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Flood-related claims to be lower than last year: Fitch
Global ratings agency Fitch Ratings says that the January floods will not hit insurance companies as severely as last year, when non-life insurers had to foot over half a trillion rupiah to cover losses from the disaster
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lobal ratings agency Fitch Ratings says that the January floods will not hit insurance companies as severely as last year, when non-life insurers had to foot over half a trillion rupiah to cover losses from the disaster.
Instead, Fitch said in a statement published Monday, that insurers could accumulate long-term benefits from the country's recent tariff regulation, which was 'positive for the stability and improvement of non-life underwriting margins, and which could sustain a healthier bottom-line performance'.
Fitch said that the total insured loss born by insurance firms was almost certain to be below last year's Rp 638 billion (US$52.5 million), given that the floods remain manageable until the end of the rainy season in March.
It added that preliminary estimates suggested that budgeted flood-related claims would unlikely reach Rp 1.5 trillion, just half of last year.
Lower claims, Fitch said, were because this year's floods were concentrated in suburban areas with relatively low insurance coverage ' albeit covering about the same land area, or about 30 percent of Jakarta.
In contrast, floods in commercial districts in 2013 affected those with higher insurance coverage.
It added that another credit buffer was due to the coverage from reinsurance activity.
'Industry statistics reveal that around 50 percent of the non-life industry's total gross premiums in 2012 were being ceded. Most of this is to foreign reinsurers and retrocessionaires, as the low capital base of domestic reinsurers prompts reliance on overseas retrocessions,' the statement read.
PT Asuransi Sinar Mas director I Ketut P. Swastika said he agreed that this year's flood loss would not be as high as last year. He, however, said complete flood claims in January had yet to be processed.
According to Sinar Mas' first quarter financial report last year, the company's January-March underwriting costs comprised Rp 278.4 billion.
Lastly, Fitch said, flood risks are not automatically included in many vehicle and property insurance policies in Indonesia, lowering the full scope of potential claims, albeit weighing development of the infant industry.
It added that, overall, insurance coverage remains at a budding stage, with penetration at just under 2 percent of Indonesia's gross domestic product (GDP).
The recent implementation of insurance tariff regulations will sustain healthier competition as well as bottom-line performance.
The Financial Services Authority (OJK) introduced a new insurance rule late last month to regulate premium rates for the protection of property and motor vehicles against natural disasters and to curb unfair competition in the country's general insurance market.
'The non-life sector reflects a developing and highly competitive market with a tendency for price-cutting. More than 80 non-life insurers compete for a slice, leading to prices being discounted up to 50 percent.'
Fitch said that the introduction of the regulation could reduce rampant underpricing as well as prevent
overpricing, further creating a balance between prices charged and risks taken by the insurers.
The tariff regulation may result in higher prices for consumers for the same amount of coverage, but will likely restrain sustained growth in product demand with low insurance penetration alongside favorable economic prospects characterized by growing middle-class, Fitch said.
