, in the past the good manager usually avoid risk in order to be succeeded in their project or their business. However this is contrast with today‘s era especially in insurance business

that plays with risk. The manager has to good enough and have proper planning to play with the risk and gain advantage. The practice of risk management itself involves two primary steps, Risk Assessment and Risk Control, each with three subsidiary steps (Figure 3.8). Risk Assessment involves

52

risk identification, risk analysis, and risk prioritization. Risk Control involves risk management planning, risk resolution, and risk monitoring (Boehm, 1991).

Figure 3.8. Software Risk Management Steps (Boehm, 1991) From that point of view, the company can determine that two important things of risk management is to assess and to control those risks. By using the risk management software that following those steps and containt that two important thigs, the company like WanaArtha Life can exploit all the opportunity behind those risks and gain advantages. One of the risk management software that available in the market is offerd by SAS company. Its risk management software is constructed to deal with the risk and SAS provide also the specific risk management software for insurance industry. Reduce risk, optimize capital, maximize investment performance and increase competitive advantage is their goal

53

(SAS, 2013). By implementing risk management software whether it is from SAS or from other vendor, the purpose is to gain advantage from those risk and reduce the risk as much as  possible. WanaArtha Life itself isn‘t stated publicly that they implement risk management software or not, but in this case, it is assumed that they implemented the risk management software. The risk management software in today‘s era is like a must software for a big

company especially for the insurance industry because they play with risks. The framework from Boehm is a framework from the point of view as a software engineer in order to make a risk management software. However, it can be used for the company point of view to choose the right risk management software by determining the factors from those two important things, assessment and control of the risks.

3.8.1. 

Opportunity

Gain advantage from the possible risks

By implementing the risk management software, the company could gain advantage as many as possible from those risks for the sake of the company and of course gain as many  profits as possible 

 Reduce risk 

By implementing the risk management software, WanaArtha Life could minimize the risk especially when decide a particular decision. This software could be helper for the manager in deciding a particular decision so that will minimize the risk and choose the right decision. 

 Efficient and effective decision making 

By implementing risk management software, it is purposed to get the decision as good as  possible for the sake of the company. This software will help the manager to work effectively and efficiently. 3.8.2. 

Threats

Cost of maintenance

Implementing risk management software need a huge initial cost. The maintenance of this software is also not cheap. WanaArtha Life needs to be ready to finance the maintenance cost of this software in order to be as update as possible 54



 Possibility of choosing the wrong risk management software or the wrong vendor 

The key point in determining the risk management software is about the software itself. it needs to be as exact as the requirements that the company wants. On the one hand, the right vendor is one of the considerations. WanaArtha Life should check the track record and the history of the vendor before deal the agreements because it will determine the further actions in the future. 3.8.3.

Business Implications

Implementing risk management software is a must for a company like WanaArtha Life. This company plays with risks since they are insurance company. By implementing the right risk management software, it is purposed to gain the advantage from those risk as many as possible and reduce the risk as many as possible. After implementing the risk management software, the second thing that most important is about the maintanance of the software. Of course to buy this kind of software is not cheap. It needs huge of investment, such as to hire the consultant. On the one hand, the maintenance of this software is also huge. The software need to be maintain in order to be as update as possible. The company also have to watch out about the possibility of obsolete software. Sometime the requirement of the company doesn‘t match with the what the

software offering. The company should be careful about modifying the software in order to meet the company‘s demand because to many in -house application will make the

maintenance cost increases. It is basically happen because the company needs to work double, maintain the in-house application and maintain the original software of the product that come from the vendor. So that, for WanaArtha Life, to implement the risk management software has to emphasize the two things, (1) the company‘s requirements in compare with

the potential product offering (2) the vendor reputation and track record.

3.9.

Governmental The corruption issue with the government in Indonesia is one of the biggest issues in

doing the business. According to the Transparency International organization who focuses on the global coalition against corruption said that Indonesia corruption perception index (CPI) in 2012 was in rank 118. This rank was below from several neighbor countries such as

55

Malaysia (54) and Thailand (88) but above from several neighbor countries such as Vietnam (123) and Cambodia (157). Figure 3.9 shows us about the level of world country CPI 2012.

Figure 3.9. World Corruption Perception Index 2012 (Transparency International Organization, 2012) There are several ways that company could implement to deal with the company. In Unilever for example, Unilever top level person always say no for everything that could consider into bribe such as gift, parcel or etc. In brief, for the insurance company, one of the ways to prevent corruption or KKN in Indonesia is by implementing Good Corporate Governance. Corporate governance involves regulatory and market mechanisms, and the roles and relationships between a company‘s

management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed (OECD, 2004). On the one hand, according to National Committee of Governance Policy Indonesia that the implementing of GCG influences to make a healthy competition and also the investment environment (Komite Nasional Kebijakan Governance, 2006). Therefore the implementation GCG of companies in Indonesia is very important to increase the growth and the stability of the economy. The corporate governance furthermore would help the company to deal with the corruption. By forming the good corporate governance, the company could make the regulation about what the company and the stakeholder should behave. In this issue, the 56

 problem is how to behave against corruption, collusion and nepotism. The purpose is to deal with the corruption. By forming the good corporate governance, the company can establish some particular important rule to bound the stakeholder behavior beyond the unexpected negative action such as corruption.

3.9.1. 

Opportunity

 Maximize profitability

Acording to the data of insurance industry in Indonesia, WanaArtha Life can maximize their profitability since the market is still emerging since the Indonesia insurance penetration in 2011 was far behind than Thailand, in compare with the Product Domestic Bruto, Indonesian insurance penetration only 1.2% rather than Thailand (above 3%) (Kompas, 2012). 

 Implementing the corporate governance

By implementing good corporate governance, hopefully will decrease the tendency to do negative actions such as corruption. From the portion WanaArtha Life insurance itself mostly comes from PT Consolidated Companies (97.2%) and the rest are owned  by Yayasan Sarana Wanajaya. From this point of view, the majority of the shareholder is from PT Fadent Consolidated Companies. By implementing the good corporate governance, it is expected to decrease the tendency of negative actions conducted by the majority shareholder. 3.9.2. 

Threats

Corruption, collusion and nepotism

Corruption, collusion and nepotism would be the biggest threat for the company. Company should have the way to fight against this negative action. One of way that the company could implement is by forming and implementing the good corporate governance. 3.9.3.

Business Implications

It is obvious that the WanaArtha Life should implement good corporate governance. WanaArtha Life itself is not a public company, so that implementing good corporate governance is a good and superior way to avoid negative actions such as corruption, collusion, nepotism, agency conflict, and so forth. 57

3.10. Economic Development The Growth of Insurance industry in Indonesia.

Insurance industry is one of the promising industries in Indonesia. According to Kompas.com, in 2011 the investment of Life Insurance Company was about Rp 200.39 trillion or has raised about 20% compare with the same period last year, while the common insurance investment has raised 18% to Rp 39.47 trillion. The assets of life insurance also have raised 20% to Rp 225.54 trillion and common insurance assets have raised 17% to Rp 53.76 trillion (Kompas, 2012). Those data shows that the profitability of insurance company has increased. On the one hand, it can be concluded also that people in Indonesia are more aware about the importance of insurance. According to Andy Timo, Vice Chairman of Commission XI of DPR, said that, growth of insurance in Indonesia reached 20 percent annually. However the penetration of insurance to society is still 4 per cent were aware of insurance (Dewan Perwakilan Rakyat Republik Indonesia, 2013). From the issue above, it indicates that the Indonesian insurance market potential is very large. Furthermore, the potential market in Indonesia is still big and lot of opportunity for insurance company or new company to enter this business. The rise of Middle Class

Indonesia is experiencing a rapid expansion in the middle class, which change or help to transform the country's consumer market. Many businesses have seen this as the opportunity to offer their product in Indonesia. Businesses have seen this as the strong  purchasing power and the high labor skills of the middle class. This phenomenon can be seen as the opportunity through the disposable income in Indonesia. Figure 3.10 shows the disposable income of Indonesian people. As we can see that the disposable income of Indonesian people are increasing every time and the future  projection also shows that the disposable income of Indonesian people are increasing also. Disposable income is the amount of money that households have available for spending and saving after income taxes have been accounted for (Investopedia, 2013). Disposable income usually use for entertainment or other tertiary needs such a travel, gadget, and so on.

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Figure 3.10. Disposable Income of Housholds in Indonesia (Euromonitor International, 2012)

Cited from Euromonitor International, there are several facts about the disposable income in Indonesia, which are: 

In 2011, per household annual disposable income stood at Rp 60.6 million (US$6,901), representing an average growth rate of 5.0% per year in real terms during 2006-2011. Consumer expenditure is also growing fast, at an average rate of 4.7% per year in real terms during 2006-2011 to reach Rp57.7 million (US$6,569) per household;



Underpinning the rise in consumer expenditure is the rise of the middle class. In 2006, there were 6.6 million households with an annual disposable income of over US$10,000 (in constant terms), but by 2011 this number had risen to 13.7 million households. According to the data, there are several implications of the emerging of middle class

in Indonesia. The implication effect the characteristic of buying of Indonesian people in Indonesia. Of course the entire business owners have to consider this phenomenon in order to face this challenge. According to Euromonitor International, there are several implications that we have to consider, which are: 

Companies in a range of industries including tourism, education, healthcare and entertainment can expect greater business opportunities, as middle-class Indonesians are spending increasingly on discretionary goods. Although the bulk of consumer spending in Indonesia is still on essentials (i.e. food, non-alcoholic beverages and housing), the  proportion of discretionary spending in total consumer expenditure has been gradually rising, from 49.1% in 2006 to 54.2% in 2011;

59



Indonesia has a relatively young demographic profile with 60.8% of the population aged  below 35 years as of 2011. People aged 30-34 had the highest average gross income in Indonesia, at Rp38.7 million (US$4,199) in 2011, compared to the national average gross income of Rp31.5 million (US$3,422). High earners in this age group will likely buy their first cars as well as having a strong demand for luxury goods;



Like many other Asian countries, the middle class in Indonesia is characterized not only  by their purchasing power, but also their generally higher levels of skills and education. Many members of the Indonesian middle class are educated at universities in the West. As a result, multi-national consumer goods companies entering the Indonesian market can capitalize on both the rising wealth and the high skills of the middle-class labor pool. The growth of insurance in Indonesia is very promising. The market is still huge in

Indonesia. From the data above tells that the penetration of insurance in Indonesia is still 4%,  but on the other hand insurance industry grows year by year. It indicates that the awareness of insurance in Indonesia is still low but there are people who more aware to the prospect of having insurance. There are big opportunities for insurance company to maximize theirs  profit in Indonesian market. Therefore, it is chance for insurance company like WanaArtha Life insurance to enlarge their market share and theirs profit. On the one hand, the phenomenon above about the rise of middle class in Indonesia is a chance for business to gain more opportunities to increase theirs profit. Many Indonesian  people are categorized as a middle class who have the big role in the driving of Indonesian economic. Furthermore, insurance company like WanaArtha Life insurance who play in the insurance industry has also the chance to gain more profit by learning from this phenomenon. From this perspective, WanaArtha Life insurance has lot of opportunities to enlarge their business since the penetration of insurance company in Indonesia still 4% but the market grows year by year. It is also can be combined by the phenomenon in Indonesia that Indonesia has the phenomenon of emerging of the middle class. At last, it can be concluded that based on the low penetration of insurance industry and the emerging of middle class in Indonesia, WanaArtha Life could see this as a big opportunity for their business.

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3.10.1. 

Opportunity

 Market penetration

By looking for the fact that the penetration of insurance in Indonesia until 2013 is still 4%, it means that there is a chance to penetrate more about the awareness for Indonesian  people about insurance. WanaArtha Life can see this as an opportunity to market their  product and also share knowledge about the importance of insurance. This action is taken in order to gaining more potential market in Indonesia and also to market their product itself 

 Profitability of insurance industry is good –  source of capital

The growth of insurance industry increases year by year. In 2011 the investment in insurance industry increased 20% compare to the same period in previous year (Dewan Perwakilan Rakyat Republik Indonesia, 2013). It indicates that the profitability of insurance industry has increased. Many investors are willing to play in this industry. From this condition, WanaArtha Life can take the advantage in order to gain more capital. WanaArtha Life could proposing some capital injection needed in order to expand their  business and to help them to run the opportunity. 

 Emerging middle class in Indonesia

The rise of middle class in Indonesia is also good opportunity for WanaArtha Life insurance to expand their business. According to the data above, tells that emerging middle class in Indonesia has increased year by year, it also means that the disposable income of the middle class has increased. From this issue, WanaArtha Life can see the opportunity to offer an insurance product that fit to their needs. For this present time, WanaArtha Life offers the life and health insurance 3.10.2. 

Threats

Competitor 

The threats may come from the other competitor. Since Indonesian market is still  promising, it means that many insurance companies will maximize this condition to gain more profit. 3.10.3.

Business Implications

According to the data above, my recommendation for WanaArtha Life insurance company to face the opportunities and the threats is (1) building up the resources and the 61

capabilities, and (2) market penetration. As follows are the recommendation of the business strategy that WanaArtha Life insurance may implement in order to face the opportunities and threats. 1) To answer the opportunity, it clears that WanaArtha Life should look inside first are they have the right resource to answer the opportunity or to compete with other. There are many way to increase the resource and the capability. For this moment, I would like to recommend strategic alliance with the other insurance or related party. This action aims to increase the resource and capabilities of the company. 2) Penetrate more about the WanaArtha Life insurance product. The penetration of the insurance product and also the awareness of insurance is still low. It means that WanaArtha Life still has the possibility to expand their market share. From this point, the company should do some business strategies in order to expand their market share and  penetrate more. I recommend for the WanaArtha Life insurance company to do more campaigns and product offering to the customers. Because, compare to the other competitor, such as Prudential, WanaArtha Life still steps behind that company and any other competitors.

3.11. Regional Economy Yogyakarta is one of the provinces in Indonesia. According to BPS in 2010 Yogyakarta‘s  population was 3,457,491. In the region economic side, Yogyakarta‘s product domestic bruto

in 2010 and 2011 are Rp 45,625,589.50 million and Rp 51,782,092.43 million (Badan Pusat Statistik, 2010). This huge number can be an opportunity for the insurance company to take advantage in Yogyakarta region. Table 3.6 shows the gross regional domestic product of DI Yogyakarta in Finance, Real Estate and Company Service section. According to the table, the GRDP of Finance, Real Estate and Company Service section in Yogyakarta was increasing year by year.

Table 3.6. Gross Regional Domestic Product DI Yogyakarta in million rupiah (BPS Yogyakarta, 2010)

Finance, Real Estate and Company Service

2007

2008

2009

2010

3,188,428

3,724,285

4,090,675

4,552,667

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From this data, it can be used as a trend of financial services, such as insurance. It indicates that the financial services trend in Yogyakarta is increasing. So that from the data above, it can be used as an opportunity for WanaArtha Life insurance company to keep  pursuing profit.  Not only that, to support that number, according to Kompas.com, in 2011 the investment of Life Insurance Company was about Rp 200.39 trillion or has raised about 20% compare with the same period last year, while the common insurance investment has raised 18% to Rp 39.47 trillion. The assets of life insurance also have raised 20% to Rp 225.54 trillion and common insurance assets have raised 17% to Rp 53.76 trillion (Kompas, 2012). From those data shows that the profitability of insurance company has increased. On the one hand, it can be concluded also that people in Indonesia are more aware about the importance of insurance. At the end, it reflects into the number on the table 1 who shows the increasing amount of number in financial service. At last, there is an opportunity for WanaArtha Life Company to keep pursuing more profit. Since Indonesian people are more aware right knows about having insurance, WanaArtha Life insurance company can offer their insurance product more intense. Diversifying insurance products are also a good step in order to gain more profit. There are several problems of life that needs insurance. So by diversifying insurance product would help WanaArtha Life to enter several segments of market and gain more profit.

3.11.1. 

Opportunity

 Penetrate more Yogyakarta’s market 

Since the penetration of insurance in Indonesia is still low (4%), it is beneficial for WanaArtha Life to penetrate more. On the one hand, the historical data of gross regional domestic product shows that the trend in the financial service increases every year. 3.11.2. 

Threats

Tight competition

Yogyakarta is one of very promising market in Indonesia. Beside WanaArtha Life, there are so many insurance business also play in this region, such as Axa, Prudential, WanaArtha Life Life, and so on. It needs extra effort for WanaArtha Life to compete in this region and explore more the market. 63

3.11.3.

Business Implications

Because its tight competition in Yogyakarta‘s market, WanaArtha Life could collaborate to increase their resource and capability and ready to compete in the market. WanaArtha Life could collaborate with other financial institution to distribute and market more their product through their channels.

3.12. Industry & Sectoral Policies In Indonesia today‘s era, the insurance industry is ruled under the Otoritas Jasa  Keuangan (OJK). OJK has the authority to control in overseeing financial institutions in

Indonesia. One of the financial institutions is all insurance businesses. The establishment of OJK in the early of 2013 gives many changes especially in the rule or regulation in the financial industry. One of them is the rule ore regulation to play in the insurance business. This condition will affect the activity of the insurance business in Indonesia because they have to obey the regulations that later are signed and officially established. But on the other hand, the establishment of OJK gives a good impact for financial industry in Indonesia. The establishment of OJK shows the transformation of financial industry in Indonesia into a better environment. It is targeted to create a fair and healthy environment for all financial institution and all the elements that are involved in the activity. OJK‘s vision is to be the trusted supervisory institution financial services industry,

 protect the interests of consumers and the community, and is able to realize the financial services industry, a pillar of the national economy that is globally competitive and to promote the general welfare. Whereas the missions of OJK in Indonesia are (Otoritas Jasa Keuangan, 2013): • To ensure that the overall activities within the financial services sector are implemented in

an organized fair transparent and accountable manner • Promotes a financial system that grows in a sustainable and stable manner; and • Protect the interest of Consumer in the Financial Market

OJK itself has two kind of mandates in Indonesia, regulatory mandate and supervisory mandate. The more detail is as follows (OECD, 2013):

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Regulatory Mandate

• Implement OJK Law and harmonize 3 s ub sector laws • Establish rules and regulation • Supervision • Institutional • Enforcement and Sanctions Supervisory Mandate

• Institutional and Market Oversight Policy and Supervisory Activities • Governance and Oversight of CEO‘s from Banking, Capital Market and NBFIs (refer OJK

Commissioners Function) • Conduct supervision, inspection, investigation, Consumer protection, and other actions • Impose administrative sanctions on any party violating the laws and regulations in the

financial services sector • To issue and / or revoke business licenses; individual licenses; effective registration

statement; registered‐license statement; approval of business activities; and validation.

3.12.1. 

Opportunity

 More independent and effective control from the authority party

The establishment of OJK in Indonesia gives a good signal for all the financial industry and all the related elements, included insurance industry. It shows the transformation of the all financial environment, into a good, fair, and healthy environment in Indonesia. It is  beneficial for WanaArtha Life as an insurance company because there is a authority party that more independent and effective control. 

 Increase efficiency because of the new regulation about to combine the permit of life insurance and common insurance business

This regulation can make the insurance company to have permission of both life insurance business and common insurance business. It used to have the specific  permission of life insurance business and common insurance business of the company. Because of this new regulation, the company that has two permission, can be merged into one legal entity and it increases the efficiency of the company.

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3.12.2. 

Threats

The change of regulation

Because there is a change of authority party, there is a huge possibility about the change of the rule or regulation in order to meet their mission. This condition of course will impact the company‘s business like WanaArtha Life. The change of the rule or regulation

will impact the WanaArtha Life do the business and run their activity. 

 Increase competition because of the new regulation about to combine the permit of life insurance and common insurance business

Because of this regulation, it is predicted that the insurance company will be reduced by 20%. All the insurance company that used to have two legal entity with two permission of insurance (life and common insurance) can merge after this regulation is officially establish. It means that particular company will seek efficiency and combine resource and capability to compete. This is will make the competition become tighter and fiercer. 3.12.3.

Business Implications

Because of the establishment of OJK, it will give the impact either good or bad impact for WanaArtha Life. The most of important thing here is about the regulation that probably will change during the time. The legal department of WanaArtha Life should prepare about the possibility of the change of rule or regulation. The department should prepare and adapt as fast as possible to the change and communicate with the company and the other division. In the company point of view, WanaArtha Life should prepare also about this issue. Because of there is a new authority party (OJK), it means that there is a possibility about the change of the rule of the game to play in this industry. One of the example is the possibility of merge company of life and common insurance company under the same umbrella company because there is a new bill about the combine permission of life and common insurance. This condition will make the competition tighter because lot of the same company on that condition will merge into one single entity and the purpose is efficiency, join resource and capability, and collaborate to compete in the market.

3.13. Monetary & Fiscal Policies In economics and political science, fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy (O'Sullivan & 66

Sheffrin, 2003). The two main instruments of fiscal policy are changes in the level and composition of taxation and government spending in various sectors. Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability (Yeyati & Sturzenegger, 2010). The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. One of the fiscal policy who is still hot in the relation of insurance industry is about the planning of the government to put insurance hedging in the Constitution of the State Budget in 2014. This action was taken in order to hedge the risk of the possibility of the disaster that might happen in Indonesia. As we know, Indonesia has so many possibility of natural disaster, such as earthquake, flood, etc. Each of the natural disaster sometime unpredictable in term of cost. Because of thi uncertainty condition, will affect the insurance  business in term of claim process from the client because of the impact of natural disaster. The amount of the claim may vary according to the particular agreement of the claimer and the insurance company. This effort is a solution to avoid the uncertainty of funding from the disaster that cannot be predicted. Head of Fiscal Policy Agency, Bambang Brodjonegoro, said that this action is the easiest way by paying the insurance rather than only rely on the state disaster reserve fund (Tempo.co, 2013). This news is of course a good sign for the insurance company like WanaArtha Life. There is an open opportunity to work with the government to hedge the government risk in handling the disaster impacts. However, on the other hand, insurance company should ber careful if think to cooperate with the government. They should consider their resources and capabilities and assess whether they competent enough to cooperate with the government  because the value of this possibility is very huge. We are talking about the country. But of course the risk is also enormous. High risk high return. The particular company should accomplish the cost and benefit analysis to determine the net present value of this project. On the other hand, the monetary policy that may impact the insurance business is about the BI rate. As shows in Table 3.7, that the BI rate from year to year is decreasing.

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There are 2 main implications of this monetary policy, first tt indicates that the predicted inflation in the future in Indonesia is at least below 5.75%. The central bank want to control the inflations. The purpose is if the bank interest rate high, hopefully the people would like to save their money in the bank so that the buying demand will be decrease and the price of the  product will stay on the normal level. The second, if the BI rate relatively low, so hopefully lot of people dare to borrow money from the bank because the interest rate of the bank is also low in order ti expand their business. The expectation is that the expand the business, the more employee needed and the better economic condition of the country. From those points of views and assumption, the low BI rate will impact the insurance  business in a good impact. First, because the economics of Indonesia will be better, it is expected that people in Indonesia will use their disposable income to insure their life in insurance business like WanaArtha Life. Second, because the buying demand is expected to decrease, it is expected that their disposable/unused money will be used for investment option and insurance will be selected as their investment option. From the company point of view, the lower the BI rate, the good chance for the company to borrow debt in order to business purposes. Because the BI rate low, so that the  bank interest rate will also relatively low. So that, debt will be a good choice for WanaArtha Life if they want to expand their business. However, on the other hand, there are also some issues that may be a disadvantage for the company in relation of fiscal and monetary policies. One of them is about the election of the President and Vice President Republic Indonesia in 2014. This condition will make the government; especially they who are involved in particular party, try to play save until the Election Day over. On the one hand, there is also a transformation of bureaucracy after Election Day. This transformation might impact the company run their business activity. This condition will lead to uncertainty and drawback the company in taking a decision.

Table 3.7. BI rate in Indonesia from January 2011 –  May 2013 (Bank Indonesia, 2013) Period

14-May-13 11-Apr-13 7-Mar-13 12-Feb-13 10-Jan-13

BI Rate 5.75% 5.75% 5.75% 5.75% 5.75% 68

Period

9-Feb-12 12-Jan-12 8-Dec-11 10-Nov-11 11-Oct-11

BI Rate 5.75% 6.00% 6.00% 6.00% 6.50%

11-Dec-12 8-Nov-12 11-Oct-12 13-Sep-12 9-Aug-12 12-Jul-12 12-Jun-12 10-May-12 12-Apr-12 8-Mar-12

3.13.1. 

5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%

8-Sep-11 9-Aug-11 12-Jul-11 9-Jun-11 12-May-11 12-Apr-11 4-Mar-11 4-Feb-11 5-Jan-11

6.75% 6.75% 6.75% 6.75% 6.75% 6.75% 6.75% 6.75% 6.50%

Opportunity

 Hedge insurance in natural disaster 

There is an open opportunity to work with the government to hedge the government risk in handling the disaster impacts. 

 Decreasing BI rate

The low BI rate will impact the insurance business in a good impact. First because the economics of Indonesia will be better, it is expected that people in Indonesia will use their disposable income to insure their life in insurance business like WanaArtha Life. Second,  because the buying demand is expected to decrease, it is expected that their disposable/unused money will be used for investment option and insurance will be selected as their investment option. Increase efficiency because of the new regulation about to combine the permit of life insurance and common insurance business. From the company point of view, the lower the BI rate, the good chance for the company to borrow debt in order to business purposes. Because the BI rate low, so that the bank interest rate will also relatively low. So that, debt will be a good choice for WanaArtha Life if they want to expand their business. 3.13.2. 

Threats

Transformation of bureaucracy

This condition may happen after the election of President and Vice President Republic Indonesia. This transformation might impact the company run their business activity. This condition will lead to uncertainty and drawback the company in taking a decision. Furthermore, the corruption also still high in Indonesia who also lead to uncertainty. 69

3.13.3.

Business Implications

WanaArtha Life need to prepare about the transformation of bureaucracy that may happen because of the election of President and Vice President Republic Indonesia. There is a  possibility that the way that bureaucracy works are differ. However on the other hand, the decreasing of BI rate indicates that the economics of Indonesia is getting stable. The economics of the people itself is better and better. This is a good condition for WanaArtha Life to offer their product and explore the market more. WanaArtha Life should shows that their product is the best choice for them to as the people have excess money and life insurance is the best option as investment option for them. The decreasing of BI rate also gives a good sign for WanaArtha Life in order to expand their business by using debt. Since the BI rate tend to significantly decrease, so that the bank interest rate will also decrease as the impact of that condition.

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CHAPTER IV: CONCLUSION AND RECOMMENDATION

4.1.

Conclusion After those elaborations about the external factors that influence WanaArtha Life, in

this part is about the conclusion that cover the opportunities and the threats faced by the company toward all the business environments factors and the business implication that should be taken by the company. Table below is summarized the opportunity and threats faced by the company and its business implication.

Table 4.1 Research Summary

No

1

2

Business Environment

Demographic

Social

Opportunities

Demographic factors (population,  population density, and HDI)

Easiness to explore the market in the huge  population and huge population density area

Hard to sell the  Focus on the high  product in rural  population, area. More cost to  penetrate or  population explore the market density, and high more in particular  HDI area area

Generation X and Generation Y

Get more capable employee from the generation Y

The creation of  proper work environment would be more confusing.. tradeoff between the generation X and the generation Y

The skepticism of insurance agents  by Indonesian  people will drawback the company and affects its  performance. Capital scarcity since the part of foreign investors is going to be

3

Cultural

Insurance agent system

The insurance agent system is still superior in gaining more customers and expand market share for the insurance company.

4

Domestic Political

Insurance draft  bill

The limitation of foreign investors to play in insurance industry 71

Threats

Business Implication

Topic

Change the managers or the leaders that  situasionally fit the  generation Y’s  phenomenon. Creating the proper  generation Y work environment. Creating the rule of insurance agency in order to meet the company’s, industries and culture’s standard.

in Indonesia

5

6

7

8

9

International Political

Natural

Information Technology

Process Technology

Government

Political Risk Insurance

The demand of Political Risk Insurance is increasing

 Natural disaster in Indonesia

Trend of natural disaster is increasing. The trend of natural disaster insurance in Indonesia

Web 2.0

Customer‘s  participation. Enlarge the brand awareness of the company. Enhance the website usefulness

Risk management software

Good corporate governance

Gain advantage from the possible risks. Efficient and effective decision making. Reduce risk

Good corporate governance will enhancing the company‘s ethical conduct

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limited

The political condition in Indonesia is on the very high uncertainty

 Avoid to offer the  Political Risk  Insurance product.  It will be risky for the company because the political condition in  Indonesia is very uncertainty and it needs high investment of capital

The bigger the natural disaster that might happen, the bigger the  potential claim from the customer

 Keep explore the market since the natural disaster in  Indonesia (uncertainty) is increasing every  year. Re-insurance the company

Degree of control. Monotone web

 should remember about the degree of control if they want to to implement the Web 2.0 and create the regulation or the appropriate boundary

Cost of maintenance. Possibility of choosing the wrong risk management software or the wrong vendor

To implement the risk management software has to emphasize the two things, (1) the company‘s requirements in compare with the  potential product offering (2) the vendor reputation and track record

Corruption, collusion and nepotism would  be the biggest threat for the company.

 Implement Good Corporate Governance

Penetration of insurance in Indonesia until 2013 is still 4%. Economic Development

10

Regional Economy

11

Emerging of middle class

the investment in insurance industry increased 20% compare to the same period in  previous year

Fiscal and Monetary Policy

13

4.1.

building up the resources and the capabilities and do market penetration and exploration

Regional economy in Yogyakarta

Financial services trend in Yogyakarta is increasing

The differences of  Focus on the region region the economic with the relatively condition of the high economic of  particular  growth. area/region. Tight Collaboration competition

Insurance and OJK

More independent and effective control from the authority party

Rule or regulation The legal that might be departement should changed in order  prepare the to meet the proper  posibillity of the condition by the regulation OJK and it might transformation impact the way WanaArtha Life run their business activity

Fiscal and monetary policy factor (risk hedging of natural disaster and BI rate)

Hedge insurance in natural disaster. BI rate is decreasing

Floating exchange The company could rate. It means using debt for the uncertainty capital requirement. requirement. condition.  Hedging and Transformation of reinsurance the  bureaucracy company

Industry and Sector Policy

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many insurance companies will maximize this advantage to gain more profit

Recommendation After discussed all external business environment related to WanaArtha Life, this part

is about several recommendation that can be considered by the company in running their  business in the future. futur e. The recommendations are: 1.

Bu si ness ness expansion and expl expl orati or ation  on . The potential market in Indonesia is still huge.

There is still huge potential market available. WanaArtha should do the business expansion and exploration in order to increase their market share and gain profit as many as possible. 73

2.

System System Adaptati on . As the business expands, WanaArtha Life should adapt with local

demand, especially in dealing with the agency system. Since the company is operated in Indonesia, the system adaptation of agency system would be beneficial for the company to avoid the skeptic of agency system. 3.

F ocus ocus on the hi gh popul popul ation, popul popul ation density, density, and high H DI area . This action is

taken in order to make operation efficiency. WanaArtha Life should operate in the high  population, high population density, d ensity, and high HDI area because the market is huge there. Besides that, it is expected that the market there are ready and very potential to be offered for insurance products. 4.

M ark et Penetration  Penetration . Since the penetration of insurance in Indonesia is still low (4%), it

is superior for WanaArtha Life to still more penetrate the market. There is a huge  potential target customer custo mer in Indonesia. It is targeted by b y penetrate the market; WanaArtha Life could also expand their market. 5.

. The competition in this industry is very tight and fierce. There are many Collaboration  insurance companies play in this industry in Indonesia. By implementing collaboration may help WanaArtha Life to compete in this industry. It is expected to increase the resources and capabilities of WanaArtha Life to play in this industry and gain competitive advantage.

4.2.

Future Condition of the Industry After come up with those elaborations, in this section is about the prediction 3 to 5

years in the future of the insurance industry relate to the condition of external business environment factors that have been explained before. The player in insurance industry in Indonesia is predicted would be smaller than  before. This is happen happ en because there is a draft bill that t hat would limit the role of foreign investor in insurance industry in Indonesia. Besides that, there is a plan from the government to give a single permission for the both life and common insurance. It used to have a specific  permission from the government whether life or common insurance. So that, it is predicted that there are several company which are under the same corporation that used to have two  permissions, life and common insurance permission, will merge become one single legal entity. This action is basically to achieve the efficiency of the operational and join resources and capabilities of the company to compete in this industry.

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That condition is predicted to make the competition of insurance industry in Indonesia will be tighter and fiercer since there would be merge company become one if that government‘s plan implemented. It means that the merged company will become more

superior because they would join resources and capabilities and also try to achieve efficiency in their day to day operational. On the other condition, the competition and the player of insurance company is  predicted mostly comes from the local player (Indonesia). There is a draft bill that would limit the role of the foreign investors in Indonesian insurance industry. This plan would make the player of insurance industry is dominated by the local player. This condition also forces the insurance company to hardly get the source of funding or capital needed from the foreign investors because their part would be limited. Furthermore, to fund the company‘s needs, either for business expansion, projects, or so forth, it would come from the national resources such as national bank debt, or comes from the IPO or basically comes from the internal resources. Besides that, the condition of the insurance industry is predicted to be more fair, healthy environment since there is a new authority party that supervise the financial activity in Indonesia, including insurance, called OJK.

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