Insurance Company VS Other Financial Institutions (In Insurance Claims)

Knowing the different points of view will enrich us in making decisions. The right decision is based on appropriate arguments and explanations and can later be understood by other parties affected (the impact) of the decision.

Decisions that have a material benefit impact on the recipient of the decision will certainly be easier for us to explain the arguments for the decision making than decisions that have an impact "as if" there is a material loss or deficiency as a result of the decision.

In making a life insurance/ reinsurance claim decision, explaining the arguments for the decision to the recipient of the decision is a challenge and an interesting work activity to face, especially in credit life insurance that involves other financial institutions; such as: commercial banks, people's credit banks, leasing (leasing), financing (financing), pawnshops, cooperatives; as a 3rd party who usually becomes or as a policy holder who has an interest in being able to receive insurance claim payments.

Some of the knowledge below describes the background conditions and points of view of life insurance claims in terms of life insurance companies and other financial institutions. 

1. Loss Ratio vs Non Performing Loans

Definition

'Loss Ratio': the ratio of the difference between the premiums paid to the insurance company and the claims settled by the insurance company. Loss ratio is the total loss paid by the insurance company in the form of a claim (The difference between the ratios of premiums paid to an insurance company and the claims settled by the company. Loss ratio is the total losses paid by an insurance company in the form of claims) .

'Non Performing Loan': the amount of money borrowed for which the debtor does not make the scheduled payments for at least 90 days (a sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days).

Judging from the condition of the importance of the Non Performing Loan (NPL), Other Financial Institutions as Creditors or Creditors as 3rd Parties may not want to or participate in disagreeing if there is a rejection of insurance claims. Therefore, if there is a claim rejection, the potential for NPL to occur will be very large and will affect the health level of the Other Financial Institution. Country; in this case, Bank Indonesia limits the allowed NPL value for a bank and will provide 'warning' and even penalties if it exceeds a certain value limit.

Based on Bank Indonesia Regulation No. 15/2 / BPI / 2013 concerning Status Determination and Supervision Follow-up for Conventional Commercial Banks that the Bank will be under intensive supervision if the bank is deemed to have potential difficulties that endanger its business continuity by meeting one of the criteria, among others, is the ratio of non-performing loans. ) which is net more than 5% (five percent) of the total credit.

Insurance companies with high Loss Ratio levels and other financial institutions with high NPL levels, both of which endanger the health of the company. While both can be a cause and effect of either of these, namely Insurance Companies and Other Financial Institutions. 

2. Fresh Money vs Mortgage (collateral) Sale

The source of income that comes from the payment of insurance claims on the credit value of its customers can be said to be fresh money for other financial institutions. Because the insurance claim payment figures already contain the assumed profit value, excluding interest and penalties. Compared to the payment of insurance claims that failed to be paid (or the claim was refused), it is imperative

Other Financial Institutions to immediately sell collateral or “collateral” are certainly a way out. However, unlike claim payments which are fresh money, selling collateral is not easy and takes time. Because of its nature, at a certain time when other financial institutions experience difficulties, the sale of collateral is demanded to be carried out quickly, so that the collateral selling price factor can result in losses because it must be sold cheaper. 

3. Indemnity vs Mortgage (collateral) Under Value

Payment of insurance claims should be based on the amount of the value of the loss suffered or 'indemnity'. Payment of insurance claims can be an 'additional' profit factor if the collateral value is below market value, or in other words, the payment of insurance claims is greater than the value of the collateral owned by the insured customer. 

4. Underwriter vs Credit Analyst

No less important than the various considerations of "acceptance" or business acceptance of insurance companies and other financial institutions are considerations of "risk selection" and "risk management" of an insurance company underwriter and a credit analyst of the company. Underwriters and Credit Analysts must take into account with regard to both sides, namely from the insurance company side of the risk selection (as well as clauses) given to the insured, and from the other financial institution company side of the selection of credit extension for its customers, where the customer and the insured is the same person in the risk class that should be the same. An Underwriter should not look at business acceptance from an insurance perspective alone, nor should a Credit Analyst view business acceptance from the perspective of another financial institution where he works.

In connection with point 3, the Credit Analyst will not provide a loan more than the collateral value, and of course the Underwriter will not give the sum insured more than the loan value as the basis for the insurance risk value.
 
Hopefully this enlightenment can enrich us to be able to provide clear arguments so that we can make the correct decisions.