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)