Jurisdiction - Indonesia
Reports and Analysis
Indonesia – Parliament Passes New Insurance Law.

4 December, 2014


  • A new law on insurance (‘New Insurance Law’) has been passed by the Indonesian Parliament on 23 September 2014 which came into effect on 23 October 2014. It replaces Law No. 2 of 1992 on Insurance Business and sets out a comprehensive regulatory framework for Indonesia’s insurance sector and applies to insurance business companies (IBCs), whether insurers, reinsurers, brokers, agents or loss adjusters.


  • The New Insurance Law does introduce several fundamental changes that foreign investors need to consider carefully as it has an underlying nationalistic sentiment, as evidenced by the approach to foreign ownership. Currently, foreign ownership levels are capped at 80% and any change has been held over until an implementing Government Regulation is issued.


  • Under the New Insurance Law, Indonesian shareholders of IBCs must be fully owned by Indonesian citizens. This means that all insurance firms are to take the form of a legal entity, locally known as Perseroan Terbatas (PT) and insurance companies have five years in which to either ensure that the shares that must be held by Indonesian shareholders are all directly or indirectly held by Indonesian citizens. The alternative is to conduct an initial public offering (IPO).


  • A single presence policy has also been introduced for the insurance sector under the new law which means that a person or other legal entity can, at any time, only be a controlling shareholder in one life insurance company, one general insurance company, one reinsurance company, one syariah (or Islamic law compliant) life insurance company, one syariah general insurance company and/or one syariah reinsurance company.


  • Other noteworthy developments flowing from the New Insurance Law include:
    • Insurance and reinsurance companies must separate into a stand-alone entity all syariah divisions within 10 years from the enactment of the New Law, or when the syariah component exceeds 50 per cent of the total insurance portfolio, whichever is the earlier.


    • The insurance for any asset or risk located in Indonesia must be placed with a local insurer, irrespective of ownership of that asset or responsibility for a risk, unless no local insurer is able or willing to underwrite the risk. This removes the previous concession that allowed foreign entities to purchase insurance from offshore insurers.


    • A new policy assurance program replaces the existing mandatory guarantee fund, with the aim of providing protection to policyholders in case their insurer is liquidated or has its license revoked.


    • Insurance and reinsurance companies must optimize domestic capacity. In other words, domestic insurers and reinsurers must provide local reinsurance coverage “as far as possible”. The intention is to encourage all insurers and reinsurers (both conventional and syariah) to assist with the expansion of the local market.


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For further information, please contact:


Hanim Hamzah, Partner, Zicolaw

[email protected]

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