Riskonomics

May 1998 Jakarta Riot: 24 Years Ago Today

Twenty four years ago today. 14 May 1998.

I was into my 7th month in the (re)insurance industry. Just completed 6-month class-room Management Trainee/Graduate program at ReINDO (now Indonesia Re) and was assigned as Property Facultative Underwriting Assistant. As single young man, I rented a room in the house of Oma Couba Pelupessy, a cheerful Dutch-Ambonese descent 83-year-old grandma, behind Bank BCA Matraman Branch, 4 minutes walk to Indonesia Re office at Jalan Salemba Raya no. 30, Central Jakarta.

Jakarta security had been deteriorating since end of 1997 when Indonesia was already in deep economic crisis. It’s getting worse from early May 1998 when violents had broken out in many parts of the country. Riot in Solo, Central Java, 5-7 May perhaps one of the worst at that point in time. The situation escalated swiftly and reached its peak when Jakarta riot broke out on 13-15 May 1998.

Business had been closed since Monday, 11 May, as the situation was getting out of control. On Thursday morning 14th, I was lazily got up from my bed when heard some noises and even gun shots. I rushed to Jalan Matraman Raya and saw thousands of people rallying toward Pasar Senen. I guessed they were heading to Istana Merdeka, the Presidential Palace in Jalan Merdeka Utara.

The crowd produced a lot of noise as they were singing, yelling, playing music instruments like drums and trumphets etc. and even continously beating metal oil barrels. But they didn’t really create violents. I believe because they were guarded by soldiers with purple beret from Marine Corps of Indonesian Navy. The Marines singing and yelling along with the crowd while maintaining formation of surrounding them. The situation was so bad and dangerous as rally, rioting, looting, burning, kidnapping and killing were taking place in many parts of Jakarta, already beyond the Police and even the Army ability to control. But somehow Marine Corp managed to gain public (and rioters) trust and play critical role in cooling down the situation.

We’re back in the office in the following week, still with high alert. We all know that economic crisis and series of violents had led to the smiling general Soeharto’s step down after 32 years in power.

For insurance industry in particular, May 1998 Jakarta Riots had given a monumental lesson-learned. I can’t remember the details of the issue, but in principle, there was different interperation whether property damages caused by riots or other violent acts were covered by the insurance policy. Foreign reinsurance market, in general, took the stance that the riots were not covered as they were politically driven. Reaching agreement or reconciling these different views seemed to be extremely difficult, mainly because policy wording on riot, strike, civil commotion, malicious damage etc. were not clearly drafted and open to various interpretations.

Interestingly, instead of prolonging debate on this dispute or bring it to litigation that may cost huge energy, resources and time, domestic and overseas (re)insurance industry landed at a realistic and win-win solution. After intensive discussion, foreign reinsurers/retrocessioners agree to pay all claims from the riots or violents of May 1998, with following subjectivities:

  • The reinsurers will not legally admit their liability of the claims. All payments are just like settlement on ex-gratia or commercial basis.
  • Indonesian (re)insurance industry is required to provide all details of each individual claim, regardless of the amount, that allow them to verify the loss adjustment done on the ground. In other words, normal market practice of blind settlement by Statement of Account off-setting, for example, is not acceptable.

These subjectivities, especially the latter, forced ReINDO as the largest domestic reinsurer to establish dedicated Riot Claim Department with main mandate to process, handle and settle all matters related to May 1998 Riot claims. I was one of the staff moved to this new unit, the decision that I reluctantly accepted as I was in high excitement with my new job in underwriting.

Jobs in Riot Claim Department was extremely challenging, as we received huge number of claims in full details, and then had to record, assess and process them individually. In normal situation, this heavy procedure is done for small number of large claims only exceeding threshold called Cash Loss limit. Any confirmation or decline also communicated on individual basis to all our cedants. The same goes for notifications, loss advices, reports to and settlement with our overseas Retrocessioners. To add more agony, we were required to submit a bordero showing our progress in settling Riot claims to our foreign reinsurers on weekly basis, every Friday before the weekend get kicked off.

All these requirements put a massive operational pressure to the team. We would definitely not get the job done if sticking to ‘business as usual’ way of doing things. A new revolutionary way was direly needed. To keep long story short, this crisis pushed us to look to technology, working closely with IT team and automating as many processes as possible. The benefits from this business process improvements was tremendeus. Majority of riot claims were settled end-to-end (from direct insured to foreign rentrocessioners) in less than 2 years, except small number of complicated cases.

On personal note, assignment to the Riot Claim Department that I reluctantly agreed in the beginning, turned to be something that I am highly grateful for until today. It taught me pretty detail understanding on how insurance-reinsurance value chain works end-to-end.

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