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Credit insurance industry under scrutiny as default claims rise fast
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Indonesian credit insurance firms are under scrutiny after a government watchdog found competition in the industry to be unhealthy at a time when lenders are filing more claims on loan defaults. (Shutterstock/thodonal88)
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ndonesian credit insurance firms are under scrutiny after a government watchdog found competition in the industry to be unhealthy at a time when lenders are filing more claims on loan defaults.
Credit insurance helps banks mitigate risks from loans they issue to borrowers, such as by providing guarantees on loans in default or by protecting borrowers’ ability to make repayments, which in turn helps safeguard the overall financial system.
The Financial Services Authority (OJK) announced in a press briefing on Jan. 2 that it had found that credit insurance firms had been charging policyholders very low premiums, to the point that their competition resembled a price war.
It also found that this had resulted in the growth of loan defaults claims outpacing credit insurance firms’ premium revenue growth, which may jeopardize insurers’ solvency.
Claims on credit insurance grew by more than 83 percent year on year (yoy) in the third quarter of last year, far exceeding the 17 percent yoy rise in premium collection, data from the Indonesian General Insurance Association (AAUI) show.
The latest annual growth rate for claims is almost double the already high figure of 47.7 percent logged in the first quarter.
Experts told The Jakarta Post that this trend could harm the credit insurance industry, possibly rendering insurers unable to meet payment claims.
