Business in life insurance faces heavy challenge in Indonesia

Business in life insurance is facing heavy challenges in Indonesia with financial problem and difficulty in attracting investors. The root of the problem is decline in interest rate and business uncertainty amid low purchasing power of the people and the fact that insurance is not quite popular in the country.

The rupiah fall lately against the U.S. dollar worsened the condition. The amount of premium and income from investment decline. Total amount of premium was only around 1.25%-166% of the country' Gross Domestic Product (GDP) in the 1997-2001 period. In 2002, premium was Rp 11.3 trillion or an increase of 9.7% from the previous year. In 2003, insurance industry grew by an average of 30% as against 70% in 1997.

The collapse of property business and liquidation of many banks contributed to the difficulties faced by insurance companies as the impact was bad for investment in certain sectors. Fortunately income in interest on deposits helped maintain growth.

The rupiah fall against the dollar caused an increase in costs burdening the business sector including insurance. Meanwhile, limited capital makes it difficult for insurance companies to cover large insurance forcing them to seek reinsurance with foreign partners.

Low economic growth and an increase in unemployment rate further weakened the purchasing power of the people in general. Based on official data, only 16% of the country's population of 215 million hold life insurance polish.

Life insurance companies compete not only among themselves but also against banks and mutual funds because of the absence of clear limits of business areas among the financial companies.

For example, the products of link unit and mutual fund are almost the same with market. The different lies in the regulators. Mutual fund is under the Capital Market Supervisory Body (Bapepam) and link unit is under the Insurance Directorate of the Finance Ministry. In other countries the regulators of the two products is one.

Slow growth

The law No. 2 in 1992 said life insurance companies offer service in meeting risk of death. Therefore, life insurance companies could operate in life insurance, health insurance, accident insurance and found and manage pension fund.

Life insurance offers an alternative for the people to invest. Life insurance generally has a longer term than loss insurance. With longer protection of 5 to 30 years its investment has longer term such as in property, direct participation. Bonds and mortgage loan.

Despite the fact that most life insurance companies are facing liquidity problem, there has been no life insurance company declared bankrupt

or liquidated as the case with many banks. In addition, despite incentive offered by the government for merger no life insurance companies have comply with the call for merger.

Based on data at the Indonesian Insurance Council (DAI), by the end of 2003, the country had 55 life insurance companies including a state-owned company, 33 Indonesian private companies and 21 foreign joint ventures. The companies had around 80,000 agents altogether. Business in life insurance in the country grew sluggishly. The number of companies did not change much from 53 in 1999 including a state-owned company, 40 Indonesian private companies and 12 joint ventures.

In the past five years, the number of joint venture life insurance companies grew to from 12 to 21 units. On the contrary the number of Indonesian private companies declined from 40 to 33. The decline was likely caused by financial difficulty to resume business. Some of them were taken over by foreign investors.

Performance declines:--Business restriction imposed on some companies

The vulnerability of life insurance industry is indicated by the growing number of companies included in the list of Business Activity Restriction from year to year. The restriction was imposed on companies having a Risk Based Capital (RBC) of less than 100% as set by the finance ministry in 2003. The minimum RBC was raised to 120 in 2004.

Sufficient amount of capital is needed to cover risks of losses as a result of deviation in the management of assets and obligations. Therefore, financially powerful, companies will survive amid the situation such as prevailing at present in the country, but small companies will most likely collapse without additional capital.

Legal uncertainty is also a factor slowing the growth of life insurance companies in the country. For example, the finance ministry allows...

For information on Medical Insurance.

Joint Venture Insurance Companies

There are several joint venture general insurance companies in Indonesia, in affiliation and partnership with reputable European, North American and Japanese insurance firms. When it comes to choosing an insurance company, the issue is usually trust - and who you feel comfortable dealing with. So a trusted company from your home country with familiar policy structures and claims procedures may be easier to deal with. Some Joint venture general insurance companies in Indonesia also offer reliable medical insurance. All of them offer traveler's, homeowners’ and household insurance, personal liability insurance and - , car/motor vehicle (third party, own damage, personal accident driver/passenger) and life insurance - with terms you can understand (wordings of insurance policies in Bahasa Indonesia and in English).

Home Country Insurance

Ask your insurance company in your home country what coverage they offer during your stay overseas, as well as during travel to and from your new posting and on business trips. For example, you may assume that your homeowners policy will cover you no matter where you live, but in actuality, there may be many situations that are not covered by your home country insurance policy during your stay overseas. Also, there are always complications in processing claims, if overseas-based companies have no one to investigate locally.

Regardless of possible insurance coverages in your home country we advise you to locally purchase insurance protections for your property (if you own it), your household, your car(s), your personal liability and your domestic staff. Whereas for your medical insurance policy in your home country, you might already have sufficient coverage.

Insurance for your employees

If you are working for a multinational firm in Indonesia, you can also ensure protection for your employees - through group policies for health, life and personal accident. Often these medical schemes are good selling points in encouraging competent Indonesian staff to join your firm. These joint venture general insurance firms can also manage an internal insurance scheme, if you'd prefer to keep it all in-house. The government accident insurance scheme, Jamsostek, covers employee accident, death, old age and health care. Portions of the premium are paid by the company and the employee. This scheme is obligatory for companies with more than 10 employees and a payroll of more than Rp 1,000,000/month.

Insurance for household staff

It is customary for expats (as well as Indonesians) to cover the basic medical expenses of their household staff and drivers. Your maids, cook and driver may expect reimbursement of all medical expenses, out-patient and hospital, as well as assistance with maternity. Unlike in the west ... these medical bills are very reasonable as your servants will go to neighborhood practitioners, who don't charge high rates. To ensure that you don't get stuck with high medical bills for a household staff member, it is recommended that you make it a pre-condition of their employment that they pass a medical exam where they would be checked for TB and other communicable diseases. If a staff member you have already hired does have a serious disease that requires long term treatment, it may be better to supply them with medicine and have them return to the village for their recovery period.

Your household staff will probably hope that your generosity will carry over to their children and spouse. While not required, it is quite common that expats assist in paying medical expenses of immediate family members of their household staff, on a case-by-case basis. Some may ask for loans for medical care for extended family members. Again, it's best to approach these requests on an individual case-by-case basis.

Employment with local firms

If you are coming to Indonesia with a local firm, don't assume they will offer the same comprehensive insurance coverage you would receive if working for a multinational company. Expats, in general, have a higher insurance awareness than most Indonesians, and this is reflected in company benefit policies. Many companies cover medical expenses under a reimbursement scheme to cover medical expenses, instead of an insurance policy. This means that all (or a percentage of) medical expenses are directly reimbursed by the company. Some companies set limits for lower-level employees, for example reimbursements up to a set amount per year, or up to the equivalent of one month's gross salary.

Things to look for in an insurance company:

• Company with a long presence in Indonesia and a profitable balance sheet.
• A name you can trust and select among the top 20 insurance companies.
• Customer service in English (or your native language) - it's your right to expect good service
• Length of time to payment of claim (local companies are very slow – mainly due to their different service mentality and their low insurance premium requests – cause them to delay claims payments allowing them to compensate their low premium income with some investment income))
• Is the insurance coverage worldwide or local
• Does your coverage include special riot provisions
• Does your coverage include acts of nature such as floods, volcanic eruptions, and earthquakes (very important in Indonesia)
• Be sure the agent or broker you deal with is used to dealing with the expectations of expatriates
• Check out the websites and the possibility to purchase the insurance product on line or directly from the insurance company without an intermediary.

Of particular note in these uncertain times, be sure that your insurance has special riot provisions. Since the May 1998 riots in Jakarta, there is an increased awareness of the need for less ambiguous clauses in policies to guard against riot-related claim/payment disputes. Floods are VERY common in Jakarta and earthquakes are common throughout Indonesia, be certain that these acts of nature are adequately covered.

Insurance policies can be written in rupiah or dollar and premiums charged accordingly. If the potential expenses for your coverage are dollar-related (possible overseas medical care, replacement of imported auto parts) you may want to consider the merits of a dollar policy versus a limited policy which reimburses in rupiah.

Crimes against expatriates

Don't assume that because you are an expat you are somehow exempt from the current political turmoil and unrest in Indonesia. While expats are not targeted per se - we are, in general, conceived of as being wealthy. Most criminal elements are afraid to steal from expats (they're afraid you have some kind of special clout). Persistent rumors that the police deal very harshly with thieves who target expats also helps to deter crimes against expats. One of the most common crimes against expats is household robberies which are usually perpetrated by a seriously disgruntled ex-household staff member. Seldom are things recovered that have been stolen due to the lack of investigating capabilities of the police. So, sentimental items, ones you can't bear to lose, are best left in your home country.

Foreign installations, factories, mines and plants, are under increasing pressure due to the new regionalization of power and authority in the country. Decades of perceived injustice, where multinationals collaborated with the powers that be in Jakarta (the former president's family and his cronies) to extract the wealth from the provinces, has led in the last year to increasing cases of vandalism and destruction of foreign property. Companies should insure adequate coverage in these cases.

Car Insurance

While car insurance is not required in Indonesia, the bank requires insurance if a car is financed. With the high prices of cars in Indonesia, this moving asset is exposed to unpredictable traffic, reckless drivers, flood, theft, and such petty theft as lifting of rear view mirrors and hubcaps. Indonesian drivers have also been known to duplicate car keys, which are later given to thieves to steal the car. Make sure you know exactly what your coverage would be in this instance. Stolen cars are seldom recovered; they are cut up for spare parts or the license plate is changed or they are quickly shipped to the provinces. In the few rare instances in which a stolen car is recovered, they are usually in terrible shape.

To guard against theft - it is best to hire a driver that comes highly recommended by someone who has employed him for a significant period of time.

In case of an car accident, your insurance company chooses the repair shop that you must use. It would be best to find out which repair shop they use in case of an accident, as untrained repairmen can do significant damage to your car.

If you are not fluent in Bahasa Indonesia, we suggest you use caution in making the decision to drive your own car in Indonesia. Because, in case of an accident foreigners will most likely be “declared” as the guilty party regardless of the fact that the foreigner might be liable for the accident. If you have a driver, please let the driver handle the case at the scene of the accident.

Please carefully choose your insurance company for your car insurance (third party liability, own damage and personal accident of driver/passengers) and the price should not be your only priority. Be aware that you will find a number of low premium providers and the value of such products will only be discovered after your claim.

Personal liability insurance

This coverage is a must for expatriates living in Indonesia. Please check your policy in your home country, whether or not it includes worldwide coverage, which gives you some comfort in case of a legal dispute while you are traveling. Despite your worldwide coverage, we recommend you purchase a personal liability policy in Indonesia with a joint venture insurance company. Because the judicial system in Indonesia is a nightmare for foreigners, you are well advised to delegate this job to a capable insurance company, which will either compensate you for the claim or dispute it on your behalf.

Investment Products

The extra income you make as an expat working overseas can also be invested in an insurance scheme/product in which you can save for your kids' education or your retirement. While the changes involved in moving to Indonesia bring a lot of uncertainty to your life, it's just as important to protect your achievements and your assets in Indonesia as it is in your home country.

Term Life Insurances

People think of an insurance to save themselves from aftermath of certain untoward circumstances like thefts, accidents, natural calamities and even death. It becomes therefore important to think of your loved ones after you. They might be put through a financially rough phase should something happen to you. Death is inevitable but you can play it safe and secure yourself and quoting insurance services thereby reducing the damage which could be done to your family after you.

A term life insurance as the name rightly suggests is a fixed term of coverage agreed upon by the insurance provider and the insured. a term life insurance is a pure death benefit wherein the benefits are paid out to the beneficiary should the insured die during the policy term. it imposes no cash value on its takers.

A term life insurance is broadly classified into two-Annual Renewable Term- here the premium is paid annually once for a one year coverage. However if the policy holder decides to extend the policy he has to agree to pay the appreciating save money on insurance premium each year.

Level Term Life Insurance the premium here would the same for all the years in the contract. Level term can be purchased for 1, 5, 10 or 20 yrs or even longer.

A term life insurance works like any other online insurance policy. The only difference here is that this is for a fixed period of time, a permanent or whole life insurance. however you can convert the term life into a whole life insurance policy by extending the policy and paying the flexible rate of premium. Usually people go for life insurance policies so as to secure their children’s future or to financially secure their loved ones should something happen to the insured in the due course.

In a term life insurance the most important factor to consider would be the duration of the contract. For e.g. if you know you are suffering from a terminal illness you could choose the period accordingly. Renewable option with this plan gives you more flexibility in terms of maintaining the duration of contract. So by the end of the contract upon qualifying events you get a guaranteed amount of capital which you can leave behind for your loved ones.

A cost of a term life insurances increase as the policy ages, so the wiser option here would be to choose a fixed term, and if you feel your needs show a decreasing trend over the policy term, you can terminate the contract early or renew the policy if need be. Now, after understanding the way the online insurance policy functions it gets easier for you to decide on what kind of insurance plan would best suit you.

Remember term life insurance works almost on the same grounds as like other life insurance policies. The concern here is how well have you understood the meaning of it and the way it functions, post which you could take a step ahead and protect yourself with the best in the market.

Bancassurance Product Provides Solution for Customers’ Financial Needs

PT Sun Life Financial Indonesia sees the potential for significant growth in the bancassurance business in the upcoming years. The bancassurance market is predicted to grow 30 percent per year. Not only banks with asset above Rp 10 trillion, but banks with asset between Rp 1 trillion to Rp 10 trillion see the potential for bancassurance to increase their fee-based income. The 40 million to 45 million bank customers in Indonesia provides the bancassurance business with a huge potential market .

Insurance penetration in Indonesia has reached 0.8 percent of total premiums compared to the 2006 Gross Domestic Product. In other countries such as Malaysia, Singapore, and Thailand, insurance penetration is much higher, reaching 3.2 percent, 5.4 percent, and 1.9 percent respectively. One of the main factors supporting insurance premiums in 2007 is the expanded bancassurance penetration, complemented by public awareness of insurance and increases in the working population needing life insurance protection. This was noted by PT Sun Life Financial Indonesia President Director Barry Halpern at the bancassurance seminar “Maximize Customers’ Choice – Wealth and Protection”.

“Currently, the life insurance products offered through bancassurance are education insurance, term insurance, hospitalization, and unit-linked. For Sun Life Financial Indonesia, bancassurance is a prospective distribution channel to increase premium income and people’s awareness of the importance of life insurance,” continued Barry.

Sun Life Financial Asia Vice President Business Development Lingde Hong in his presentation Consumers Driving Product Innovation explained that each individual has different protection and investment needs for each of their life stage. The high demand from bank customers for financial products on protection and wealth management has encouraged insurance companies and banks to synergize and develop innovative products based on customers’ financial needs and objectives. “Risk of living too long or dying too soon are two important things that customers should note when choosing the right life insurance products to fulfill their protection and investment needs,” said Lingde.

Sun Life Financial Indonesia has been aggressively expanding its non-agency distribution channels through bancassurance. In less than two years, Sun Life Financial Indonesia has partnered Standard Chartered Bank, Bank Central Asia, Bank Negara Indonesia, Citibank and GE Money. The bancassurance seminar held today by Sun Life Financial Indonesia is to foster the further expansion of its bancassurance distribution channel as one of company’s premium income contributors, ensuring Sun Life a spot amongst the top five life insurance companies in Indonesia.