Indonesia insurance seen stifled

Indonesia insurance seen stifled

SYDNEY (Reuter): Indonesia's life insurers risk being stifled
by strict investment controls, low entry capital requirements and
continued currency volatility, a senior industry executive said
yesterday.

"If these problems are not handled wisely in a relatively
short time, it can hinder life insurance's growth in Indonesia,"
said Suratno Hadisuwito, president of Bumiputera 1912 Mutual Life
Insurance Co.

Hadisuwito said the volatility of the rupiah -- devalued five
times since 1951 and down 20 percent against the U.S. dollar this
year after a speculative run on regional currencies -- had
damaged the perception of long term life insurance contracts.

"If the government cannot guarantee the intrinsic value of its
currency, it is only logical if people avoid long term contracts
involving the currency," he told delegates on the second day of
the Pacific Insurance Conference in Sydney.

As life insurance contracts typically run for five to 30
years, they carry a high exposure to currency falls which
consumers want to avoid.

"For Indonesians, the tragic experience of repeatedly high
inflation on the national currency in the past has left a trauma
in their minds," Hadisuwito said.

Strict regulation on investments introduced in 1993, placing
low limits on instruments including time deposits and real estate
had also created problems requiring portfolio adjustments and
leading to lower returns, he said.

"Rigid limitations have hindered life insurance companies to
optimize their investments," Hadisuwito said.

The low level of rupiah two billion (US$722,000) in paid up
capital required for start up insurers could also lead to
problems in the longer term if rampant competition is allowed to
rage unchecked.

Analysts see the imminent arrival of cut-throat competition in
Indonesia, potentially one of Asia's most lucrative life markets
with only 9.5 percent of its 180 million population insured and
its economy expanding six to eight percent annually.

"With the capital requirement for a life insurance company
that small, many new insurance companies become operational
almost simultaneously, although many of them are not yet
feasible," he said.