Insurance firms must boost capital
Tony Hotland, Jakarta
The government would do well if it took immediate action against insurance companies with risk-based capital (RBC) below the minimum requirement as they had been hurting the industry as a whole, according to an industry observer.
The latest data by InfoBank, a monthly financial magazine, shows that there are 32 insurance companies with an RBC level below the limit of 120 percent as stipulated by the Ministry of Finance.
"The government seems reluctant to address the issue and is unable to find an exit policy for these ailing companies," the director of Infobank's research division, Eko B. Supriyanto, said in a press conference on Monday.
He said that the government could either close down the firms, push them to merge with healthier companies or invite new investors.
RBC measures the minimum amount of capital that an insurance firm needs to support its overall business operations. The higher the RBC level, the healthier the insurance company.
Eko explained that if the problem of lack of capital in the insurance firms was not properly addressed, it could affect the confidence that policy holders and investors had in the industry.
There are some 163 insurance companies registered with the Ministry of Finance.
The 32 ailing insurance companies were added to another five companies which for sometime have been under the supervision of the Ministry of Finance as their RBC level has gone down below 100 percent. (The government revised upward the RBC level to 120 percent earlier this year).
The five companies have been given time -- until September this year -- to increase their RBC level. They are Asuransi Republik, Asuransi Tugu Indo, Asuransi Raya, Pasaraya General Insurance and Asuransi Dharma Bangsa.
Their business volume will have strict limits put on it if they fail to meet the new RBC limit, including a ban on selling any new policies.
There are 13 companies that have had such limits put on them in the last two years, including PT Asuransi BHS Life, PT Asuransi Ganesha Danamas, PT Koperasi Asuransi Jiwa Indonesia, PT Nabasa Life Insurance and PT Asuransi Namura Life.
Their fate remains uncertain.
A senior advisor to the Singapore-based Watson Wyatt Insurance Consulting Pte Ltd, Angger P. Yuwono, said that a country ideally had only a maximum of 15 insurance companies to ensure fair competition.
"Currently, the companies with large premiums are doing well and the small ones are left with the possibility of breaking down, which can cause adverse impacts for policy holders," Angger said.
Eko suggested that the government set up an insurance landscape that is similar to the Indonesian Banking Landscape to put the industry in order.
"Based on assets and possessed premiums, it should be designed so that companies operate on a national scale and within a certain insurance sector, with regulations on expansion," he said.
He added that the government needed to regulate a mandatory merger, with incentives, for companies with RBC levels below the required standard.