Life is positive -- if you're prepared

Life is positive -- if you're prepared

By Simon Wellington

JAKARTA (JP): Mother said to always be prepared because
"tomorrow you could be run over by a bus".

Although it could be considered a somewhat pessimistic
disposition, she would argue that it was just being practical --
which was the reason why she had life and health insurance.

In our highly commercialized world, the financial pressures
are fierce. We are entering contracts daily that bind us to a
wide range of commitments. So what would happen if "mother's bus"
came screaming around the corner one sunny afternoon and decided
to turn you into a street decoration?

Well, you could be lucky enough to just end up in hospital and
escape the experience with a few broken limbs and a mountain of
medical bills. But then, you could also find yourself permanently
unable to return to work or, worse still, dead.

The ramifications of unexpected events have far-reaching
consequences. For this reason, the popularity of life and health
insurance is on the rise, as more and more people recognize the
importance of protecting themselves and their families to
anticipate future uncertainty.

In Indonesia, the participation in life insurance is
relatively low compared to more developed countries. Of course,
the problem with life insurance is that it is not a tangible
product. When you hand over the cash, you don't get anything in
return except peace of mind, which doesn't stack up well against
a new wide-screen television set.

Furthermore, many people do not understand the benefits of
life and health insurances, confused about when and how it will
help them.

There are indeed a wide range of products on the market. Some
are traditional life insurance products, whereby a policyholder
pays a premium and, should he die, a beneficiary receives an
insured amount. There are also many forms of health insurance
offering part or full payment of medical expenses.

Then there are packages providing more sophisticated benefits,
and the development of new products that offer an investment
component, whereby the policyholder can set his own premium
payments, have more control over where the funds are invested and
live to see the fruits of his spending.

Over the last few years, the Indonesian life insurance
landscape has been changing dramatically, with significant growth
rates being experienced by life insurance companies.

There are 62 life insurance companies operating in Indonesia.
Of these, four are state-owned companies, 35 are local private
companies and 23 are joint venture companies involving foreign
ownership.

Foreign insurance companies are allowed to operate in
Indonesia as joint venture enterprises, with a maximum stake of
80 percent. At least two joint venture companies, PT Asuransi AIA
Indonesia and Manulife, have been here for over 20 years. Most of
the other joint venture companies were established between 1990
and 1997, before the economic crisis.

The sudden influx occurred at a time when clearer regulations
for the industry were introduced in 1992, combined with increased
awareness of the attractive potential in Indonesia.

After 1997 some potential investors delayed or even canceled
their plans to invest. With the tumult of 1997 slowly receding,
it is expected that joint venture companies will start
consolidating stronger positions in Indonesia.

Official data from the Indonesian Insurance Council (DAI)
showed that the total number of people covered by life insurance
grew by 16 percent in 1999 to 22.76 million, compared to 19.58
million in 1998.

The gross premiums in the life insurance industry dropped
13.84 trillion from 14.17 trillion in 1999, although there were
increases of 41 percent in 1998, 21 percent in 1997 and 17
percent in 1996.

DAI's 2000 statistics are incomplete, with data only collected
from 43 of the council's 58 members so far. Already, though, the
information reveals interesting developments.

Although the number of premium holders is significantly lower
than the previous year at 12.56 million, the number of individual
policyholders, as compared to group insurance for company
employees, has nearly equaled the 1999 figure.

One area that is showing promising growth is investment. In
2000, investment income reached Rp 1.72 trillion compared to Rp
0.87 trillion in 1999's audited results, a growth of 98 percent.

This investment pattern reflects a trend within the market
seeking alternative investment opportunities, with trust in banks
still low.

In 1998, Unit Link products were introduced to Indonesia,
providing investors with more control of their funds than
afforded by traditional life insurance products.

DAI Information and Promotion Department director Tri Djoko
Santoso explains, "People are seeing life insurance as an
alternative to banking products, as more and more products are
heavily focused on investment and saving, and less on
protection."

There are about eight companies offering these types of
products in Indonesia.

One large joint venture company, PT Prudential BancBali, has
placed a strong emphasis on this style of product through its
PRUlink range, shifting focus from its traditional life packages.

PT Allianz Life Indonesia recently released SmartLink. "Unlike
traditional life insurance products, with SmartLink customers
decide the premiums they will pay and can choose where the funds
will be invested," Allianz marketing director Handoyo Kusuma
explained.

Allianz has been providing life insurance products in
Indonesia since 1996. It currently has between 60,000 and 70,000
life customers and 60,000 individuals subscribed to group health
products through over 400 businesses.

Handoyo said that in the first semester of 2001, the company
had already exceeded its year 2000 premium levels. In 2001 the
company expects growth of Rp 100 billion in new business for
individual life products, after attracting new business valued at
Rp 26 billion in 2000.

Djoko says that most insurers are increasing or even doubling
their targets for 2001, in what they expect to be a very
promising year for increased participation in life insurance
products.

In May, PT Asuransi Cigna, reported that it had recorded a 13
percent increase in revenue during the first quarter. At the
time, company finance director David Batubara said that the firm
projected a 35 percent revenue increase to Rp 92 billion in 2001,
from Rp 68 billion received in 2000.

In terms of gross premium income, the joint venture companies'
market share increased from only about 35 percent in 1999, to
about 47 percent in 2000, according to DAI.

This significant growth of joint venture companies could
probably be attributed to one of the largest national premium
holders, Lippo Life, entering a joint venture with American-based
AIG.

It is predicted that the market share of joint venture
companies will grow dramatically through acquisition or merger
initiatives from leading foreign or joint venture companies.

One factor expected to prompt further acquisitions and mergers
is a 1999 minister of finance decree stipulating that the
solvency margin of insurance companies is to be calculated on the
Risk Based Capital (RBC) approach.

The solvency margin is the ratio of a company's current
assets, determined to be admissible by the RBC, against the
minimum amount of funds required to cover claims and possible
losses.

By the end of 2000, companies were required to have a solvency
margin of 15 percent. This ratio increases to 40 percent by the
end of this year, 75 percent in 2002, 100 percent in 2003 and 120
percent in 2004.

This will place significant pressure on local private
companies, which do not have the substantial capital backing of
larger foreign operators.

If they fail to meet the guidelines, companies may be forced
to request a capital injection from shareholders, seek domestic
or foreign partners, or merge with a larger insurance company.

There is also a reported shortage of qualified professionals
operating within the Indonesian life insurance industry. Poaching
of agents is rife within the sector, obviously affecting the
weaker institutions even further.

However, despite these challenges facing many businesses, they
are also seen as positive for the industry as a whole, leading to
advances in technology application and stronger protection for
customers.

"In general, the market will continue to have positive growth
and continue to be dominated by traditional life insurance
products. Within three to four years the Unit Link products are
expected to experience a boom," Handoyo from Allianz said.

Overall, the future outlook for life insurance companies is
very positive. With only 6 percent of the nation's 210 million
population reported to be policyholders in 2000, that certainly
provides a large potential market for the innovative range of
products now on offer.