Road map planned for the insurance industry
Road map planned for the insurance industry
The Jakarta Post, Jakarta
The government will issue a "road map" for the insurance industry
by the end of September, the Ministry of Finance says.
"This way, there will be a clear picture of where the
insurance industry should be heading," said the ministry's
director for insurance, Firdaus Djaelani, during a seminar
attended by insurance executives on Tuesday.
He said the implementation of the roadmap would eventually
lead to a reduction in the number of insurance companies.
Currently, there are 51 life insurance companies and 97 general
insurance companies.
The 10 largest life insurance companies account for about 73
percent of the nation's premiums, which grew by 37 percent to Rp
18.35 trillion (US$1.9 billion) last year, while the 10 largest
general insurers have a 53 percent share of the segment's
premiums, which grew by 9.7 percent in 2004 to Rp 14.65 trillion,
according to data from the Indonesian Insurance Council (DAI).
The road map, informally referred to as the Indonesian
Insurance Architecture, will describe specific policies,
including those on minimum capital requirements, similar to the
banking sector's Indonesian Banking Architecture plan, Djaelani
said.
He said minimum capital requirements were needed to strengthen
insurance companies and boost consumer confidence in the sector.
"There are some insurance companies with capital of less than
Rp 5 billion. What kind business do they expect to conduct?"
Djaelani said.
He said the government was considering two options: A blanket
capital requirement of Rp 100 billion or a tier structure.
Under a blanket requirement, companies would be given an
adjustment period of up to 10 years after the roadmap was issued
to raise additional capital, he said.
Under a tier structure, an insurance company would have a
maximum of 10 years to fulfill a certain capital requirement,
with the lowest possibility being Rp 25 billion and the highest
Rp 100 billion. Smaller insurance companies were likely to have
operating limitations, possibly in the form of geographical
restrictions.
Djaelani said companies that failed to fulfill the minimum
requirements would have their insurance licenses revoked but be
allowed to operate as either insurance brokers or agents.
"It's just like soccer. If they can't compete in the top
divisions, they will be relegated to a lower division," he said.
He said the government was also considering allowing the
formation of composite insurance companies, which would allow
general and life insurance companies to merge to fulfill the
minimum capital requirements.
Law No. 2/1992 on insurance prohibits a company from operating
both life insurance and general insurance divisions.
However, Djaelani said the composite companies would have to
operate the finances of their different businesses independently.
"The divisions shouldn't be allowed to mix their finances," he
said.
He added that the roadmap would eventually be part of the
planned Indonesian Finance Architecture, which would cover banks
and non-bank financial institutions, such as the insurance
industry and the capital markets. (002)