Road map planned for the insurance industry<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
The government will issue a "road map" for the insurance industry
\nby the end of September, the Ministry of Finance says.<\/p>\n
"This way, there will be a clear picture of where the
\ninsurance industry should be heading," said the ministry's
\ndirector for insurance, Firdaus Djaelani, during a seminar
\nattended by insurance executives on Tuesday.<\/p>\n
He said the implementation of the roadmap would eventually
\nlead to a reduction in the number of insurance companies.
\nCurrently, there are 51 life insurance companies and 97 general
\ninsurance companies.<\/p>\n
The 10 largest life insurance companies account for about 73
\npercent of the nation's premiums, which grew by 37 percent to Rp
\n18.35 trillion (US$1.9 billion) last year, while the 10 largest
\ngeneral insurers have a 53 percent share of the segment's
\npremiums, which grew by 9.7 percent in 2004 to Rp 14.65 trillion,
\naccording to data from the Indonesian Insurance Council (DAI).<\/p>\n
The road map, informally referred to as the Indonesian
\nInsurance Architecture, will describe specific policies,
\nincluding those on minimum capital requirements, similar to the
\nbanking sector's Indonesian Banking Architecture plan, Djaelani
\nsaid.<\/p>\n
He said minimum capital requirements were needed to strengthen
\ninsurance companies and boost consumer confidence in the sector.<\/p>\n
"There are some insurance companies with capital of less than
\nRp 5 billion. What kind business do they expect to conduct?"
\nDjaelani said.<\/p>\n
He said the government was considering two options: A blanket
\ncapital requirement of Rp 100 billion or a tier structure.<\/p>\n
Under a blanket requirement, companies would be given an
\nadjustment period of up to 10 years after the roadmap was issued
\nto raise additional capital, he said.<\/p>\n
Under a tier structure, an insurance company would have a
\nmaximum of 10 years to fulfill a certain capital requirement,
\nwith the lowest possibility being Rp 25 billion and the highest
\nRp 100 billion. Smaller insurance companies were likely to have
\noperating limitations, possibly in the form of geographical
\nrestrictions.<\/p>\n
Djaelani said companies that failed to fulfill the minimum
\nrequirements would have their insurance licenses revoked but be
\nallowed to operate as either insurance brokers or agents.<\/p>\n
"It's just like soccer. If they can't compete in the top
\ndivisions, they will be relegated to a lower division," he said.<\/p>\n
He said the government was also considering allowing the
\nformation of composite insurance companies, which would allow
\ngeneral and life insurance companies to merge to fulfill the
\nminimum capital requirements.<\/p>\n
Law No. 2\/1992 on insurance prohibits a company from operating
\nboth life insurance and general insurance divisions.<\/p>\n
However, Djaelani said the composite companies would have to
\noperate the finances of their different businesses independently.<\/p>\n
"The divisions shouldn't be allowed to mix their finances," he
\nsaid.<\/p>\n
He added that the roadmap would eventually be part of the
\nplanned Indonesian Finance Architecture, which would cover banks
\nand non-bank financial institutions, such as the insurance
\nindustry and the capital markets. (002)<\/p>",
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