Insurance companies asked to realign their management

Insurance companies asked to realign their management

By Frits Pangemanan

JAKARTA (JP): Insurance companies need to realign their
management and services in order to survive amid the fierce
competition with other financial institutions, business leaders
say.

The president of PT Sun Alliance Insurance Indonesia, Eddy
Darante, said recently that during the past five years, after the
government deregulated the insurance industry in 1989, there has
no significant progress made by the insurance industry.

The insurance business, in fact, requires not only strong
capital, but also a professional management teams, including
agents, brokers, adjusters, underwriters and actuaries, he said.

"But the country's academic institutions do not provide
programs to produce professionals in those areas," he said.

Due to the lack of professionals, many insurance companies
need to hire expatriates or Indonesians graduated from foreign
institutions.

Eddy also expressed concern that the insurance industry has
not been able to introduce standards on the underwriting of risks
and losses.

In returns, adjusters and underwriters who are responsible
both for weighing up the extent of losses and risks and for
computing the level of premiums, have introduced their own
schemes which are usually aimed at promoting their own business
interests, he said.

"The absence of the standards has made people more reluctant
to insure themselves for risks," he said. "Many people seem to be
afraid that insurance companies will cheat them."

A senior actuary, H. Tuwanakota, who is also the vice
secretary general of the Indonesian Insurance Council (DAI) for
life insurance affairs, said it is the responsibility of the
insurance industry to inform the public not only on financing
management, but also on the underwriting of losses and risks.

"It is a fact in Indonesia that people are not accustomed to
insuring against risks, including those concerning their health
and mortality," Tuwanakota said.

Capitalization

Hotbonar Sinaga, director for production and marketing affairs
of PT Asuransi Jiwa Tugu Mandiri, said that shortage of
capitalization is the main problem faced by Indonesian insurers.

"Due to the shortage of capitalization, insurers need to
reinsure part of their insured sums to overseas institutions," he
said.

He acknowledged that some parties see reinsurance as causing
capital flight, but said it is needed by domestic insurance firms
to avoid big losses.

Eddy called on the domestic insurers to be careful in choosing
foreign reinsurers, considering that many of them are now facing
big problems for reimbursing large amounts of claims.

Over the past two years, 14 major insurers have gone bankrupt,
most of them in Britain, two in Bermuda and one in Singapore, he
said.

In addition, 31 big foreign insurers and reinsurers are now
facing difficulties due to being confronted with large claims,
Darante said.

He noted that during the past six years, disasters in the
world absorbed a total $57.51 billion from the insurance and
reinsurance industry.

Yas Budiman, president of PT Reasuransi Umum Indonesia, said
that local insurance companies have thus far made profits because
their premium revenues exceed the claims they have to pay.

In 1992, for example, the gross premium revenues of all the
insurance companies in the country reached Rp 3.29 trillion
(US$1.51 billion), as compared to the claims of Rp 1.63 trillion.

In 1991, the total revenues from premiums reached Rp 2.65
trillion and the claims Rp 1.52 trillion.

Services

Sinaga also expressed concern that the services provided to
the public by insurance agents and brokers are far from
satisfactory.

"I would say that any parties related to the insurance
industry should improve services because they are competing with
other financial companies in raising funds from the public," he
said.

He said that banks, for example, now introduce various
products, including savings and other deposits with high interest
rates and various incentives.

Insurance companies should also provide better information for
the public because many Indonesians still consider insurance as
useless, he said.

In addition, the low levels of salaries have also caused
people to be reluctant to spend money for insurance, he said.

Sinaga said improvement of management and services is expected
to boost the growth of the insurance industry in the country.

He said the number of insurance policy holders in the country
is expected to double from 15 million, or eight percent of the
country's total population, at present to 30 million within the
coming five years. (fhp)