Based on its understanding, the main reserve is the premium reserve owned by the policyholder which will be calculated in the middle of the year. So this term is related to the risk control mitigation system in the insurance industry. Insurance itself is an agreement between two or more people in which the insured party pays contributions/contributions/premiums to obtain compensation for the risk of loss, damage, or loss, which may occur due to unexpected events.
At this time, the insurance industry is growing with the emergence of new products. Basically, in life and in business, one must be able to guarantee security from dangerous risks, starting from business risks that can arise or more broadly with the presence of a major force that can cause the company to be in limbo.
The premium reserve itself is a sum of money collected by the insurance company which is obtained from the difference in the value of the compensation and the cash value of the payment at a time of insurance in preparation for payment of claims.
Premium is the amount of money paid by the insured to the insurer whose amount has been determined. The premium paid by the policyholder (the insured) will be allocated by the insurance company for compensation or benefits to be returned to the insured, company operations and for premium reserves.
Premium reserves must be wisely managed by the insurance company. In addition to being returned to the insured in the form of compensation, the reserve can also be used if at any time unforeseen things occur such as unexpected claims.
Well, the calculation of premium reserves as of the middle of this year is very important to do to avoid losses due to not being able to pay compensation to the insured. This is because when the number of claims submitted by the insured must be paid more than the predicted number of claims. This situation can be anticipated if the insurance company has a reserve fund that has been prepared and calculated properly.
The calculation of premium reserves can be done through the actuarial mathematical calculation method, namely by using the retrospective method and the prospective method. The retrospective premium reserve method is a reserve method that uses the past as the basis for calculations. While the prospective premium reserve method is a reserve that uses the future as the basis for its calculation.
What is Main Reserve Actually?
MAIN RESERVE – is a premium reserve owned by insurance participants which will usually be calculated every mid-year. Reserve Premium itself is defined as money collected by the insurance company that comes from the difference in the value of compensation with the value of claim payments that will be paid by the company in the future if there is a claim. Usually the actuary who calculates this premium reserve must be based on regulations that have been legalized by the relevant Directorate General of Financial Institutions.
The calculation of premium reserves also differs from one insurance to another because there are various types of insurance companies such as life insurance, health insurance, education insurance, vehicle insurance, loss insurance and so on. So the calculations themselves are different as has been determined by the Minister of Finance Number 80/KMK.04/1995 and based on Law No. 7 of 1983 Article 9 Paragraph (1).
The calculation of premium reserves is done by the actuarial mathematical calculation method and can be done in 2 ways, namely the prospective method and the retrospective method. For the determination or calculation of the reserve premium itself, there are several methods (methods) that can be used such as the Zilmer Method, the Gross Premium Valuation (GPV) method, the different formula premium method and so on according to the type of insurance company.
Main Reserve Function
As a company reserve fund that can be needed at any time
As a company’s obedience in following government regulations (minister of finance) and laws to provide reserve funds
Can be used to spin profits in other forms of low-risk investments
Main Reserve Benefits for Customers
The benefits of Main reserve or reserve premium for customers of course provide peace to customers because they can make claims at any time when something unexpected happens. In addition to this type of investment insurance, the policyholder will also benefit from this premium reserve because of its status as the policyholder’s property in the form of insurance benefits, for example in Unit Link insurance.
Main Reserve Benefits for Insurance Companies
For companies, the existence of this Main Reserve can be used to get additional profits, namely by managing and putting it into other investments that have a low level of risk, such as government bonds or mutual funds. Even just from the investment results of this reserve premium, at the end of the contract the policyholder (insurance participant) the cash value obtained is equivalent to the sum assured or insurance claim.
In addition to providing benefits, the Main Reserve is also used as a form of liability for insurance companies in fulfilling claims submitted at any time and showing that their business activities are in a healthy condition. With proper management and calculation of premium reserves, the company will always have a good reputation.
Main Reserves means the main reserve fund. In the world of insurance, Main Reserves are the main reserve funds used to finance policy payment obligations and company operational costs. In simple terms, Main Reserves is the difference between the number of policies paid by customers and the amount of funds issued by the company to pay claims.
Usually the calculation will be done every 1 semester or in the middle of the year and at the end of the year. In accumulation, Main Reserves can be used to review all customers or individuals. The purpose of calculating Main Reserves is for insurance companies to take various preventive measures from the value of the reserve fund deficit.
When the reserve fund is in deficit, the insurance company will not be able to pay the customer’s policy, as was the case with Jiwasraya. The massive mafia case continues to escape the attention of the OJK, which should be able to easily obtain various information on reserve funds or Main Reserves in Jiwasraya’s business portfolio.
Reserve funds are important, because through this information an insurance company can take reactive or preventive actions such as:
Reject some profiles of prospective policyholders.
Take action to increase the portfolio of policyholders.
Refuse to pay customer claims because they are considered fraudulent.
Coordinate with shareholders to provide bailout funds or seek loan funds or seek funds through the sale of additional shares (Right Issue) and so on.
As important as they seem, Main Reserves are only one of many important indicators in an insurance company. Because the capital adequacy ratio is also very important outside the Main Reserves because in the short term the newly established insurance companies will inevitably have a deficit compared to a surplus in their reserve fund.
Illustration of Main Reserves in the insurance world
I will give some illustrations about main reserves. Of course, different types of insurance will also have different calculation methods.
Main Reserves in Goods Insurance.
For example a car insurance company. You pay a premium of a certain amount, for example, you pay a premium of 7 million rupiah for car insurance worth 300 million rupiah for 1 year with an All Risk premium. All Risk premium means to bear all risks with the applicable terms and conditions. After 6 months, it turns out that the car owner has not made a claim at all, meaning that the customer’s main reserves are still 7 million rupiah. In the 11th month, it turned out that the customer made a claim and the insurance company to repair the car had to spend 4 million rupiah. in the 11th month the remaining funds are 3 million rupiah. When the policy period ends, the insurance company makes a profit of 3 million rupiah. These are no longer Main Reserves but have already been realized into profits. For example, when the car is lost and the insurance must replace the car. Let’s say in the example above on the 10th month the car disappears. Then the insurance pays coverage of 200 million (depending on the contents of the policy how much nominal will be covered). So in the 10th month the Main Reserves were not -193 million but had realized a loss of -193 million.
