Insurer Bottom Of Food Chain

The Indonesian insurance industry will continue to stagnate, if it still has low bargaining power when dealing with other financial entities, especially banks and financing institutions, according to state-owned insurer Jasa Raharja. The picture now is that insurance currently places at the lowest level in the food chain.

Other financial institutions, like banks, transfer risk to the insurance sector but on terms and conditions that sometimes do not benefit the insurance company. The transfer of risk is also unequal, for example, when setting the criteria for what constitutes bad credit and determining claims to be paid out on such credit. Banks and insurance clearly need each other. But because insurers' bargaining position is weak, some of them tend to bend to the will of banks.

The situation is exacerbated by some insurance companies that are more “obedient” because their key performance is still focused on premium income or volume rather than the quality of business. This also has an impact on the increasing number of individuals who carry out business activities recklessly.

The weak bargaining position of insurers might be improved with the implementation of Financial Accounting Standard PSAK 74 which is based on the International Financial Accounting Standard (IFRS) 17. Insurers will no longer chase premiums alone because a portion of the premiums would not be categorized as income. The focus will be shifted to underwriting.