Insurance firms capital requirement must go up

JAKARTA (JP): The government should raise the paid-up capital requirement of insurance companies to enable them to compete with their foreign rivals, an insurance executive said yesterday.

President of PT Jasindo, the state-owned loss insurance company, Amir Imam Poero, said many premiums and commissions had gone to foreign insurance firms because local ones -- due to their small capital -- could not underwrite large insurance risks.

Amir was speaking after signing a cooperation agreement to improve Jasindo's human resources with Wagiono Ismangil, executive director of the Institute of the Indonesian Management Development.

Under the agreement, Jasindo, a leader in Indonesian insurance with a 19 percent market share, will send about 30 managers to the institute's MBA program.

At present the minimum paid-up capital for a wholly domestic insurance firm is Rp 3 billion (US$1.25 million), a foreign joint venture must have Rp 15 billion.

"I think this is too small. How can they compete with the foreign firms which have a lot of capital," he said.

Amir said small insurance companies should be forced to merge if their shareholders could not meet the larger capital requirement.

He said that for a small insurer, a merger could be the only alternative if they wanted to survive the industry's increasingly tougher competition.

"If we don't do something to improve our competitiveness, I'm afraid we'll lose when the ASEAN Free Trade Area (AFTA) is fully implemented in 2003," he said.

Jasindo's director of operations, Mustafa Ashari, said the government should require insurance firms to have paid-up capital of up to Rp 30 billion.

He also said local firms should improve their human resources and pursue synergies.

Currently, there are 105 insurance companies in Indonesia, more than 20 have less than Rp 3 billion working capital.

Amir said the inefficiency of local insurance firms had caused a sharp increase in the deficit of Indonesia's current account insurance services.

Data from the Indonesian Council of Insurance shows Indonesia's insurance deficit has increased steadily over the last six years.

The deficit in 1990 was Rp 211.34 billion, rising to Rp 282.5 billion in 1991, to Rp 353.85 billion in 1992, to Rp 398.74 billion in 1993, to Rp 456.70 billion in 1994, to 826.15 billion in 1995 and to about Rp 1.2 trillion last year.

It is estimated that this year's insurance deficit will increase.

In 1995, Indonesian insurance firms paid about Rp 1.71 trillion in premiums, commissions and claims to foreign companies. And the Indonesian firms made only Rp 882.27 billion from them.

Amir said Jasindo projected a net profit of about Rp 26 billion this year, the same as last year.

He said the company's premium target this year was Rp 445 billion, an increase of about 2.5 percent from last year. (bnt)