Jurisdiction - Indonesia
Indonesia – New Insurance Business Bill

19 April, 2013



As you may be aware, there is a new Bill on the Insurance Business that, once passed, will replace the Current Insurance Law, Law No. 2 of 1992. There are a number of interesting aspects of this new Bill, which we discuss below.


First, the Bill elaborates upon the powers of the Financial Services Authority (“OJK”) to regulate the insurance industry. Articles 41-52 of the Bill in particular detail the regulatory and monitoring functions of the OJK, including its power to deactivate members of the Boards of Directors and Commissioners and the Shariah Supervisory Board of insurance companies in certain situations. The OJK is also given the power to issue regulations to implement the Bill upon its enactment.


Unlike the Current Insurance Law, the Bill regulates the Shariah insurance business, putting in place rules to govern the business. It also provides that insurance companies must be in the form of a limited liability company (“PT”). As a result, if the Bill becomes law in its current form, insurance companies that were formed as cooperatives or mutual businesses will be required to convert to PT’s. With regard to the ownership of insurance companies, there are no changes to the rules, except now foreign citizens may participate in the ownership of insurance companies, provided that this participation is done through a capital market transaction.


The Bill also provides new obligations that must be met by insurance companies. Among these obligations, an insurance company would be required to appoint one controller who would, directly or indirectly, have the ability to determine the insurance company’s management makeup and policies. OJK approval would be required for the appointment and termination of this controller. Additionally, insurance companies would also be required to establish a Security Fund in a form and amount stipulated by the OJK. This Security Fund would be for the benefit of policyholders/participants of the insurance company in the event that the insurance company was liquidated. Insurance companies would also be obliged to become members of the Indonesian Deposit Insurance Corporation’s (LPS”) program to provide security for their policyholders/participants. Further regulations on this matter would be stipulated by the LPS.


Under the new Bill, insurance companies would be given the opportunity to cooperate with other parties to obtain business and to transfer certain business management functions to other parties. However, the types of functions that can be transferred are not detailed in the Bill. Further regulations on this matter would be stipulated by the OJK. In relation to this, the Bill provides more detailed rules on the use of insurance agents and insurance brokers.


We note that the Bill also provides tougher administrative sanctions and criminal penalties than the Current Insurance Law. Under the Bill, the administrative sanctions are:


  • a.         Warnings;
  • b.         Whole or partial business activity restrictions;
  • c.         Prohibition on marketing certain insurance products;
  • d.         Revocation of business permits;
  • e.         Revocation of registration for actuary consultants, public accountants, assessors or other parties that provide services for insurance companies;
  • f.          Administrative fines; and
  • g.         Prohibition on certain individuals from holding certain positions, such as: shareholder, member of the Board of Directors or Commissioners, or the Shariah Supervisory Board, or an executive position below the Board of Directors.


Lastly, as you may be aware, the President of Indonesia recently issued Presidential Regulation No. 12 of 2013 regarding Health Security, dated January 18, 2013. This Regulation pertains to mandatory public health insurance managed by the government. Business entities that offer or manage government or social insurance programs, such as the Social Security Agency (Badan Pengelola Jaminan Sosial), will not be governed by the new Bill.


We hope this has been a helpful look at the highlights of the new Bill and the kinds of changes that insurance companies can expect.




For further information, please contact:


Almira Prajna Ramaniya, Soewito Suhardiman Eddymurthy Kardono
Richard Emmerson, Soewito Suhardiman Eddymurthy Kardono

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