Another good year for car insurance companies
Rudijanto, Contributor, Jakarta
With an upbeat projection for new car sales and uncertainty prior to the upcoming general election -- in terms of security and order -- local car insurers are optimistic that business will continue to flourish this year.
The Indonesian automotive market looks bright this year, with car sales expected to reach 380,000 vehicles compared to approximately 340,000 last year.
The launch of small family cars priced below Rp 100 million (US$17,765) and banks' lower lending interest rates -- between 8 percent and 9 percent -- are further fueling optimism for the overall outlook for Indonesia's automotive industry.
Since the majority of car buyers rely on car loans from either banks or financing companies, they are all required to have their cars insured. This requirement generates optimism among car insurance companies for a surge in sales.
"Our car insurance products are very much linked with the growth in automotive sales. We are optimistic about our growth this year because those in the country's automotive industry expect bigger sales," said Tonny Latidjan, general manager of PT Asuransi Sinar Mas.
Concerns of unrest between parties' supporters during the general election in April, and the country's first presidential race in July, are actually a positive sign for the car insurance business. Many car owners have turned to insurance companies for fear that their vehicles would be damaged during the elections.
The chairman of the Indonesian General Insurance Association (AAI), Frans Sahusilawane said, as quoted by Kompas daily, that demand for riot-linked insurance products, particularly property and car insurance products, would increase this year mostly because of the elections.
Frans believes this projected increase in demand will generate a growth of between 20 percent and 30 percent for most insurance products. Insurance company executive and agents are already rubbing their hands in delight and looking forward to a big year.
The president director of Asuransi Multi Artha Guna (MAG), Linda Delhaye, agreed that many people considered the elections to be a potentially risky period. Should a huge number of people be of the same opinion, insurance companies stand to gain.
Some companies began experiencing a surge in demand for car insurance last year. PT Asuransi Jasa Tania (AJT), for example, said that its Surakarta office enjoyed record sales figures last year for the car insurance product JT Oto Mobil.
AJT's marketing manager in Surakarta, Nanik Setianingsih, believes the increase in the number of clients is directly linked to the approaching elections, which many people see as a potential threat to security.
"Prior to the general election, riots could occur. Such a potential exists. These clients have taken the necessary steps to be prepared, including having their cars insured," said Nanik as quoted by Central Java's Suara Merdeka daily.
But not all players in the car insurance industry see a great link between their business and the elections. With or without the elections, they believe the car insurance business will continue to grow here.
"Our growth has no link with the general election. In fact, we don't see much of an influence from the elections on our business. Instead, we are very much linked to the growth in car sales," said Tonny Latidjan, general manager of PT Asuransi Sinar Mas.
Despite the optimism for sales growth, a number of car insurance companies bemoan the fact that consumers still do not have adequate understanding of the importance of insurance.
"Most car buyers feel that they simply have to cover their vehicles with insurance policies because banks or financing companies require them to do so. Without such an obligation, many of them say they would go without insurance," said Tonny.
In other words, Tonny believes that insurance companies still have a huge job in educating the people to be more insurance- minded. The 2002 floods in Jakarta served as a painful lesson for many car owners whose cars were not covered by insurance.
"We have done our part in educating people about the need to have flood insurance protection by paying out claims to our clients, even though some of them had no extra flood protection in their policies. We also reimbursed clients for damages to cars suffered in the Jakarta Stock Exchange and Bali blasts," Tonny said.
With such consistent service to clients, Tonny is confident that more and more people will begin to believe in his company. Sinar Mas currently processes between 150 and 200 claims per day with over 100,000 clients nationwide.
MAG's Linda also agrees that consumer awareness of the importance of insurance protection is a major factor in the growth of the insurance industry. The benefits received by those who have insurance are expected to educate the rest of the market.
"Another major factor is the feeling of insecurity among consumers," said Linda.
The current situation in Indonesia seems to be just right for the insurance industry to thrive. With feelings of insecurity running high because of increased numbers of car thefts and flood threats, and uncertainties in the implementation of law and order, more and more people will want to protect themselves and their possessions.
That is why Linda believes that car insurance has such a rosy future here. However, insurance companies still have a lot of homework to do in order take advantage of all the potential in this huge market.
She believes the government also has an important role to play and should lend a helping hand in educating people about insurance.
"For example, if the government passes a regulation requiring all cars to have insurance, the increase in the insurance business would naturally be tremendous. For the part of the insurance companies, however, they must clearly communicate the benefits of insurance and demonstrate these benefits by providing hassle-free claim processing," Linda said.
The potential of the car insurance industry has attracted many players. Due to the limited growth in property insurance, many insurance companies that previously had no car insurance products have begun to enter this lucrative market.
But Linda warned that selling car insurance required a special kind of business savvy, as well as innovative strategies.
"MAG itself has been in the car insurance business since way back in the days when the very first leasing companies emerged here in 1988. Our working and management system, experience and human resources, I believe, are based on strengths we have built up over the past 15 years. We know how we should operate to ensure customer satisfaction, while at the same time not being affected by the unhealthy practices of some of our competitors," said Linda.
Competition in this sector has indeed become more heated. One of the newer players, Adira Insurance (Adira), expects to double its growth within this year, particularly for its Autocillin car insurance product.
Adira, which began operating in September 2002, focuses more on motorcycle insurance, with 200,000 clients as of November last year. Its car insurance product, meanwhile, has a more modest number of clients: about 5,000 in total.
"Next year, once we completely set up our technological systems, we estimate improved growth. We are aiming to be number one in the total loss insurance business, in car insurance, that is, in the next five years," said Adira's executive director, Indra Baruna, as quoted by Astaga.com.
While many people spend just a small portion of their hard- earned money for the minimum insurance coverage required by banks and finance companies, awareness of the need for insurance in general and car insurance in particular is growing.
Educational campaigns by some major companies have contributed to a certain degree to growth in the industry. At the same time, the upcoming elections, natural disasters such as the floods we have experienced in recent years, as well as other uncertainties, give people greater incentive and a greater sense of urgency in protecting their valuable possessions.
The optimism felt by insurance companies, therefore, means two things: higher sales and a greater degree of consumer confidence in their products. And, most importantly, is improved confidence in the processing of claims, which is, after all, the essence of protecting yourself and your possessions.