Local insurance firms expect boost from WTC fallout

Berni K. Moestafa, The Jakarta Post, Jakarta

Reeling from last year's low premium rates due to stiff competition, local insurance firms may find relief in the fallout from the World Trade Center (WTC) terrorist attacks in the U.S. which, they said, could boost premium prices back to normal levels.

The Indonesian Insurance Council (DAI) said on Tuesday that premium income growth last year might be even, or slim at best.

"We might have sold more products, but the sharp price falls among various insurance sectors have likely erased these gains," DAI general chairman Munir Sjamsoeddin said at a media meeting.

The press meeting discussed the industry's 2001 performance, but DAI was unable to produce accompanying sales figures for that year or the year before.

Munir said that except for life insurance, which grew by an estimated 30 percent last year, industry performance had been bleak in 2001.

Industry sources, however, talked of insurance companies having met their growth target of between 10 percent to 15 percent last year.

Munir said a rebound was likely this year, as tight competition between insurance firms might not be enough to hold premium prices at current levels.

DAI chairman for the reinsurance sector Frans Y. Sahusilawane said a price hike for premium rates was inevitable after the WTC incident.

Reinsurance is the insurance by another insurer of all or part of a risk previously assumed by an insurance company.

He said the single incident of the WTC terrorist strike was costing the reinsurance industry some US$50 billion to $100 billion in claims.

"Internationally, people have developed a sudden dread of risks. Nobody imagined losses on this scale could occur," Frans said.

He added that because of the huge claims, reinsurance firms were consolidating their cashflow and trimming exposure.

For insurance against the risk of terrorism, sabotage or civil unrest, premiums had risen by up to 1,000 percent, he said. In most cases reinsurance firms simply refused to cover these risks.

But if they scaled back their exposure in Indonesia, he said, insurance firms here could not avoid raising their premiums to hedge themselves better against risks.

Frans said the price hikes would apply to almost the entire local insurance industry, given its high dependence on capital from the foreign reinsurance market.

And even if prices arose, demand for commercial insurance would remain steady, he added.

Compared with retail insurance products, commercially related ones made up most of the premium income of the insurance industry, according to Frans.

And even with competition still tight and higher prices depressing demand, DAI chairman Munir estimated that premium income for the whole of 2002 could fare better than last year.