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Auto insurance for a very old vehicle |
The Rising Nature of Premium Rate on Car Insurance - The Current Indonesian Market The latter part of June 2007 witnessed the Indonesian finance government department promulgating into law untainted premium tariffs for the auto insurance sector. With the finance ministerial directive No.74/PMK 010/2007, all broad-spectrum insurance businesses operating within the territory of Indonesia will from that day on which that law came into force be required to carry out the bare minimum obligation of clean insurance premium on the foundation on the risk report calculated for last five years. According to the table for the clean premium, there is an assortment for the clean premium for an all-inclusive cover ranging from 1.19% to 0.74%. In addition, the premium for an entire loss cover will rise and fall from 0.56% to 0.74 %. This provision must be strictly adhered to by all those involved in the insurance business. There is a further sanction for businesses that fall short to meeting this minimum requirement with severity of the penalty ranging from simple reprimand to absolute withdrawal of their certificates of authorization to carry out business. This standpoint has been recognized and reiterated by the head of government department in a number of press consultations. This innovative line of attack has aroused a feeling of worry among undersized insurance businesses that apprehend giving up their business to big companies though stiff competition. They consider this unfair competition. The above directive set up by the Indonesian finance government department was founded on the basis of actual and existing market situation for the reason that for many years, the car insurance business has had unfair competition. It has been predicted that with the passing of time, this governmental decision will prove perilous to policy holders, as well as unfavorable to the financial continuation of insurance companies. For example, if the amount privileged to as commission to banks, leasing companies and brokers go further than fifty percent out of the total premium paid out by policy holders, the major insurance will be left with very little as reserve for compensation to its clients. Subsequently, this will be a pessimistic market pointer for any insurance business that seeks expansion. The Indonesian Insurance & Reinsurance Broking Association provides for an opposing scrutiny on the subject of this latest ruling. It believes and maintains that for a healthy business environment, the government must reconstitute the approval of business licenses for companies or institutions that are not fully caught up in the insurance business, but do carry out some business which relate to insurance. For example, there should be a distinction stuck between the premium rates of leasing companies and those of banks. Maybe their differences can range from 50% to 70%. They put forward that the requirement for an auto premium rate should be measured taking into consideration the existing market forces. The government should play nothing more than the role of an ombudsman to ensure that the acceptable premium rates are being charged to policy holders taking into consideration existing financial values. It is thought that this new law will be of help to existing and prospective insurance businesses that really want to move out of complex situations and that think fair competition should be a prime motive for any business. |
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