Indonesia’s government has reportedly secured approximately US $770 million of natural disaster insurance coverage for state buildings and assets, as the country begins to implement its plans to transfer some of the financial risk of catastrophes to private insurance and reinsurance markets.
Indonesia has been struck by a number of catastrophes in recent years, including earthquakes and the devastating tsunami that struck the country after the eruption of the Anak Krakatau volcano.
The country is also exposed to flooding, storms and other perils as well, which has led the Indonesian Finance Ministry to engage with global agencies and insurance and reinsurance markets, as it looked for solutions to begin securing disaster risk financing.
These explorations have included looking into the use of catastrophe bonds to transfer peak natural disaster exposures, particularly the countries earthquake exposures, to the capital markets.
But to begin, Indonesia has turned to traditional insurance it seems, reportedly securing coverage amounting to 10.84 trillion rupiah (US $770m) for a range of perils.
Reuters reported that the insurance will protect Indonesian state assets, such as buildings, for natural disaster impacts including earthquake, floods and fires, as well as certain man-made disasters such as damage caused by riots, terrorism and plane crashes.
The Indonesian government has reportedly insured 1,360 buildings owned by its Finance Ministry, valued at the US $770 million.
A panel of 56 insurance and reinsurance companies have backed the disaster insurance arrangement for Indonesia, with the Finance Ministry paying a fixed premium for the coverage (reported as more than 21 billion rupiah, US $1.5m).
The Indonesian government plans to replicate this state asset coverage for other ministries over the next few years, with 10 more expected to insurer their assets and buildings against disasters in 2020, followed by more in the following years.
In addition, as Indonesia builds its new capital city in Borneo’s East Kalimantan province over the coming years the government aims to ensure that new construction is insured against disasters.
A number of local and state backed insurers participated in the consortium that backed the state asset insurance program for the government, as well as some international actors we understand.
It’s encouraging to see the Indonesian state looking to protect its assets against natural disasters and purchasing insurance to ensure it has the finances to assist in rebuilding.
Now, the country could look to catastrophe bonds and parametric triggers to provide additional layers of protection that would pay out rapidly when the really major disasters Indonesia is exposed to strike.