Terror-risk insurance still costly

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.