Customers' trust vital for insurance business

Customers' trust vital for insurance business

Andi Herlina Rosa
Contributor
Jakarta

Burial benefits may be the first kind of life insurance known
to humans. This type of life insurance was popular among Greek
and Roman religious societies in ancient times. Neither these
religious societies nor any other premodern systems for paying
death benefits employed actuarial calculations.

They were frequently financed on a postassessment basis,
meaning contributions were made by all surviving members
following one member's death. As a result, funds were not always
available to pay claims.

Later, in the seventeenth century, Lorenzo Tonti, an Italian
banker living in Paris, created a new investment system related
to life insurance. It was called Tontine Annuity. Although
originally meant for gambling, Tontine Annuity was the first
system that utilized the law of averages and the principle of
life expectancies in establishing annuities. Under the Tontine
system, associations of individuals were formed without any
reference to age and a fund was created by equal contributions
from each member. The sum was invested and at the end of each
year the interest was divided among the survivors. The last
remaining survivor received both the year's interest and the
entire amount of the principal.

These early beginnings marked the birth of life insurance
companies. The first American life insurance company --
established in 1759 in North America -- was called Corporation
for the Relief of Poor and Distressed Widows and Children of
Presbyterian Ministers.

In Indonesia, insurance companies existed long before the
country's independence, but real growth started around 1968.
However, before the 1990s, not more than two percent of the
country's population were covered by life insurance policies.
From early 1990s onward, this number surged upward to reach about
10 percent.

A 2002 report issued by the finance department and the
Indonesian Insurance Board showed that in 2001 close to 13.5
percent of Indonesia's population, or 28,924,961 people, were
insured. The total amount of premiums reached Rp 9.8 trillion.
Further growth of 30 percent annually is hoped for.

However, the number of insurance companies in 2000, totaling
62 (comprising one state-owned company, 39 private domestic
companies and 22 joint ventures between domestic and
multinational companies) declined in 2001 as 10 private domestic
companies ceased to operate.

In 2002 the largest market share, 21.45 percent, belonged to
Bumiputera 1912, followed by Jiwasraya with 11.26 percent, while
position number three was held by Indolife Pensiontama with its
9.28 percent market share.

The dwindling number of insurance companies was caused by,
among other things, worldwide mergers and acquisitions. One
example of this, in its gigantic form, was the purchase of
AllState by Prudential.

Another factor was Minister of Finance Decree No. 481/1999
concerning risk based capital (RBC), which was stipulated to be
100 percent. This regulation, applied since 2000, "killed" six
insurance companies, while 15 companies had to improve their
financial standing. With the upcoming regulation that will impose
a 120 percent RBC, at least 10 percent or 20 percent of companies
will be put in jeopardy.

A not-less-important factor is the skeptical attitude of
Indonesian consumers toward life insurance. Highly sensitive to
subjects like death, they express their "discomfort" by keeping a
good distance from products related to this certain occurrence.

Several insurance companies based on Islamic law, or shariah,
have cropped up to cope with the issue of what is proscribed and
allowed according to the religion held by the majority of the
country's population. Compared with similar companies established
earlier in countries with a majority Muslim population -- in
Sudan and Saudi Arabia in 1979, Malaysia in 1984 and Brunei in
1992 -- the Indonesian counterparts are quite late. However, the
establishment of such companies is expected to improve market
penetration and increase awareness of Indonesian consumers about
the need for life insurance policies.

Insurance companies have for some years now realized that they
have to be more soothing in their marketing. Insurance products,
including their features, have been improved and tend to be more
investment-related. Another strategy is to re-educate the sales
force and agents so that hard-sell tactics that previously used a
serious and frequently even frightening tone are now discarded.
The increase of the number of insurance agents in 2001, from
71,307 people in the first quarter to 78,218 at the end of the
year, was another improvement.

Customer-oriented selling approach are now used both during
one-on-one sessions as well as on companies' websites. Various
investments combined with a number of extra benefits from life
insurance policies are available on their menus. Customers can
now even invest in blue-chip bonds and a wide range of mutual
funds are also offered. This way a life insurance policy, besides
providing protection, is perceived as a lucrative investment with
handsome returns.

The current small figure -- 13.5 percent -- of insurance
coverage in Indonesia should, in fact, raise real optimism among
insurance companies as opportunities abound in the world's fourth
most populous country. However, only reputable companies with
beneficial products communicated through credible campaigns will
turn out as the final winners. A relationship can be lasting
based on a number of elements. Trust is of utmost importance to
win the hearts of loyal customers. For insurance companies this
is inarguably their lifeblood.