Business Transformation in the Retail Insurance Industry: From Margin to Volume
The modern retail business model is increasingly shifting from a high-margin, low-volume approach to a low-margin, high-volume one. This phenomenon is evident across various consumer sectors, including the fast-food industry, which relies on volume systems, operational efficiency, and traffic magnets to drive aggregate profits, thereby ensuring business resilience and sustainability.
A similar approach is highly relevant for the retail business in the insurance industry, particularly in the context of increasing national insurance penetration, which remains relatively low. It is time for the insurance industry to elaborate on how the concept of “selling by volume, not margin per unit” can serve as a strategic framework for developing mass-market retail insurance in Indonesia.
Historically, the insurance industry, especially general insurance, has relied more on a business model based on high-premium corporate products, distribution through brokers or traditional agents, and a focus on underwriting margins per policy. This approach is effective for maintaining short-term profitability but has several limitations, including restricted market growth, dependence on the corporate segment, low retail penetration, and a lack of economies of scale. Yet, Indonesia’s demographic structure presents significant opportunities in the SME segment, the emerging middle class, and digital-native consumers. This is where the volume-driven insurance paradigm becomes relevant.
In retail management literature, business strategy, and marketing, the volume-driven retail model is a theoretically robust concept. At its core, business success is not solely determined by margin per unit but by sales velocity and distribution scale. There are at least five main concepts and theories in modern retail business that represent the transformation for the insurance industry to create a volume-driven retail ecosystem.
5 Main Concepts & Theories
First, the concept of velocity versus margin in insurance marketing, drawing from the high-volume, low-margin strategy theory by Philip Kotler and Kevin L. Keller in Marketing Management. In the analogy of modern retail business, profit no longer comes solely from margin per transaction but from the number of transactions, purchase frequency, and cross-selling additional products. In the insurance industry, this concept can be translated into: small premiums, many policies, high renewals, and cross-product penetration. This means success is no longer measured by premium per policy but by total active policies. Examples of implementation include: micro-insurance, digital travel insurance, gadget insurance, SME credit insurance, and embedded insurance on digital platforms.
Second, the concept of traffic magnets in insurance distribution, drawing from the loss leader pricing or traffic builder pricing theory by Kotler and Keller. This concept is also known as the cross-selling retail strategy. In the food retail business, cheap products serve as traffic generators. In the insurance industry, this can be applied through: (1) Entry-level products, where low-premium products act as “magnet” products, for example: personal accident insurance at Rp10,000-Rp30,000; domestic travel insurance; micro health insurance. The main goal is not direct margin but customer acquisition, customer database, and cross-selling opportunities; (2) Embedded insurance, where insurance is integrated into digital ecosystems such as e-commerce, fintech lending, and travel platforms. This strategy significantly reduces customer acquisition costs (CAC).
Third, the concept of supply chain in the insurance business process, with digitalisation as the key, drawing from Michael Porter’s cost leadership and economies of scale theory in Competitive Strategy. In manufacturing or F&B industries, the supply chain determines cost efficiency. In the insurance industry, this is equivalent to underwriting, claims, distribution, and policy administration processes. Digital transformation is the primary factor in creating a volume model, with key components: straight-through processing (STP); digital policy issuance; automated underwriting; AI-based claims handling. Without digitalisation, the volume model would increase the expense ratio and operational costs, thereby squeezing profitability.
Fourth, the concept of retail insurance market psychology, drawing from Robert Cialdini’s social proof and trust theory in Influence: The Psychology of Persuasion. In retail business, long queues create social proof. In the insurance industry, trust plays an even greater role. Relevant approaches include: strong brand positioning, transparent claims testimonials, ease of claims processing, and distribution through trusted platforms. Trust serves as a “traffic driver” in the insurance industry.
Fifth, the concept that profit comes not from policies but from the system, drawing from Alexander Osterwalder’s scalable business model theory in Business Model Generation. One of the most important lessons from the modern retail model is that “profit comes from a scalable system, not from a single product.” In the insurance context, this system includes digital distribution ecosystems, underwriting data integration, analytics-based portfolio management, and cross-selling automation. With a strong system, companies can reduce expense ratios, increase persistency rates, and optimise loss ratios through broader risk pooling.
The volume-based insurance model is highly relevant to Indonesia’s current conditions because: first, the insurance penetration rate is still low, around 2%-3% of GDP, far below that of developed countries; second, the market structure is dominated by SMEs, with more than 60 million SMEs needing small-scale yet mass risk protection.