Jakarta (ANTARA) – In order to build conduciveness and a healthy insurance industry climate in the credit service insurance business sector (AJK), insurance industry players are urged not to get caught up in a tariff war, but compete in presenting innovative and value-added services.

This is because the high demands of the banking industry on the insurance industry in terms of premium prices in the AJK business are considered to be a key factor causing the fierce AJK tariff war among insurance industry players. This has resulted in the creation of an unhealthy AJK business climate for the past five years.

This was stated by Life Reinsurance Underwriting & Customer Experience Management Division Head Indonesia Re, Radix Yunant at the Indonesia Re Life: Reviewing Indonesian's Credit Life (Re) Insurance event in Jakarta, Thursday.

"At least the last 3.5 years, this has become a quite worrying trend. Banks can conduct a beauty contest and use more than one insurance company that offers AJK premiums with the most competitive prices and loose conditions. This is what ultimately triggers a tariff war. "said Radix when met in between the event.

The Financial Services Authority (OJK) defines AJK as a product of cooperation between banks and insurance companies that provides benefits in the form of repayment of loans to banks if a debtor passes away. Generally, AJK's products include mortgage loans (KPR), vehicle loans, and people's business loans (KUR).
 
With a single premium scheme, aka direct payments by banks, AJK has become the most effective insurance product in helping to achieve sales targets, compared to other insurance products. Moreover, with the rapid growth of infrastructure / property and vehicle ownership in Indonesia, it has increasingly triggered insurance industry players to offer competitive AJK portfolios.
 
"Unfortunately, banks often only take the cheapest ones or have loose provisions, not ones with innovation and added value," added Radix.
 
The fierce tariff war in the AJK business also has a significant impact on reinsurance claims that cover AJK. Indonesia Re noted that the high AJK reinsurance claims resulted in the erosion of the profit of the life reinsurance portfolio where the AJK product is under. 
 
Through this event, Radix continued, his party strives to build understanding among insurance industry players to compete in a healthier manner, which is by competing to offer innovative services, not just reducing premium prices as cheaply as possible.
 
"We would like to convey this message, especially to insurance companies that are willing to or are just entering the AJK business, which usually offer lower prices than the average market price, which in turn disrupts market conductivity," he added.
 
As a National Reinsurance Company (PRN), Indonesia Re has designed various steps so that this problem does not continue to overshadow the national insurance industry in the future.
 
Head of Actuarial & Life Portfolio Management Division of Indonesia Re, Nico Demus said that his party is currently developing a platform for constructive dialogue with stakeholders, from OJK, banking, associations, to insurance industry players.
 
"In addition, Indonesia Re has a plan to create a special mortality table for AJK, which includes AJK KPR, Auto Loan, etc., which will involve OJK, AAJI and PAI. Hopefully this table can be a reference in pricing AJK products, thus minimizing tariff war, "he said.
 
When met on the same occasion, Head of Underwriting and Policy Owner Service Heksa Solution Insurance Albine Pardede said, as an insurance industry player, Indonesia Re as a representative of the reinsurance industry can bridge the dialogue between the insurance industry and banking.
 
"But the most important thing is to pay attention to the adequacy of the premium, and the upper limit and the lower limit, so that insurance companies in the future can perform a more sustainable business," he concluded.