Merger not easy way out for RI insurers
The Jakarta Post, Jakarta
Poorly trained human resources, weak capital, inadequate information technology systems and low amounts of risk-based capital (RBC) are stopping local insurance companies from competing succesfully against foreigners in ASEAN, analysts say.
However, some industry players believe they have found the solution to strengthen their capital and competitiveness -- mergers.
PT Asuransi Jasa Indonesia (Jasindo) public relations manager Dewi Poedjiastuti said recently that mergers would increase the size of the merged companies' assets, widen the scope of their operations and make them more competitive internationally.
AJB Bumiputera 1912 director of technical and financial affairs Maryoso Sumaryono said the stronger an insurance firm's capital base, the better its business would be.
"The bottom line is to compete by offering good services to policy holders, which in turn will attract more capital," he said.
Indonesian life insurance association (AAJI) chairman Herris Simandjuntak warned insurance companies wanting to merge that they should check the legal requirements before doing so.
"According to Law No. 2/1992, insurance businesses offering different services cannot be united. For example, a life insurance company is not allowed to be merged with a general insurance company," Herris told The Jakarta Post.
PT Asuransi Wahana Tata president Rudy Wanandi told the Post recently that merger decisions relied on the cooperation of the company's shareholders.
Rudy said in Indonesia, a merger would not necessarily mean insurance companies could open branch offices or reduce their workforce. In foreign countries a merger target company would often improve efficiencies by culling 30 percent of its workforce after a merger, he said.
University of Indonesia economics lecturer Alberto Hanani said mergers were not easy to arrange.
"Firstly, it is difficult for the owners (of a company) to get the right partner easily and second, there is a tendency from the management of both companies not to support the merger process as they are likely to be afraid of losing their positions," he said.
Indonesian Insurance Council (DAI) chairman Hotbonar Sinaga said in his recently published book Membangun Asuransi Membangun Indonesia (Building Indonesia through the Insurance Industry) that only 27 percent of merged insurance companies in the world in the 1990s managed to increase their performance and share price.
Two British companies, he said -- Royal Insurance and Sun Alliance -- had succesfully merged to become Royal Sun Alliance.
In Indonesia only 12 percent of the country's 220 million people hold insurance policies, compared to 40 percent of 23 million people in Malaysia and most of the 127 million people in Japan, many who hold three or more policies, Hotbonar said as quoted by the Republika daily.
"The opportunity to grab a bigger portion of the potential domestic market is high. This year, the market is likely to grow by 1 percent," Maryoso told the Post.
Meanwhile, the price of insurance premiums is predicted to rise by 30 percent, the same rate as last year.
"With increases in banking loans, foreign investment and consumer prices, insurance premiums are likely to increase significantly this year," Dewi said.
She said other business opportunities would come from the construction industry through the creation of highways, the Jakarta Outer Ring Road and monorail facilities.
According to DAI, the insurance industry during the first six months of 2004 took in Rp 10.4 trillion (US$1.1 billion) in premium revenues, 54 percent higher than the same period in 2003. (004)