RI too hot to handle for reinsurers

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)