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Intense competition in credit insurance business impedes insurance sector's growth

The insurance industry in Indonesia could develop more rapidly if the unhealthy competition in the credit insurance business line is immediately addressed.

Mr Nurmadi Harsa Sumarta, an economic and business observer and an academic at Sebelas Maret University (UNS) made this comment, saying that cut-throat competition has resulted in lower premium rates and widened the gap between the risks faced and the premium value, according to a report by Antara News Agency.

In 2020, credit insurance business experienced a fairly high surge in claims when the premium income actually decreased. The economic pressure due to the COVID-19 pandemic disrupted the ability of the public to repay loans, thus affecting the credit insurance business line. At present, credit insurance claims still have the potential to grow, considering that the threat of bad credit has not disappeared given that the economy has not fully recovered yet, Mr Nurmadi says. Aggravating the issue is the fact that governance and risk management in the credit insurance line are still inadequate.

Mr Nurmadi said, "Fortunately, the risk can still be minimised through the relaxation of bank credit terms so that debtors are able to meet their obligations to creditors."

He adds that insurers must always study their credit insurance portfolio and calculate the claims ratio. This needs to be done to ensure that the portfolio still provides positive underwriting results.

State-owned insurance group IFG

He gives an example of what the government did by forming the Indonesia Financial Group (IFG) as a holding company of state-owned non-bank financial institutions including insurers. IFG is able to ensure the consolidation and overall transformation of the financial health and sustainability of its subsidiaries, he says.

IFG is tasked with ensuring that all subsidiaries implement good management and governance, as well as avoid competition for market share and price wars, and apply prudential principles in portfolio management.

Mr Nurmadi said, "This includes strengthening the business climate, especially in credit insurance, as has just been done between PT Asuransi Kredit Indonesia (Askrindo), PT Credit Guarantee Indonesia (Jamkrindo), and PT Asuransi Jasa Indonesia (Jasindo)."

The consolidation creates a healthy, sustainable and mutually beneficial credit insurance business for the parties involved.



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