Few families interested in earthquake insurance

The Jakarta Post, Jakarta

Even though Catherine is alarmed by what she perceives as the "remote, but realistic" chance of an earthquake rocking her Rp 1.5 billion (nearly US$157,000) West Jakarta residence, she will not budge on her refusal to purchase earthquake insurance.

"If disaster strikes, I'll accept it as fate," said the 28- year-old civil engineer, who earns Rp 8 million per month. "It's an act of nature, what can I do?"

She said that because of her beliefs, it was unnecessary to protect her property by purchasing earthquake insurance, costing between 0.175 percent and 0.4 percent of the insured property per year.

Catherine's attitude against the need for insurance reflects the deeply ingrained culture and beliefs of the vast majority of Indonesians, according to the chairman of the Indonesian General Insurance Association (AAUI) Frans Sahusilawane.

"A lot of Indonesians are taught to view risk as a part of life, which should be accepted no matter what," he said. "This view leads Indonesians to act irrationally. They know insurance can benefit them, but they refuse to purchase it."

Citing an example, Frans said only 2 percent to 3 percent of assets in Aceh, which was devastated by the Dec. 26 earthquake and tsunami, were insured.

Frans' view was shared by Werner Bugl, president director of PT Asuransi MAIPARK -- a reinsurer specializing in pooling earthquake coverage risks for the Indonesian insurance industry.

Bugl said people who exposed themselves to the risk of financial losses resulting from earthquakes were taking "an unnecessary gamble".

He said although the tsunami and recent earthquakes have led to an increase in inquiries for catastrophic insurance policies, the growth in the number of policies was not significant compared to the potential losses from a disaster.

He added that a lot of people still had a tendency to think that they were immune to catastrophic disasters, just because the probability of it occurring was low.

Bugl said his company -- which pools the earthquake policies for all 102 general insurance companies in Indonesia -- protected Rp 28 trillion in assets, 10 percent being for residential property in 2004.

The premiums for earthquake insurance amounted to about 0.2 percent of the total non-life insurance premiums in Indonesia.

Frans estimated that the number of earthquake policy holders in Indonesia, which was rocked by 26 earthquakes of at least 6.0 on the Richter scale in the past 60 days, was "extremely low" and less than 1 percent of total homeowners.

He added that a disproportionate amount of earthquake policy holders, about 50 percent, were located in Jakarta and West Java.

In comparison, one in six homeowners purchases earthquake protection, costing an average of 0.279 percent of the value of the assets in California, one of the world's most unstable geographic regions.

MAIPARK recommends insurance companies lower their premiums to between 0.104 percent and 0.330 percent, depending on a wide array of risk factors, such as geographic zone and construction material.

The premium covers destruction caused by an earthquake and any subsequent disasters triggered by it, such as a volcanic eruption, a tsunami, a fire or flooding.

Bugl added that the public's lack of trust in insurance industry also contributed to the low penetration rate.

"It's an image problem," he said. "There should be no need to worry since insurance companies, similar to the banking industry, are now strictly regulated by the government."

Catherine concurred, saying the negative image of insurance companies was also a factor in her decision not to purchase insurance.

"I don't trust insurance companies," she said. "Several people I know had difficulties processing their claims."

Nevertheless, she maintained that because such destructive disasters struck only "once in several decades," paying the premiums were a "waste of money".

"It's better to invest the money instead," said Catherine. "Then when an earthquake strikes, I can use the money to repair the house myself." (002)