Local insurance firms expect boost from WTC fallout

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.