Local insurance firms urged to increase capital
Local insurance firms urged to increase capital
JAKARTA (JP): The government should require general insurance
firms to increase their capital so they can underwrite large
projects and reduce the deficit in the balance of payments
services account, an industry executive said Tuesday.
General insurer PT Asuransi Central Asia president Teddy
Hailamash said Tuesday the insurance service deficit would become
larger unless the government took actions to strengthen local
insurance firms' capital structure.
"Net insurance retention by local insurance firms was very
small because they did not have much capital. They reinsured most
of their risks to foreign reinsurance firms," Teddy said.
Indonesian Council of Insurance data shows the deficit in
current account insurance services had increased from Rp 211.34
billion in 1990 to Rp 282.5 billion in 1991, Rp 353.85 billion in
1992, Rp 398.74 billion in 1993, Rp 456.70 billion in 1994 and Rp
826.15 billion in 1995.
Premium levels, commissions and claims paid by local general
insurance firms to foreign reinsurance firms caused the deficit
rise.
Mutual life insurance firm Bumiputra 1912 president Suratno
Hadisuwito said the current account insurance services deficit
was mainly because of general insurance firms, not life insurance
firms.
"In the life insurance industry, we take all premiums. We
never reinsure our risks to other firms, even local insurers,"
Suratno said.
Teddy said local general insurance firms did not have enough
capital to cover all risks.
The insurance business has increased quickly, but the local
industry's capacity to cover the risks has been relatively
stagnant.
"Ten to five years ago, a US$10 million obligation was already
a large policy to close for an insurance firm. And the insurer
could cover all the risks by itself," Teddy said.
"But now, the obligations have increased so fast. A $10
million project is nothing. You even have billion dollar
projects. And it is impossible for an insurance firm with a
capital of only Rp 3 billion (US$1.25) to cover all risks of such
a huge project."
The minimum authorized capital for a general insurance firm is
Rp 3 billion while for life insurance firms it is Rp 2 billion.
A general insurance firm may close a policy for any project,
no matter how big, but the risk it covers is limited to only 10
percent of its capital.
So many local general insurance firms prefer to act as
insurance brokers rather than insurance underwriters. This is why
local underwriting revenue is small.
It is almost impossible to stop local insurance firms
reinsuring their risks to foreign reinsurance firms because they
do not have the capacity to cover the risks.
Teddy said several local firms, especially those participating
in the Inter-Company Agreement, often shared the risk on certain
projects.
"However, if their capital remains very small, they cannot,
even through a consortium, underwrite all risks by themselves.
They must spread the risks to foreign reinsurance firms.
Otherwise, they are highly vulnerable to insolvency when the
claims come," Teddy said.
Ministry of Finance data shows that as of last September only
five of Indonesia's 104 general insurance and reinsurance firms
have authorized capital of over Rp 100 billion.
They were PT Asuransi Kredit Indonesia with Rp 253.3 billion
capital, PT Asuransi Ekspor Indonesia with Rp 225.9 billion, PT
Jasa Raharja with Rp 181.4 billion, PT Panin Insurance with Rp
140 billion and PT Asuransi Jasa Indonesia with Rp 122.8 billion.
Four have less than the statutory minimum of Rp 3 billion
capital. They are PT Asuransi Ganesa Danamas with Rp 1.89
billion, PT Marunnu Mario Asuransi with Rp 2.8 billion, PT Sagita
Sarana Raharja with Rp 2.2 billion and PT Asuransi Wuwungan with
Rp 1.87 billion.
Premiums
Meanwhile, international reinsurance firm Swiss Re has
predicted Indonesia's insurance industry premiums will grow 15.5
percent in the general insurance sector and 16.4 percent in the
life insurance sector in the next five years.
It estimated the insurance premium increase would be in line
with Asian growth, which makes up almost half the world's life
insurance premiums.
Indonesia's insurance industry collected US$1.97 million in
premiums in 1994, of which $753 million came from life insurance
and $1.21 million from general insurance.
General insurance premiums grew 21.8 percent and life
insurance premiums increased 41 percent in 1994, placing
Indonesia 37th in the world and 11th in Asia.
However, Swiss Re said Indonesia's insurance premium density
reached $10.2 per capita in 1994, of which $6.3 came from general
insurance and $3.9 from life insurance.
This placed Indonesia fifth in Southeast Asia and 61st in the
world in terms of insurance premiums per capita.
Swiss Re forecasted the insurance industry in other Asian
countries would increase in the next five years. It expected the
high growth would come from life insurance. (02/rid)