PT Asuransi Jiwasraya – Failure of Investment Risk Management

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Author: Dr. Antonius Alijoyo, ERMCP, CERG

Chairman of Indonesia Risk Management Professional Association (IRMAPA)Chairman of Technical Committee 03-10: Governance, Risk Management, & Compliance – Indonesian National Standardization Agency (BSN).

Reading a lot of media in the past two weeks, the author recorded a lot of news about the case of PT Asuransi Jiwasraya who failed to pay customer claims. The company, which was established during the Dutch colonial era and has about 7 million customers, had to postpone the payment of coverage dues claims from their JS Saving Plan customers worth RP 802 billion.

What exactly is happening, and what learning can be learned for risk management practitioners?

JS Saving Plan contribution products launched 5 years ago by PT Asuransi Jiwasraya are associated with investments. Relative customers pay Rp. 100 million at the beginning and they are able to attract output returns using high percentages after the investment settles one year. In addition, customers also get premium protection for 5 full years.

Thousands of customers participated in the program as a result of insurance insurance obtained by the company soared in a short time. However, JS Saving Plan products caused major problems when the claims began to mature and the company defaulted on claims in October 2018. Allegedly, the default of claims occurs because companies do not get the return on their asset investments as expected. Meanwhile, claims that are due more and more as a result swell to hundreds of billions of Rupiah.

The story of PT Asuransi Jiwasraya was also revealed to the public because the company’s financial statements ‘unaudited’ in 2017 which initially recorded a net profit of Rp. two.4 trillion had to be revised. In this case, the public accounting firm PricewaterhouseCoopers (PwC) revised its audit as a result of which the company’s hygienic profits shrank as Rp. 360 billion only.

PwC’s audit results came out after 3 previous board members, namely President Director Hendrisman Rahim, Finance Director Hary Prasetyo, and Investment & Technology Director De Yong Adrian, resigned at the end of January 2018. The trio has served two terms since 2008.

The current president director of PT Asuransi Jiwasraya, Hexana Tri Sasongko, got a bomb while. He was appointed by OJK in October 2018 to replace Asmawi Syam who has not been until a year leading PT Asuransi Jiwasraya.

During the management transition, facts about the finances of PT Asuransi Jiwasraya have not spread. It wasn’t until Asmawi & Hexana received PwC’s report that the irregularities in the company’s 2017 financial statements began to unfold. The profit that had been approximately Rp 2.five trillion shrank as approximately Rp 360 billion because there was an increase in insurance reserves.

According to Hexana, the change in profits occurred because the old management’s financial portfolio was managed with high risk to receive high output returns. While the company’s large assets do not necessarily promise high profitability. “So he will pump up the risk,” Hexana said.

Hexana nir rejected the findings of BPK and OJK and all the conflicts of PT Asuransi Jiwasraya that were revealed. However, he declined to comment using the reason the matter was in the process of investigative auditing the CPC. “It’s better to wait for the results of the audit,” he said in an interview conducted by Tempo magazine (Tempo, February 17, 2019).

Currently, Hexana is busy arranging jiwasraya home, choosing to concentrate on the future while resolving the feud faced by the company. He replayed the company’s tactics, restructured organic growth by renewing the business model, and improved the transformation of the corporate business to agency. “The company needs fundamental adjustments for the solution to be sustainable,” he said.

What can be picked according to the case above to be a learning for risk management practitioners in Indonesia?

While some views believe that the tempest that hit PT Asuransi Jiwasraya is purely due to investment risk, some other views believe that there is a possibility of fraudulent practices or tidying up bad management in returning high-risk stock investments that then infect the company. In addition, there are also those who believe that PT Asuransi Jiwasraya already has previous strategic problems as a result of investment risks that occur now are an impact based on strategic risks and their outdated feuds.

Apart from some of the views above, it can be seen that the application of risk management at PT Asuransi Jiwasraya has not been effective. Early preventive measures do not occur even though there are indications of high risk based on many sources, including through the previous CPC audit in 2016 and through OJK supervision which has been tightened in the past two years.

Currently, the BPK examination audit is still continuing to ascertain the root cause of the primary problem according to the crisis that occurred at PT Asuransi Jiwasraya and further determination of the status of the case.

Meanwhile, for risk management practitioners, learning can be learned, one of which is: a crisis can exist in an organization if the fatal and strategic risks of the organization were not handled accurately and thoroughly, so that it spread as a conflict and crisis for the company, even causing other risks (e.g., operations, reporting, and investment) which led to become a tempest for the organization earlier.

In addition, this incident can be a warning for life insurance industry players in Indonesia to always be aware of the many risks faced, including investment risks that if once there is a ‘mismatch’ with the company’s claim obligations, can form a crisis, and even disaster for the company.

Therefore, the application of risk management for premium companies can be pieces and needs to be built systematically and integrated until it becomes a healthy corporate culture as a result of risk management becomes effective. This can only be realized if the application of risk management is carried out by the origin of human resources who are competent in the field of risk management and with high integrity.

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