Thursday, July 17, 2008
Government Prepares Insurance Scheme for Disasters
Source: The Jakarta Post

The government is preparing a public-private partnership with local insurance firms to help reduce state budget liabilities for damage to infrastructure caused by natural disasters.

National Disaster Management Agency (BNPB) deputy chief, Sugeng Triutomo, said the government aimed to get the regions, particularly those prone to disasters, to insure their risks.

"We will insure a whole city, for example, so when an earthquake happens, we do not have to cover entire sudden huge financial expenses from the government budget," Sugeng said.

Payment for insurance premiums will be divided between central and regional governments, he said.

Indonesia is an archipelagic country prone to earthquakes and tsunamis, as it lies on the Pacific ring of fire. BNPB recorded 22 earthquakes last year.

The state spent more than Rp 10 trillion (US$1.1 billion) last year on earthquake recovery and has allocated Rp 9.4 trillion in the budget for this year and Rp 2.3 trillion for next year.

Around 78 percent of this year's disaster budget went to the rebuilding of Nangroe Aceh Darussalam and Nias Island following the 2004 tsunami and for Yogyakarta and Central Java after the 2006 earthquake. About 11 percent of the budget is for early warning systems and other mitigation measures.

Head of the insurance bureau at the Finance Ministry, Isa Rachmatarwata, said his office was looking at the inclusion of insurance premium payments in the state budget.

However, he questioned the capacity of local insurance firms to bear such risks and urged them to improve their credentials to win tenders, should the initiative go through.

"We really want to work with local companies. But we want to be sure that should any disaster happen they are ready and able to pay out the damages. Otherwise, do not blame the government if the tenders are won by foreign companies," Isa said.

He said in one to two years time, the government would create guidelines on how insurance firms should set their premiums.

"Premium charges will be based on statistical data and risk profiles, rather than on intuition, or the current charges from reinsurance companies.

"If they cannot convince us with their risk mitigation and business models, then we will impose the schemes upon them," Isa said.

Frans Y. Sahusilawane, the president director of PT Asuransi Maipark Indonesia, admitted many companies were charging low premiums to beat their competitors, without having sufficient provision for payments and reinsurance.

He was confident local companies would be able to cover the huge scale of the insurance coverage needed.

Maipark is preparing a national earthquakes catalog and maps to help determine the risk profile in all provinces, so that insurance firms could set premiums in relation to risks, he said.