Life is positive -- if you're prepared<\/p>\n
By Simon Wellington<\/p>\n
JAKARTA (JP): Mother said to always be prepared because
\n"tomorrow you could be run over by a bus".<\/p>\n
Although it could be considered a somewhat pessimistic
\ndisposition, she would argue that it was just being practical --
\nwhich was the reason why she had life and health insurance.<\/p>\n
In our highly commercialized world, the financial pressures
\nare fierce. We are entering contracts daily that bind us to a
\nwide range of commitments. So what would happen if "mother's bus"
\ncame screaming around the corner one sunny afternoon and decided
\nto turn you into a street decoration?<\/p>\n
Well, you could be lucky enough to just end up in hospital and
\nescape the experience with a few broken limbs and a mountain of
\nmedical bills. But then, you could also find yourself permanently
\nunable to return to work or, worse still, dead.<\/p>\n
The ramifications of unexpected events have far-reaching
\nconsequences. For this reason, the popularity of life and health
\ninsurance is on the rise, as more and more people recognize the
\nimportance of protecting themselves and their families to
\nanticipate future uncertainty.<\/p>\n
In Indonesia, the participation in life insurance is
\nrelatively low compared to more developed countries. Of course,
\nthe problem with life insurance is that it is not a tangible
\nproduct. When you hand over the cash, you don't get anything in
\nreturn except peace of mind, which doesn't stack up well against
\na new wide-screen television set.<\/p>\n
Furthermore, many people do not understand the benefits of
\nlife and health insurances, confused about when and how it will
\nhelp them.<\/p>\n
There are indeed a wide range of products on the market. Some
\nare traditional life insurance products, whereby a policyholder
\npays a premium and, should he die, a beneficiary receives an
\ninsured amount. There are also many forms of health insurance
\noffering part or full payment of medical expenses.<\/p>\n
Then there are packages providing more sophisticated benefits,
\nand the development of new products that offer an investment
\ncomponent, whereby the policyholder can set his own premium
\npayments, have more control over where the funds are invested and
\nlive to see the fruits of his spending.<\/p>\n
Over the last few years, the Indonesian life insurance
\nlandscape has been changing dramatically, with significant growth
\nrates being experienced by life insurance companies.<\/p>\n
There are 62 life insurance companies operating in Indonesia.
\nOf these, four are state-owned companies, 35 are local private
\ncompanies and 23 are joint venture companies involving foreign
\nownership.<\/p>\n
Foreign insurance companies are allowed to operate in
\nIndonesia as joint venture enterprises, with a maximum stake of
\n80 percent. At least two joint venture companies, PT Asuransi AIA
\nIndonesia and Manulife, have been here for over 20 years. Most of
\nthe other joint venture companies were established between 1990
\nand 1997, before the economic crisis.<\/p>\n
The sudden influx occurred at a time when clearer regulations
\nfor the industry were introduced in 1992, combined with increased
\nawareness of the attractive potential in Indonesia.<\/p>\n
After 1997 some potential investors delayed or even canceled
\ntheir plans to invest. With the tumult of 1997 slowly receding,
\nit is expected that joint venture companies will start
\nconsolidating stronger positions in Indonesia.<\/p>\n
Official data from the Indonesian Insurance Council (DAI)
\nshowed that the total number of people covered by life insurance
\ngrew by 16 percent in 1999 to 22.76 million, compared to 19.58
\nmillion in 1998.<\/p>\n
The gross premiums in the life insurance industry dropped
\n13.84 trillion from 14.17 trillion in 1999, although there were
\nincreases of 41 percent in 1998, 21 percent in 1997 and 17
\npercent in 1996.<\/p>\n
DAI's 2000 statistics are incomplete, with data only collected
\nfrom 43 of the council's 58 members so far. Already, though, the
\ninformation reveals interesting developments.<\/p>\n
Although the number of premium holders is significantly lower
\nthan the previous year at 12.56 million, the number of individual
\npolicyholders, as compared to group insurance for company
\nemployees, has nearly equaled the 1999 figure.<\/p>\n
One area that is showing promising growth is investment. In
\n2000, investment income reached Rp 1.72 trillion compared to Rp
\n0.87 trillion in 1999's audited results, a growth of 98 percent.<\/p>\n
This investment pattern reflects a trend within the market
\nseeking alternative investment opportunities, with trust in banks
\nstill low.<\/p>\n
In 1998, Unit Link products were introduced to Indonesia,
\nproviding investors with more control of their funds than
\nafforded by traditional life insurance products.<\/p>\n
DAI Information and Promotion Department director Tri Djoko
\nSantoso explains, "People are seeing life insurance as an
\nalternative to banking products, as more and more products are
\nheavily focused on investment and saving, and less on
\nprotection."<\/p>\n
There are about eight companies offering these types of
\nproducts in Indonesia.<\/p>\n
One large joint venture company, PT Prudential BancBali, has
\nplaced a strong emphasis on this style of product through its
\nPRUlink range, shifting focus from its traditional life packages.<\/p>\n
PT Allianz Life Indonesia recently released SmartLink. "Unlike
\ntraditional life insurance products, with SmartLink customers
\ndecide the premiums they will pay and can choose where the funds
\nwill be invested," Allianz marketing director Handoyo Kusuma
\nexplained.<\/p>\n
Allianz has been providing life insurance products in
\nIndonesia since 1996. It currently has between 60,000 and 70,000
\nlife customers and 60,000 individuals subscribed to group health
\nproducts through over 400 businesses.<\/p>\n
Handoyo said that in the first semester of 2001, the company
\nhad already exceeded its year 2000 premium levels. In 2001 the
\ncompany expects growth of Rp 100 billion in new business for
\nindividual life products, after attracting new business valued at
\nRp 26 billion in 2000.<\/p>\n
Djoko says that most insurers are increasing or even doubling
\ntheir targets for 2001, in what they expect to be a very
\npromising year for increased participation in life insurance
\nproducts.<\/p>\n
In May, PT Asuransi Cigna, reported that it had recorded a 13
\npercent increase in revenue during the first quarter. At the
\ntime, company finance director David Batubara said that the firm
\nprojected a 35 percent revenue increase to Rp 92 billion in 2001,
\nfrom Rp 68 billion received in 2000.<\/p>\n
In terms of gross premium income, the joint venture companies'
\nmarket share increased from only about 35 percent in 1999, to
\nabout 47 percent in 2000, according to DAI.<\/p>\n
This significant growth of joint venture companies could
\nprobably be attributed to one of the largest national premium
\nholders, Lippo Life, entering a joint venture with American-based
\nAIG.<\/p>\n
It is predicted that the market share of joint venture
\ncompanies will grow dramatically through acquisition or merger
\ninitiatives from leading foreign or joint venture companies.<\/p>\n
One factor expected to prompt further acquisitions and mergers
\nis a 1999 minister of finance decree stipulating that the
\nsolvency margin of insurance companies is to be calculated on the
\nRisk Based Capital (RBC) approach.<\/p>\n
The solvency margin is the ratio of a company's current
\nassets, determined to be admissible by the RBC, against the
\nminimum amount of funds required to cover claims and possible
\nlosses.<\/p>\n
By the end of 2000, companies were required to have a solvency
\nmargin of 15 percent. This ratio increases to 40 percent by the
\nend of this year, 75 percent in 2002, 100 percent in 2003 and 120
\npercent in 2004.<\/p>\n
This will place significant pressure on local private
\ncompanies, which do not have the substantial capital backing of
\nlarger foreign operators.<\/p>\n
If they fail to meet the guidelines, companies may be forced
\nto request a capital injection from shareholders, seek domestic
\nor foreign partners, or merge with a larger insurance company.<\/p>\n
There is also a reported shortage of qualified professionals
\noperating within the Indonesian life insurance industry. Poaching
\nof agents is rife within the sector, obviously affecting the
\nweaker institutions even further.<\/p>\n
However, despite these challenges facing many businesses, they
\nare also seen as positive for the industry as a whole, leading to
\nadvances in technology application and stronger protection for
\ncustomers.<\/p>\n
"In general, the market will continue to have positive growth
\nand continue to be dominated by traditional life insurance
\nproducts. Within three to four years the Unit Link products are
\nexpected to experience a boom," Handoyo from Allianz said.<\/p>\n
Overall, the future outlook for life insurance companies is
\nvery positive. With only 6 percent of the nation's 210 million
\npopulation reported to be policyholders in 2000, that certainly
\nprovides a large potential market for the innovative range of
\nproducts now on offer.<\/p>",
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"sponsor": "Okusi Associates",
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