Fear of unrest gives boost to insurance industry

JAKARTA (JP): Many insurers cannot keep up with growing demand for extensive damage insurance coverage amid growing violence and worries over continued social unrest, industry executives said on Thursday.

The director of the reinsurance division of the Insurance Council of Indonesia (DAI), Frank Sahusilawane, acknowledged the increased demand for insurance policies covering social unrest since the bloody May riots.

"Demand is higher than supply," Frans said.

All applicants for the damage insurance policy -- known here as the fire policy -- now request the option of the riots, strike and malicious damage (RSMD) coverage, he asserted. Previously, there was little interest in the clause.

Demands is so high that many insurers have been forced to reject applicants from areas highly vulnerable to unrest.

Frans cited an insurance company in the North Sumatra capital of Medan -- rocked by a spate of disturbances in recent months -- which received from 20 to 30 applications daily for the policy, inclusive of the unrest coverage.

"The applicants are shop owners in nearby small towns who are constantly worried about more riots. But we are concerned because a small disturbance can virtually wipe out an area."

Many insurance companies are also limited by their reinsurers on the terms of risk coverage.

Frans' deputy in DAI, Nana Sudiana, said local and international reinsurance firms were exercising greater caution over the damage they would cover in Indonesia.

"The coverage ability of an insurance company depends on its program with its reinsurers."

Some local firms are strapped for cashand could only retain 10 percent to 20 percent of the risk, reinsuring the rest.

The May riots, which led to Soeharto's resignation from the presidency, marked the beginning of a political clamor in the country, with unrest sparked in various areas.

Scheduled in June is general election, a cause for social unrest in previous years.

Following the May riots, local insurance firms and their reinsurers were embroiled in a dispute over the nature of the unrest. Initially, foreign reinsurers defined it as politically inspired and refused to pay claims.

In December, DAI revoked the existing RSMD clause, "Clause 4.1", and endorsed two new clauses known as 4.1A and 4.1B which categorized unrest on the scale of the event and destruction. The clauses eliminated ambiguity and were effected to guard against future disputes.

The 4.1B coverage is much wider than 4.1A, including terrorism, sabotage, civil commotion, popular uprising and revolution without the use of firearms.

New tariffs

DAI also announced on Thursday the new premium rates according to the revised 4.1A and 4.1B clauses.

The new system classifies the premium rates by type of property and a location's vulnerability to riots.

It divides Indonesia into three zones of X,Y and Z.

X is for areas highly sensitive to unrest, covering all of Java including Jakarta; North Sumatra; Aceh, and East Timor.

The latter two have been under military command due to active separatist movements. The military status was removed for Aceh last year, but violence has flared up again in the past week.

Y comprises Irian Jaya, West Kalimantan, South Kalimantan, East Kalimantan, Lampung, South Sulawesi and South Sumatra.

Z covers the remainder of the country.

The highest annual rate is 11 per mill (per thousand) for the 4.1B coverage located in X Zone.

It applies to the first and highest risk category of department stores, supermarkets, shopping centers, staple food shops and warehouses, car dealerships, night entertainment establishments, and service and fuel stations.

The second category includes hotels, restaurants, office and multistory car parks, garment and shoe factories, non-staple food shops and warehouses, chain stores, tobacco, cigar and cigarettes manufacturers, and beauty salons.

Those belonging to the second category and located in the Y zone must pay an annual rate of 6.60 per mill for the 4.1B coverage.

The third category includes movie theaters, assembly rooms and concert halls, pharmacies, radio and television stations, textile mills, laundry, bakeries and biscuit works, processed food factories and edible fats and oils producers.

Under this category, those located in the X zone must pay 5 per mill annual rate for the 4.1B coverage. (das)