Solution to Failed Insurance Claim Payments

A number of cases concerning the failure of insurers to pay life insurance claims have occurred since the late 1990s.

KOMPAS/LUCKY PRANSISKA

Hotbonar Sinaga

The cases have become a major concern for the regulator because they involved millions of claims worth trillions of rupiah. One of these cases involves the 1912 Bumiputera Life Insurance (AJBB). The main difficulty for mutual insurance companies in fulfilling their obligation to policyholders is the absence of shareholders, even though the company had survived at least six crises since 1912.

A quick, short-term solution to the financial difficulties of insolvent insurance companies is to involve the shareholders. One way to do this is through subordinated loans, by inviting a strategic investor to inject fresh capital to restore the company’s health in the short term (instant solution). The point is that an inflow of funds is necessary to sustain the company through its liquidity problems.