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nsurance companies have dropped their newly-introduced premium rates for property protection against flood following a complaint from the Business Competition Supervisory Commission (KPPU) which said the scheme breached the monopoly law.

The Association of Indonesian General Insurance Companies (AAUI) introduced the scheme in February in anticipation of growing demand for property insurance '€” mainly against floods '€” particularly after the capital city was heavily inundated last January.

According to KPPU spokesman Ahmad Junaidi, the scheme violates Law No. 5/1999 on Monopolies since the rates were formulated and agreed upon by all the members of the AAUI, and were endorsed by the association. '€œThose were indications of price-fixing,'€ he said during a telephone interview.

The KPPU argued that the Financial Services Authority (OJK) as financial regulator should be the legitimate institution to issue the scheme, not the AAUI. '€œIf the OJK seeks input from the AAUI in formulating the scheme, that would be fine,'€ Junaidi said, adding that the commission welcomed the AAUI'€™s annulment decision.

Under the scheme, properties were not divided into industrial, commercial or residential buildings. Instead, it divided properties into three categories depending on the scale of risk: low, moderate and high. Each category would determine the size of premium.

The new rates were supposed to be effective starting from March 14. Soon after the release of the scheme, however, the insurance association was summoned by the antimonopoly body. '€œWe told the commission that the new scheme was needed because the old one could not cover all the claims caused by flooding and we cannot use money generated from other premiums,'€ AAUI chairman Kornelius Simanjuntak said.

Firdaus Djaelani, an OJK commissioner who was present at the February introduction, said the scheme was needed to cope with the possibility of surging demands for protection against flooding. Now that the AAUI'€™s scheme has been annulled, the OJK is expected to come up with a replacement.

Based on the now defunct scheme, low-risk zones comprised areas which had never been flooded or areas that had been flooded up to a depth of 30 centimeters, such as Rawamangun in Pulogadung, East Jakarta. The second, moderate-risk zones, would cover areas that were flooded to a depth between 30 centimeters and 60 centimeters. One such location is Pal Meriam in Matraman, East Jakarta.

Meanwhile, the high-risk zones would comprise areas in which past floodwater levels had exceeded 60 centimeters. Locations in these high-risk zones include Pluit in Penjaringan, North Jakarta, and Cipinang Cempedak in Jatinegara, East Jakarta.

Kornelius warned that if the country suffered from massive floods before a new scheme was set, AAUI members might apply their own rates to cover the claims. '€œThe worst-case scenario is that they refuse to cover claims. As I have stated, current rates are no longer adequate compared to the risks,'€ he said.

The association is still gathering data on losses from January'€™s massive floods. It estimates that its members will have to pay claims worth Rp 3 trillion (US$308.77 million), higher than those paid in 2007 and 2002, years when major floods also hit Jakarta.

Based on AAUI data, insurance companies paid a total of Rp 2.01 trillion in flood-related claims in 2007. The figure comprised Rp 2 trillion in property claims and Rp 15 billion in vehicle claims.