Many insurance clients cut dollar-based contracts

JAKARTA (JP): Many insurance companies's clients have terminated their U.S. dollar-based insurance contracts to avoid the high increase in premiums resulting from the rupiah's sharp depreciation against the dollar.

Director of Allianz Aken Life Peter Endres said yesterday the dollar-based policyholders could no longer afford to pay their premiums.

"They terminate their contracts because they can not pay the premiums which have risen considerably following the rupiah's sharp depreciation against the dollar," Endres said.

The Indonesian rupiah has been hovering between 8,500 and over 10,000 against the U.S. dollar for the last several months, rising from about 2,450 in July when the currency crisis first hit the country.

He said the number of clients who stopped their contracts in the last two months alone reached 750, equivalent to the contract terminations for 1997.

Holders of dollar-based policies account for 20 percent of the company's 50,000 policyholders.

Allianz Aken is 80 percent owned by Germany's giant insurance company and 20 percent by PT Kresna Karya of the Aken group. The insurance company, which started operations in 1996, has 36 branches throughout the country catering to middle to upper class individuals and group customers.

Andres said in a bid to cope with the surge in contract terminations, Allianz Aken had recently introduced a program to allow its customers to convert their dollar policies into rupiah ones as well as to reduce their policy value.

Customers could take home the surplus from the conversion into rupiah of their dollar policy in dollars or use it to pay premiums, Endres said.

Allianz Aken used the selling rate at Bank Indonesia as the exchange rate for the conversion, he said.

"We are aware of the hardships facing our clients during the current crisis, but we offer solutions so that they can stick to their contracts," Endres said.

Endres called on the company's customers not to worry about the company's liquidity since additional capital would be injected this year to bring its paid-up capital to Rp 56.25 billion from Rp 9.25 billion.

Besides, Allianz Aken always adopts a conservative policy in investing its clients' money.

"We are not speculating for exchange gains by converting into different currencies. When dealing with our policyholders' money, we always put security first," he said.

The clients' money was mostly deposited with international banks and state banks, he said.

Company director Jens Reisch stated that Allianz was committed to a long-term investment in Indonesia.

"Allianz never stops operation in any country. Anyway, we are still confident of Indonesia's prospects," he said.

Reisch said Allianz Aken booked about 900 new policyholders per month over the past two years, but the company projected zero growth this year.

"Indonesians have not yet become an insurance-minded people. The crisis will further discourage them from insuring themselves," Reisch said.

Reisch said the country's insurance market would generally be in a slump this year but he predicted an increase in the demand for single premium products.

This product is especially designed for people who can afford to pay all the premiums in advance in the expectation of higher benefits in the future.

"Today, many people here have become poor, but many people become rich. We are offering the single premium products to the newly rich," Reisch said. (jsk)