Insurance industry to grow at slower pace

The Jakarta Post ,  Jakarta   |  Tue, 06/27/2006 3:54 PM  |  Business

The Jakarta Post, Jakarta

Analysts predict that the insurance industry will experience lower growth in premium revenue this year due to tighter competition in the insurance market and slower economic growth.

Former chairman of the Indonesian Insurance Council (DAI), Hotbonar Sinaga, said that premium revenue in the general insurance field would increase by less than 10 percent this year and by less than 20 percent in life insurance.

""The revenues from general insurance grew by about 10 percent in each of the last couple of years. In life insurance, they grew by 33 percent in 2004 and 22 percent in 2005,"" he said during a ceremony to mark the release of the 2006 best-insurance-company ratings by monthly banking magazine Infobank.

According to InfoBank, general insurance companies last year booked Rp 14.96 trillion (US$1.60 billion) in premium revenues, 10.83 percent higher than the previous year, while life insurance firms booked Rp 22.28 trillion in premium revenues, up 22.16 percent compared to the previous year.

Sinaga, who is also a lecturer in the University of Indonesia's school of economics, and serves as independent commissioner on the supervisory boards of a number of insurance companies, said that the lower growth in general insurance was the result of the country's overall economic situation, with growth lower-than-expected at about 5-6 percent.

The economy grew by 5.6 percent in 2005. In the first quarter of this year, it expanded by 4.6 percent on-year, the slowest pace since 2004.

""About 70 to 80 percent of general insurance firms focus on the corporate sector, which is facing difficulties due to the slowdown,"" he said.

Furthermore, Sinaga said, the banking sector was still reluctant to lend to the corporate sector.

The director of InfoBank's research section, Eko B. Supriyanto, said that sluggish conditions in the corporate sector had resulted in general insurance firms turning to the retail sector, thus leading to tighter competition for customers.

""They try to attract customers by offering the lowest premiums possible, leading to a price war in the market,"" he said.

According to Sinaga, the customer would benefit most from the price war in the short term, but in the long term the insurance firms could find themselves in trouble due to low premium revenue they were generating.

""Setting a premium level of below 1 percent is suicide; it's not an adequate level. At the very least, the insurance companies should set their levels within a range of 1 to 2 percent,"" he said.

To prevent the danger of collapse in the industry, both Sinaga and Eko suggested that premium levels be standardized by the government.

""The Finance Ministry is preparing a blueprint for the insurance industry, to be called the Indonesian Insurance Architecture blueprint. Hopefully, when put into effect, it will prevent unhealthy competition such as this price war in the insurance industry,"" said Eko.(07).

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