Mayıs 17, 2022


Convenience and Security at Your Fingertips

Increasing Premium Rate on Car Insurance – The Recent Indonesian Market

In the end of June, 2007, the Indonesian Ministry of Finance commenced new implementation of pure premium rate for car insurance business. With the Finance Ministerial Regulation No.74/PMK 010/2007, all of Indonesian general insurance companies will be required to fulfill the minimum requirement of pure premium based on the risk profile for last 5 (five) years.

From the table shown*, the pure premium for comprehensive cover varies from 1.19% to 2.18%, and for total loss cover started from 0.56% to 0.74%. As reportedly said by Head of Insurance Bureau in several press conferences, insurers which fail to fulfill the minimum requirements will be sanction from just written reminder up to revoke their licence. This new establishment has caused several small insurance companies were worried about losing their business because can not compete with big players.

The recent stipulation above is established by Indonesian insurance regulator based on actual market condition for many years ago that car insurance business was tend to become a not-fair competition. This fact in the future time will dangerous not only for the quality services to policy holders but also the financial health of insurance companies. For example, commission percentage for intermediaries such banks, leasings or brokers can exceed 50% from gross premium paid out by policy holders. It means that the nett premium for technical reserve is very little. For a long period, this condition surely will not be a good indicator in insurance business.

The Indonesian Insurance & Reinsurance Broking Association gives another view about this new regulation. The government must re-arranges the approval business licences for companies or institutions that is not as main part of insurance industry structures which also plays in insurance business. As an example, there is a difference of premium rate carried out by bank or leasing companies. The difference can varies from 50% to 70%. They propose a problem solving that for stipulation of motor vehicle premium rate will be better given to the market mechanism. The government in this field just plays as supervisory board to ensure that premium rate charged to policy holder has been sufficient and meet prudent underwriting principles.

Finally, we hope that new regulation above will help Indonesian insurance business to quit from difficult condition and insurance companies should take an action to strengthen their business through consistently fair implementation. If companies can fulfill this regulation, the better business environment will be created and more valuable benefit will be taken by all of the parties involved.