'Blast to deal heavy blow to insurers'

Fitri Wulandari, The Jakarta Post, Jakarta

The deadly Bali bombing will deal a heavy blow to the country's general insurance firms as the incident will make it more difficult for them to secure international reinsurance for their clients.

"International reinsurance companies will think twice before sealing agreements with Indonesian insurance firms because of the Bali bombing," Kornelius Simanjuntak, a senior executive of the Indonesian Insurance Council (DAI), told The Jakarta Post on Wednesday.

He noted that after the Sept. 11 terrorist attacks on the U.S., international reinsurance companies had been reluctant to cover high risks such as natural calamity, fire and public unrest.

They even stopped covering terrorism risks as many of them went bankrupt due to high insurance claims after the Sept. 11 attacks.

A reinsurance company shares premiums received by and risks shouldered by insurance companies.

An insurance company needs to reinsure its clients to minimize losses in case of incidents which result in claims.

The Bali bombing over the weekend, which killed more than 180 people, mostly foreign tourists, has already impacted on insurance firms providing coverage for vessels heading for Indonesia.

The London-based Joint Hull Committee has designated Indonesia a war-risks zone, and called on insurance and reinsurance companies to cancel or amend all contracts with vessels sailing to Indonesia.

According to Kornelius, even before the Bali bombing, international reinsurance companies had refused to cover high risk insurance for conflict-torn areas in Indonesia such as Nanggroe Aceh Darussalam and Maluku.

Following the Bali bombing, he said, international reinsurance firms might apply similar treatment to the whole country.

"They might refuse to cover high-risk insurance or they might only provide high-risk coverage up to a very limited value," he said.

As a consequence, he warned, it would be difficult for local consumers to insure their property or facilities against high risks because few insurance companies would be ready to do so and the premiums would be expensive.

Premiums for high risk insurance went up by between 50 percent and 75 percent after Sept. 11, Kornelius explained.

On the other hand, high risk policies are needed by people who live in big cities such as Jakarta where threats of natural disasters and public unrest are real.

Kornelius said that because of the high premiums, local companies would rather insure some parts of their properties than the whole properties. This would, in turn, affect the growth of the local insurance industry.

Kornelius said that a number of international reinsurance firms had asked to renegotiate their contracts with Indonesian general insurance firms for high-risk coverage. The meeting was scheduled for the end of this month.

Local insurance companies should be able to convince the reinsurers that the situation in Indonesia was still safe enough for them to continue providing backup for the country's insurance firms.

However, he stressed that the international reinsurance firms would not be convinced unless the government took real action to fight against terrorism.