AJB Bumiputera Under Stress

It was supposed to be business as usual for an insurer that has been in the market for more than a century, consumers thought, but to their surprise the company is, in fact, in critical condition.

Housewife and freelancer Arie, who wishes to be identified only by her nickname, just learned that her family’s life insurer AJB Bumiputera 1912 is currently under close supervision by the Financial Services Authority (OJK) over allegations that the value of its claims are higher than the value of its assets.

Since Oct. 24, the financial authority has replaced the insurer’s boards of directors and commissioners and imposed a statutory management consisting of seven people who are responsible for all strategic decisions.

Bearing that in mind, 32-year-old Arie, who owns two life insurance policies for her parents-in-law and one education insurance policy for her child through Bumiputera, is preparing for the worst. She can only wish that customers will get fair protection in spite of any possible misconduct.

“Given the situation, I probably will withdraw the funds because insurance policies are not guaranteed like bank savings,” the Jakarta resident said. “I prefer to withdraw them soon instead of getting busy making claims here and there.”

The concerns raised by Arie are also shared by industry players and experts and regulators, who regard the Bumiputera case as a reminder for the overall insurance sector to better safeguard its customers for times of financial shocks.

Bumiputera, known as an Indonesian specialist in insurance with one of the biggest networks across the whole archipelago, currently has 6.5 million customers.

“The OJK ensures that Bumiputera’s obligations to its customers will be well fulfilled,” said Adhi M. Massardi, one of the financial authority’s statutory officials who is reviewing a planned takeover of Bumiputera’s business by a prospective investor.

(JP/File)

Business tycoon and media mogul Erick Thohir has expressed interest in injecting funds into Bumiputera through publicly listed investment and textile company Evergreen Invesco, Adhi added in a sign that the OJK may rule out closing down the country’s oldest insurer.

Evergreen, which has a market value of Rp 1.3 trillion, plans to issue rights shares to raise Rp 10 trillion and repay Rp 23.5 trillion in debts for its newly acquired Bumiputera Sembilan Belas Dua Belas ( B1912 ), a subsidiary of Bumiputera.

A domestic life insurance industry group said the country’s insurance law has already outlined an insurance guarantee institution, namely the Policy Holder Insurance Corporation (LPPP), to protect insurance policy holders.

However, a government regulation that is supposed to regulate the establishment of the LPPP has yet to be issued by the Finance Ministry, said Indonesian Life Insurance Association (AAJI) executive director Togar Pasaribu, expecting the rule to be issued in October next year.

“If claim-related disputes occur, there is also the Indonesia Insurance Mediation Body or BMAI. If the insurer is bankrupt, there are appointed curators,” said Togar, referring to a situation during which the LPPP is absent.

However, some experts deem the measures to not be enough to protect policy holders.

In the event of financial trouble, there is always a possibility that the bankrupt company does not have sufficient assets to pay its debts, including to its policy holders, as in the case of an insurance company, business law expert Frans Hendra Winata said.

“If the value of assets is not enough, the firm will pay with what it has, except if the court or debtors find other unsold assets that can be further liquefied,” he said.

An insurance expert and the head of the Insurance and Risk Management Institute, Hotbonar Sinaga, expressed a similar view, urging the government to as soon as possible issue the LPPP regulation to protect insurance policy holders.

“The establishment of a policy guarantee scheme will encourage the country’s insurance industry so that more people will get insured,” he wrote in a note.

In 2013, during the aftermath of the 2008 financial crisis, Bakrie Life, an insurer owned by the politically wired Bakrie Group, failed to pay claims worth more than Rp 200 billion to approximately 200 customers.

No settlement has been made between the life insurer and its customers until today, although it has offered shares in its affiliated company, investment firm Bakrie and Brothers, as compensation – an offer rejected by the customers.