Insurance council to amend riot coverege

JAKARTA (JP): The Insurance Council of Indonesia (DAI) will introduce more definitive clauses in damage insurance contracts by November to clear up ambiguity brought to the fore following the May riots.

DAI chairman Munir Sjamsoeddin said on Tuesday that the draft of the wording had been sent to the council's members and would be deliberated during a meeting on Oct. 19 for further amendment.

"We will give about 10 days for revisions and adjustments and the new wording will be applied in November," said the commissioner of PT Asuransi Bintang.

The wording, drafted by a team consisting of several practitioners in the country's insurance industry, is a response to the demand of foreign reinsurers, especially the Singapore Reinsurance Association (SRA).

SRA initially argued that the massive riots in May were politically motivated and thus were not covered under contracts with Indonesian insurers.

The association advised its members recently to honor the contracts to enable local insurers to pay claims made by owners of properties damaged or burned during the riots.

But SRA stipulated the payment should be made on condition the DAI revise the wording in the riots, strike and malicious damage (RSMD) clause in the Indonesian insurance contracts to avoid future ambiguity.

More than 75 percent of the insurance contracts of the local companies are reinsured to foreign firms.

Munir said the two new clauses to be applied covered minor disturbances and smaller-scale riots, and more extensive unrest on the scale of May's mayhem.

They will provide greater certainty to policyholders, insurance companies and their reinsurers, he said.

Civil commotion

PT Asuransi Bintang since August has offered an insurance policy containing a riots, strike and civil commotion (RSCC) clause.

Bintang president Ariyanti Suliyanto said the RSCC clause would provide wider protection in the event of future unrest.

"We offer options to our existing clients to upgrade their RSMD clause to the RSCC clause, so that the next time big social unrest occurs, they will not have to worry about any dispute over whether it was political in nature."

She said foreign reinsurers, even though they had agreed to honor the contracts for damage incurred in May, would likely dispute the RSMD clause if claims were made for future unrest.

RSCC covers almost all likelihoods, including malicious damage done by one person, brawls and smaller-scale riots, and riots which could be instigated by those with a political agenda or in civil commotion.

It does not cover civil war and revolution, as no market currently offers protection for war.

Bintang's director M. Iqbal said the factors which determined the premium rate in the RSCC policies were the property's location, occupancy, sensitivity and security coordination.

"Rather than using only the occupancy factor to set the premium prices like we have been doing, we use these four factors." He said the system helped determine the premium rates more effectively.

"Homes in specific areas were more targeted than others, the Pondok Indah Mall is more safeguarded than other malls, and a store owned by a Javanese is highly sensitive in Dili (East Timor)," he said in citing some factors.

The lowest premium rate of the RSCC policy is 0.9 per mill (per thousandth), four times higher than the lowest rate of the RSMD policy, while the highest is 8 per mill, 40 times higher than the standard RSMD, he said.

Bintang announced on Tuesday it would start paying the riots victims' claims totaling Rp 40 billion beginning next week.

Ary said Bintang retained Rp 2 billion of the full amount and the remaining Rp 38 billion was reinsured.

The company also announced its gross premium income in the January to September period had risen by 64 percent year-on-year to Rp 76 billion, exceeding this year's target of Rp 73 billion, mostly due to higher demand for damage insurance for property.

As part of its public relations efforts, the company will air on local TV stations a public service message urging Indonesians to unite. (das)