Terror-risk insurance still costly

Dadan Wijaksana, The Jakarta Post/Jakarta

The recent bombing in front of the Australian Embassy should highlight the fact that Indonesia has become a high-risk place when it comes to terrorism -- a reality that may increase the demand from businesses for specialized insurance protection.

However, with the relatively high premiums, coupled with the absence of reinsurance companies as a backup, the estimated rise in insurance demand for terrorism-inflicted risks would not be that great, said chairman of Indonesia's Insurance Council (DAI) Hotbonar Sinaga.

"With the current bombing incident, the demand should indeed increase, as businesses are finding it more and more important to contain the risk of terrorism. Insurance companies should also see this as an opportunity," Hotbonar said.

He was quick to add, however, that such insurance would require additional costs. The relatively expensive premiums to cover the risk of terrorist attacks has been seen as the main factor discouraging businesses here from joining such insurance packages particularly at a time when many companies are still struggling to repay debts inherited from the late 1990s financial crisis.

Hotbonar was replying to questions on how the latest bomb attack, which has so far killed nine people and injured more than 180 others, would affect the prospects of the insurance industry in the country.

Most of the ravaged buildings surrounding the bombing site, were not covered by terrorism risk insurance, chairman of Indonesia's General Insurance Association Frans Sahusilawane said earlier emphasizing the reluctance of businesses to take out such insurance.

In Indonesia, there are currently around 40 insurance firms offering coverage for damage due to terrorist attacks. They are grouped under the Consortium for Development of Indonesia's Insurance Industry (KPIAI), which was set up in 2002.

The combined coverage capacity of the consortium stands at a mere than US$5 million, and has so far collected some Rp 3.5 billion ($380.43 million) from a handful of companies.

Hotbonar said that the low capacity highlighted the necessity for the consortium to be supported by a reinsurance company, especially from overseas, with a sound equity. This would provide more confidence to insurers here to offer more varied coverage related to terrorism.

However, that should also pose a problem.

"There is a paradox. Knowing that Indonesia is vulnerable to terrorist attacks, they (foreign reinsurance companies) would think twice about providing the back up for insurers here," Hotbonar said.