Indonesia has a $14.6 billion gap between existing insurance coverage and the actual amount it would cost the government and businesses to rebuild and recover from major disasters, according to the latest report by Lloyd's and the Center for Economics and Business Research. (Antara Photo/Muhammad Adimaja)
Indonesia Among World's Most Underinsured Countries
OCTOBER 23, 2018
Jakarta. Indonesia has a $14.6 billion gap between existing insurance coverage and the actual amount it would cost the government and businesses to rebuild and recover from major disasters, according to the latest report by global insurance firm Lloyd's and the Center for Economics and Business Research.
The gap, which accounts for 1.4 percent of the country's gross domestic product, puts Indonesia among the most vulnerable countries in the world. In relative terms, Indonesia is the second most underinsured country after Bangladesh, which has a gap of 2.1 percent of GDP.
In absolute terms, Indonesia's insurance gap is smaller than those of China ($76.4 billion) and India ($27 billion). The 2018 Lloyd's Underinsurance Report estimates a global insurance gap of $163 billion, which is 3 percent smaller than in 2012.
"It is concerning that while the global insurance gap is closing, in Asia it is widening at a rapid rate, owing to the increasing threat of natural disasters and the region's economic growth," Iain Ferguson, acting chief executive of Lloyd's Asia Pacific, said in a statement on Monday.
"Developing countries are affected disproportionately by natural disasters and their losses are often compounded by poorly designed and constructed infrastructure, inadequate maintenance, a lack of insurance and delayed recovery," he said.
Lloyd's estimates that losses from natural disasters may reach 0.43 percent of Indonesia's $1 trillion GDP annually, due to its location on the Ring of Fire, a geologically and volcanically active region around the Pacific Ocean.
But Lloyd's noted that Indonesia's relatively low per-capita income of around $3,500 prevents it from investing more in insurance. Only 1.7 percent of the country's population currently owns insurance of some kind, according to the Insurance Council of Indonesia (DAI).
Indonesia is currently dealing with the aftermath of two recent major disasters – a series of major earthquakes that hit Lombok in West Nusa Tenggara in July and August, and a devastating earthquake and tsunami that hit Palu and Donggala in Central Sulawesi at the end of September. The government's latest estimate puts the cost at Rp 12 trillion and Rp 14 trillion ($788 million and $907 million), respectively.
In comparison, the government has only set aside Rp 4 trillion for disaster mitigation this year. To close that gap, the country must depend on $2 billion in loans from the World Bank and the Asian Development Bank, as well as grants from other multinational institutions and friendly countries.
Finance Minister Sri Mulyani Indrawati said earlier that the government was looking at creating or issuing special bonds through the World Bank to act as insurance against natural disasters.