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.