Insurance policies: All hype or a help?
Closing in on the much-awaited, much-feared general election scheduled for June 7, rising demand for risk insurance is emerging in the middle class. The Sunday Post team Ahmad Junaidi, Budiman Moerdijat, Devi M. Asmarani, Ivy Susanti, Kosasih Deradjat, Stevie Emilia and photographer Arief Suhardiman examines what is fueling the trend and the pluses and minuses of being a policyholder.
JAKARTA (JP): When the devastating riots broke out last May, Renny was speeding in her car, trying to make it home to a South Jakarta suburb.
The radio kept updating reports on crowds vandalizing stores and houses, setting them on fire after picking them clean. With her cell phone, she kept in constant contact with her husband, who was stranded at his office in Central Jakarta.
At home, Renny watched incredulously the television footage. Cars on the city's streets were tipped over and burned, but their drivers were nowhere to be seen.
"I could not believe it, I could've been one of those people, driving along on those streets," she recalls.
Both Renny's car and house were uninsured. She was a newlywed and only moved into the house two months before the riots.
"I knew that I had to do something to protect my property, the house, the car. We are not the richest people," she says.
While some have signed up for insurance, others, like Christina Rini, have decided soaring premium rates are too high a price to bear.
The annual premium on her Kijang van soared from Rp 2.2 million to Rp 5.5 million (US$639). On a lawyer's salary from the Jakarta Legal Aid Institute, she could no longer afford the policy.
"It's a pity. I actually want to insure the car because of potential for riots in the upcoming general election," Christina says.
As a precautionary measure, she now commutes to work by bus, leaving her car at home in Bogor, West Java.
The nation is nervously awaiting the election, with campaigning scheduled to begin in May. The public wants a quick and painless process toward democratization, but it may be a tad overoptimistic.
Owners of commercial establishments and residents of areas prone to unrest are already familiar with the undesirable side effects of the five-yearly political festival. They will tell you it is hardly their favorite time.
In past campaigns, about a month before the actual poll, political party enthusiasts normally paraded en masse, riding motorcycles and trucks, waving flags and sometimes harassing bystanders and motorists. Occasionally, they hurled stones at onlookers, and the event turned violent.
Turning up the heat on the already simmering tension in the country, the prospect of having 48 political parties -- compared to three in past elections -- campaigning at the same time seems like a prescription for chaos.
Already this year, bloody sectarian clashes have occurred intermittently in Maluku province. In West Kalimantan, groups of native Dayaks and Malays attacked Madurese settlers.
This does not count the flare-ups in pockets of the archipelago.
Although the places seem a world away from the capital, fears of trouble hitting home have prompted many to look to insurance.
Ask 30-year-old housewife Noviyanti Wongkaren who spends over Rp 10 million in insurance annually for her family of four. It only accounts for the two cars, a house and the health insurance policies for the family, excluding their dollar-denominated life insurance policies.
"My husband and I spend a lot of money on insurance," she admits.
But she does not mind. When her car was hit recently, her insurance firm covered everything.
Consumers are buying into the promised assurance and convenience of insurance.
An executive at the Insurance Council of Indonesia (DAI), recently admitted that demand had increased so much that insurance firms were forced to reject new applicants, especially those in high-risky areas.
Director of Bintang General Insurance M. Iqbal says the company recorded 1,500 new clients in the past seven months, whereas growth in the fire insurance policy in the housing sector was previously very slow.
Marketing director of PT Asuransi Sinar Mas Budi Hartono says his company sold 100,000 new policies on automotives and 200,000 on fire and "allied perils", the common jargon for riot-related incidents, since May.
The boom is making the insurance agents' job easier, Iqbal says.
"We can now identify the demand and supply the clients with just the right products," he says.
"Before, people in the insurance industry had to rack their brains to come up with a product."
Bintang recently launched its Perisai Rumah Seisinya (protection for homes and their contents) policy.
Iqbal says the company's premium income in the first three months of this year doubled from last year's amount, despite the economic downturn.
But if policies concerning property are doing brisk business, ones for automotives are stuck in park.
"(Since May) many have inquired about our car policies, but most did not buy, maybe because the policies are a bit more expensive," says Lusia Darmadi, chairwoman of Asuransi Astra's corporate services division.
Compared to risk policies on houses, those on cars are relatively more expensive.
While the premium rate for a policy covering property is determined by its value per mill (per thousand), for cars the value is per cent.
Lusia says for the all-risk car policy -- coverage ranges from theft, accidents, fire, to total loss -- premiums usually hover at 3.4 percent of the car's value. Add to that a 1.25 percent extra charge for riot coverage, and insuring cars can be a pricey proposition.
The policies are more expensive because prices of cars and components have more than doubled since the rupiah's 70 percent collapse against the U.S. dollar.
Lusia says the volume on policies for new cars dropped drastically compared to that for used cars in 1998.
"Our premium values have increase to Rp 129.4 billion last year from Rp 91.68 billion in 1997, but the volume actually dropped."
Industrial
Some disgruntled policyholders, however, are holding grudges against local insurers.
Many retailers who suffered huge losses in the May unrest say their claims have not been paid in full.
A group of discontented policyholders, calling themselves the Complaint Group Association (CGA), is seeking redress from its insurers.
The newly formed group is recruiting policyholders whose claims have not been paid to work out strategies to obtain their claims. This may include pursuing legal action collectively, which is more likely to succeed than individual suits.
A member who requested anonymity says a claim on a fire which occurred at his company's industrial site in the middle of last year has not been paid by the insurer.
"This was not riot related, it was a normal industrial fire, but it just happened to occur when the local insurance companies were swamped with huge claims," the executive says.
His company's insurer has begged off payment by saying its reinsurers are insolvent and cannot honor the contract.
"Insurance firms seem fine until something happens," he gripes.
CGA claims there are many insurance firms in the country that are insolvent. But many others, it says, are joint ventures with multinational companies, and they should be able to obtain cash from their parent companies.
Problems go back to last year when large policyholders -- like the Ramayana retail chain which suffered Rp 100 billion in losses in the May riots -- and insurance firms were at loggerheads over unsettled claims.
Arguments followed the same line. Foreign reinsurers, mostly companies with considerable capital, would not honor the contracts with the local insurance firms because they deemed the riots politically motivated.
The reinsurers later compromised and the Indonesian insurance industry came up with revised clauses on riot coverage.
But local insurance firms with very little capital, which reinsure over 80 percent of their risks, are now left with a nagging problem: who will they share the risks with when foreign reinsurers have closed their books on the troubled country?
Bintang's Iqbal says this is the time for the entrance of a different breed of reinsurers, the specialized market.
"We can no longer rely on the traditional market, our market is the same as that of risky countries like South Africa, Sri Lanka and Ireland," he says.
A handful of reinsurers is daring to take up the hefty risk, but each is exercising extremely prudent and selective judgment in choice of partners. (team) Related stories on Page 5