Fire insurance rates cut by up to 60%

JAKARTA (JP): Amid concerns over the continuing outflow of funds to foreign firms for fire insurance services, local insurance firms have cut fire risk premium rates by 50 to 60 percent, to a new range of 0.045 percent to 2 percent per annum.

The chairman of the Indonesian Insurance Council, B. Munir Sjamsoedin, said yesterday that the tariff war among local insurance firms has been so intense the council decided to adjust existing fire rates.

"This situation is closely related to the international insurance market, which is currently oversupplied. Some foreign insurers, therefore, entered the local market by offering more competitive rates to customers," Munir said.

Consequently, Munir added, many local customers insure their houses, apartments, office buildings and other premises with foreign insurers.

He noted that a number of local insurance firms and securities brokers offered brokerage services to foreign insurers to offer products to local customers.

"If we don't address this problem, I'm afraid our general insurance industry will reenter a process of self-destruction, as happened in the early 1990s," Munir said.

However, he declined to elaborate on the total possible amount of the premiums paid by local customers to foreign insurers, saying that his council does not have the figure.

All insurance firms incorporated in Indonesia are automatically members of the council. It established a premium rate reference for all insurance firms in 1993 under an inter- company agreement, when the Ministry of Finance abolished the government-set insurance premium rates.

Frans Sahusilawane, chairman of the council's ad-hoc committee established to review fire risk premium rates, said the cutting of premium rates by 50 to 60 percent is expected to return local customers to local insurers and stabilize the current oversupply of fire risk insurance services.

He explained that the new tariffs cover residential buildings, including apartments, office buildings, hotels and other buildings.

He said the new rates are expected to attract more people to enter the risk insurance industry by insuring their homes against fire.

The new rates will be effective on June 1, and all insurance companies incorporated in Indonesia are required to abide by the new rates.

Under the new rate structure, the lowest annual premium rate is 0.045 percent for fire insurance on residential houses under the first category of construction quality, and the highest rate is 2 percent for night clubs, dance halls, ball-rooms, discotheques, bars and billiard halls with the lowest construction quality.

Meanwhile, the fire insurance rates for hotels, motels, inns and the like, certified below three-star classification, range from 0.25 percent to 0.5 percent, depending on the construction type of the buildings, while the rates for hotels with three stars or higher range from 0.2 to 0.4 percent.

High-rise buildings not exceeding six stories have fire premium rates of 0.11 percent to 0.27 percent per annum, while those from six to 18 stories have 0.12 percent to 0.31 percent rates, and those exceeding 18 stories have 0.13 percent to 0.32 percent.

Motor vehicle repair shops and service stations have 0.5 percent to 0.12 percent premium rates per annum.

Dwelling houses floating on rivers or sea shores, regardless of their construction class, have an annual premium rate of 0.3 percent. (rid)