Insurers enjoy stiff rivalry, await free trade

JAKARTA (JP): Indonesia has become a competitive field for insurance companies. The degree of competition among the country's insurers has increased. This is evident in the way various insurers have expanded their businesses by offering more products, opening new branches and recruiting additional agents.

Rivalry in the insurance business is expected to become more intense in the coming years with the era of globalization, namely the ASEAN Free Trade Area in 2003.

Based on data from the Indonesian Insurance Council (DAI), there are 106 general insurance companies operating here (five state-owned, 78 domestic and 23 joint-venture insurers), and five reinsurance companies (one state-owned and four private reinsurers).

The data shows there are 60 life insurers, comprising four state-owned, 34 domestic and 22 joint-venture companies.

Indonesia's insurance market has many prospective businesses, even though the country's sociopolitical and economic condition remains unstable.

Contradicting the other financial sectors, such as leasing and banking industries, the business of insurance has successfully survived in Indonesia during a prolonged economic disaster.

In its latest report, DAI said that the total income from premiums in the life insurance industry surged by 10.5 percent to Rp 5.37 trillion in 1999, from Rp 4.86 trillion in 1998. This is quite favorable, even though the growth rates recorded in last three consecutive years were higher (32.7 percent in 1998, 27 percent in 1997 and 38 percent in 1996).

DAI reported that the only decline was in 1999, which was on investment returns. The figure dropped by 78.4 percent to Rp 868 billion, from Rp 4.03 trillion in 1998. The drop was largely the result of a drastic fall in deposit rates during the year, DAI said.

However, there was an increase of 21.07 percent in investments from DAI member to Rp 9.87 trillion from Rp 8.15 trillion. The majority of the investments was in time deposits (51.07 percent), Bank Indonesia certificates (14.86 percent), securities (12.2 percent), and real estate (7.29 percent). Among the popular investment instruments were stocks and bonds, mutual funds and Bank Indonesia promissory notes.

Other growth rates in the insurance sector in 1999 include the number of insured/participants (16.2 percent), total sum insured (up by 31.5 percent), and number of agents (16.3 percent).

Many major life insurance companies, mostly foreign joint ventures, have aggressively launched their latest products to win a larger share. They also plan to operate more branches across the archipelago.

Opportunity

DAI reported that in the first quarter this year, the number of insured people was only 6.8 percent out of Indonesia's population of 210 million. This opens a wide opportunity for most insurers.

PT Zurich Life Insurance Indonesia president director Ronald Cheyne said that Indonesia's market was quite promising compared with other nations, whose markets were matured, like Britain or Japan, which have already reached 80 percent or 90 percent.

"Current competition is fierce. We have players from all over the world, with their joint ventures. It will be fiercer when the market opens in three years.

"The insurance sector is a very capital-intensive business. The government has raised the minimum capital for setting up a join venture to run insurance business in Indonesia. I think this is helpful for the industry.

"The government has set the level at Rp 100 billion. amount of cash when needed," he said.

Challenging

The promising future and sharp competition have created worries, whether the insurance firms will become involved in a "premium war".

But leading players in Indonesia were unlikely undertake this unhealthy way. Instead, they launch various innovative products offering more benefits.

The government has also set a regulation for solvency margin for insurance companies.

The solvency margin is the ratio of current assets against the minimum funds to recover claims and possible losses calculated under the risk based capital (RBC) method. Some major elements in the RBC method, prepared in anticipation of global competition, include failures in managing properties and an imbalance between properties and liabilities.

The government requires insurance companies to have a solvency margin of 15 percent by the end of this year, and gradually increase the figure to 40 percent by the end of next year, 75 percent by 2002, 100 percent by 2003 and 120 percent by 2004.

Another challenging factor in facing globalization is human resources.

Data from the Insurance Management Professional Association of Indonesia (AAMAI) shows that there are 1,632 professionals in life insurance management, comprising 1,534 associates/AAAIJ, 51 specialists/AAJI (both with AAMAI credentials), 21 with honorary titles and 26 with other degrees equal to AAIJ.

AAMAI is the only body authorized by the government to provide such credentials. As expatriates intending to work in the insurance sector here will also be required to take the credentials, rivalry in human resources will hopefully not too fierce when the era or globalization is really here.

PT Asuransi AIA Indonesia vice president chief actuary and director of marketing, Angger P Yuwono, said Indonesians working in the insurance sector must increase their professionalism. (icn)