Deregulation of the financial sector in the late 1980’s led to a drop of premium rates in Indonesia to levels similar to countries without catastrophe risk exposure. Due to excessive competition it became market practice to provide earthquake insurance without charging risk adequate premiums. There was increasing concern whether insurers could meet their obligations towards policyholders in the event of a large earthquake impacting one of the major metropolitan or economically and industrially vital provincial areas.
In response to the above situation and via a succession of administrative and regulatory directives, the government required all licensed general insurance and reinsurance companies operating in Indonesia to cooperate in insuring special risks through a joint undertaking of all companies. The vehicle for this undertaking was the Indonesian Earthquake Reinsurance Pool or Pool Reasuransi Gempa Bumi Indonesia (PRGBI). Participating in the Earthquake Pool was made compulsory for all general insurance and reinsurance companies. The PRGBI began operations from 1st January 2003. At the same time a compulsory earthquake tariff was introduced and endorsed by the government. With effect from 1st January 2004 the PRGBI was transformed into a public liability company, PT. Asuransi MAIPARK Indonesia.
MAIPARK is an abbreviation for Maskapai Asuransi Indonesia (MAI) and Perusahan Asuransi Risiko Khusus (PARK). MAI was the oldest General Insurance Company in Indonesia and its license was purchased by 32 founding shareholders on 23rd December 2003 at a General Shareholder Meeting.
Natural catastrophes cause numerous human lives and significant property damage each year. The scale of economic losses is constantly increasing due to population growth and value concentration of sensitive technology in potentially risk exposed areas.
Despite advances in scientific research, the non-predictability or randomness of natural hazards remains a challenge in particular for earthquakes.
Due to the geographical location of the Indonesian Archipelago the Republic of Indonesia is extremely vulnerable to natural catastrophes such as earthquakes, volcanic eruptions and floods. The earthquake and Tsunami event on 26th December 2004 off the coast of West Sumatra, which was widely covered by the international media, will be a lasting reminder of the destructive forces of nature.
The insurance industry plays an important role in supporting economic growth by diversifying risks and absorbing volatility. Insurers act like an engine for economic recovery after major natural disasters. The objective is to form a community of insured who pay enough premiums to cover the cost of damage caused by a natural catastrophe.
While insurance can not prevent natural catastrophes and loss of lives to occur, it can help people protect against the financial consequences of loss or damage to their homes and business by means of buying earthquakes insurance. While insurances offer earthquake insurance, there is no state requirement that consumer purchase earthquake insurance or that mortgage lenders require it. With the help of reinsurers, both local and international, to whom most catastrophe risk is transferred, the insurance industry and the government reduce their respective financial and fiscal risk exposures.
Besides its function as a reinsurer MAIPARK engages in research support, education of the public about natural disaster, risk mitigation and more stringent and safer construction standards and building codes.