The Financial Services Authority (OJK) will establish an insurance rating and statistics agency to determine the premium benchmark for the industry.

OJK commissioner Firdaus Djaelnai said in Jakarta on Tuesday that the premiums offered by both general and life insurance companies were often too low due to the lack of a price benchmark for the industry.

In a meeting between the OJK and insurance industry representatives held in Jakarta on Tuesday, OJK commissioner Firdaus Djaelani said the premiums were often set too low in both the general and life insurance sectors.

'Tight competition will also lead to underpricing,' he said during a meeting between the OJK and representatives of the country's insurance companies.

The new agency, expected to begin operations in 2014 at the latest, will be assigned to regularly collect past and current data from all insurance companies. The data will be used to determine the floor and ceiling premium prices and the companies will be required to set their premiums within the range.

The idea to set up the agency was made after the Business Competition Supervisory Commission (KPPU) accused the Association of Indonesian General Insurance Companies (AAUI) in March of being involved in price fixing.

In February, the association introduced a new insurance program for property protection against floods, particularly after Jakarta had suffered from a massive flood a month earlier. According to the KPPU, the program violated Law No. 5/1999 on monopolies because it was formulated and agreed upon by all members of the AAUI, and was also endorsed by the association.

AAUI chairman Kornelius Simanjuntak said the association hoped the agency would, in the early stages of its operations, prioritize the formulation of the premium benchmark for protection against floods and for general property before making a premium standard for personal accident and health protection.

'The current situation is pretty bad in the property sector because there are no clear regulations or guidelines,' he said.

Benny Waworuntu, executive director of the Association of Indonesian Life Insurance Companies (AAJI), said implementation would not be easy since life insurance firms already had their own reporting systems in place.

'The technology of these systems ranges from simple to advanced. It will take time to integrate them all, so the OJK must encourage the firms to invest more in technology,' he said.

Meanwhile, to support its operations, the OJK requested an increase in its 2014 budget ceiling during a meeting with members of the House of Representatives' Commission XI, overseeing finance, on Tuesday.

The OJK estimates that the agency's spending would increase by around half to Rp 2.4 trillion next year, when it takes over banking sector supervision tasks from Bank Indonesia (BI). In 2014, the OJK plans to employ 1,300 new individuals from BI and open 35 branches across Indonesia.

In the meeting, the OJK also announced it utilized around Rp 200 billion, or 12.2 percent of its 2013 budget, in the first half of the year.

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