RI too hot to handle for reinsurers

JAKARTA (JP): Increasing risk from the simmering political and social tension in the country are discouraging foreign reinsurers from continuing their deals in Indonesia, the Insurance Council of Indonesia (DAI) said on Thursday.

The director of the council's reinsurance division, Frans Sahusilawane, said some foreign reinsurers were hesitant to renew contracts -- covering riot-related damage policies -- with local insurance firms due to the risks involved.

"In the eyes of the foreign reinsurers, Indonesia is highly risky," Frans told a news briefing.

"Though in general the foreign reinsurers remain supportive of us now, there are one or two individual companies which consider our conditions beyond the limit of their tolerance."

More foreign reinsurers might end their contracts if the situation worsened, he warned.

After massive riots in mid May which led to the resignation of Soeharto after 32 years in power, the country has been rocked by social unrest several times, especially within the last month.

Next year, Indonesia will hold a general election, an event which in the past was marked by disturbances.

Frans said DAI was mulling establishing an insurance syndication to underwrite local insurance contracts to anticipate more social unrest and the possible decline in the foreign reinsurers' presence.

The council is lobbying the government to pitch financial assistance to the insurance pool because insurance firms could no longer rely on foreign reinsurers alone, he said.

Some local insurance companies have extremely weak capital and could only retain 10 percent to 20 percent of the underwriting contracts.

Meanwhile, DAI endorsed on Thursday revised clauses on social unrest for fire insurance policies issued by local companies.

It revoked "Clause 4.1", which covers riots, strikes and malicious damage, and endorsed instead two new clauses known as 4.1A and 4.1B, both of which classify unrest according to the scale of the events.

DAI's head of the loss insurance division Nurmaiman Usman said the new clauses eliminated any ambiguity and prevented disputes over the nature of an incident or event.

Foreign reinsurers, especially those under Singapore Reinsurance Association, initially refused to honor their contracts with local insurers affected by the May riots, saying the unrest was politically motivated and thus not covered in their damage policy.

A long dispute ensued with the reinsurers before they finally agreed to honor the contracts on a case-to-case basis.

Under the 4.1A clause, the coverage is extended to riots -- and looting occurring during the riots -- strikes, lockouts, malicious acts and preventive acts.

The latter is done by a legitimate authority to prevent or suppress the occurrence of any of insured perils or to minimize the consequences of such perils.

The 4.1B clause covers damage caused by all of the above as well as terrorism, sabotage, civil commotion, popular uprisings and revolution without the use of fire rms, and subversive acts.

It excludes popular uprisings and revolution with the use of firearms, rebellion, military power, invasion, civil war, war, and hostilities or looting, except when occurring during riots or civil commotion.

Nurmaiman said policyholders would likely pay an average of three times higher for the 4.1B coverage than for the 4.1A coverage.

DAI defines riots as an act of group of at least 12 people who cause tumultuous public disturbances with violence and damage to other people's property.

Civil commotions constitute a large number of people gathering to disturb the peace with violence and a chain of destruction of many properties.

During a civil commotion, there must be a cessation of more than one half of the normal commercial and public activity such as businesses, schools and public transportation in one city for a consecutive 24 hours at the least.

Popular uprising is an uprising of a majority of the people in the country's capital, or in three or more capital cities of provinces within 12 days, demanding a change in the government de jure or de facto.

DAI also considers it open resistance against the government, providing it does not amount to a rebellion.

Nurmaiman said the May riots would not have been covered under 4.1A clause but would have fallen under 4.1B. (das)