Another good year for car insurance companies

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.