A semiconductor device comprises a semiconductor die including a conductive layer. A first insulating layer is formed over the semiconductor die and conductive layer. An encapsulant is disposed over the semiconductor die. A compliant island is formed over the first insulating layer. An interconnect structure is formed over the compliant island. An under bump metallization (UBM) is formed over the compliant island. The compliant island includes a diameter greater than 5 μm larger than a diameter of the UBM. An opening is formed in the compliant island over the conductive layer. A second insulating layer is formed over the first insulating layer and compliant island. A third insulating layer is formed over an interface between the semiconductor die and the encapsulant. An opening is formed in the third insulating layer over the encapsulant for stress relief.