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)