A Lifeboat for Jiwasraya

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  • Jiwasraya's main office in the Harmoni area, Jakarta. TEMPO/Tony Hartawan

    Jiwasraya's main office in the Harmoni area, Jakarta. TEMPO/Tony Hartawan

    TEMPO.CO, JakartaThe government injected Rp22 trillion into Jiwasraya by establishing a new insurance company. This is the best of all the possible schemes.

    THE government has done the right thing in rescuing Jiwasraya. Taking over the resolution of claims from 2.63 million customers shows the state is taking responsibility for the state-owned insurance company's failures to pay out.

    Through the state-owned enterprises (SOEs) ministry, the government has established a new life insurance company, the Indonesian Financial Group (IFG) Life. This company will be under Bahana Pembinaan Usaha Indonesia, a state insurance holding company and underwriter. IFG Life will take over the policies resulting from the restructuring of Jiwasraya, which as of July 31 had claims due for payment totaling Rp18.7 trillion.

    The establishment of IFG Life required capital of Rp24.7 trillion, comprising Rp24.2 trillion to cover Jiwasraya's equity gap and Rp510 billion for corporate operational preparations. The government, as sole shareholder in Jiwasraya, and Bahana has therefore injected Rp22 trillion of state equity participation into Bahana.

    This capital injection will be recorded as a government asset in Bahana, which is also the parent company of Asuransi Jasa Raharja, Asuransi Jasa Indonesia, Asuransi Kredit Indonesia (Askrindo) and Jaminan Kredit Indonesia (Jamkrindo). The term used is "bail-in." IFG Life will operate like other insurance companies by seeking clients, investing in the capital markets and so on.

    The bail-in is the most sensible option compared to the other schemes, including a bailout. With its liquidity problems and loans due for repayment, it is almost certain that Jiwasraya would have used a government capital injection to pay off clients' claims. Eventually, the capital would all be gone, and the state would lose out.

    Moreover, the SOEs ministry also once asked Bank Tabungan Negara, Kereta Api Indonesia, Pegadaian, and Telekomunikasi Selular to contribute to the recapitalization of Jiwasraya Putra, a Jiwasraya subsidiary. This is an example of an unhealthy economic practice with the potential to cause losses for those four state-owned companies. There was also the option of confiscating assets, including Cilandak Town Square in South Jakarta. However, this mechanism also needs a protracted process to assess the quality and size, while the outstanding Jiwasraya claims continue to rise by Rp350 billion per month.

    Like a ship about to sink, with this option, Jiwasraya's customers will be saved by another boat. With this reduction in its debt, Jiwasraya should be able to survive. The SOEs ministry also needs to ensure the insurance company, which has existed since the colonial era, makes improvements to management and achieves its working targets.

    The restructuring will have consequences for customers. They will only see the benefits over the next 15 years or so, and even these will be reduced by up to 40 percent. This is a loss, but that is as much as the government can do. Without a 40 percent reduction in benefits, Jiwasraya's equity gap would be Rp50.9 trillion, rather than Rp24.2 trillion. The most important job the IFG Life management has in the future is to convince clients, 90 percent of who are retired, to stay in the lifeboat.

    The transfer of clients must be accompanied by law enforcement. Jiwasraya's failure to pay out is the result of the mistake made by management in investing in the JS Saving Plan bancassurance policy. The Corruption Court has handed down life sentences to Hendrisman Rahim, Harry Prasetyo, and Syahmirwan -- respectively the former managing director, finance director, and head of the investment division. There are other suspects outside the management that have not being tried for health reasons.

    Finally, there is still another time bomb in the insurance industry, namely Asuransi Jiwa Bersama Bumiputera. Like Jiwasraya, 3 million policyholders have been left in limbo for four years as a result of corporate financial problems. The hard work by the government to restore public trust in the insurance industry will all be for nothing if the Bumiputera problems cannot be resolved.

    Read the Complete Story in Tempo English Magazine