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House passes new insurance law after 2 years of deliberation
After two years of discussion, the House of Representatives finally passed the proposed insurance bill into law on Tuesday that will replace the outdated 1992 Insurance Law to cope with swift change in the growing insurance industry
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fter two years of discussion, the House of Representatives finally passed the proposed insurance bill into law on Tuesday that will replace the outdated 1992 Insurance Law to cope with swift change in the growing insurance industry.
Finance Minister Chatib Basri expressed his appreciation to the House for its show of intent to pass the bill into law before the new government and the next batch of legislators take office.
According to him, the new law makes use of Law No. 21/2011 on the Financial Services Authority (OJK), which justifies the regulatory body's authority in the financial services industry, thereby providing a stronger and more complete legal foundation than the 1992 Insurance Law.
Chatib said he hoped the public would place more trust in insurance providers with the law taking effect next month and that its passing would optimize the industry in addressing various risks.
'The practices stipulated in the previous law are obsolete and allows for loopholes that, if left unattended, would be detrimental to the local and global community,' he said during a House plenary session on Tuesday.
In his party's response during the plenary session, Prosperous Justice Party (PKS) lawmaker Andi Rahmat said that the bill was borne out of the need to update the regulations of a thriving industry that continued to diversify to accommodate the people's need for integrated products offering risk management and sound investment.
'The refinement of insurance regulations must be made to create a healthier, more reliable and competitive industry,' said Andi, who was the deputy chairman of House Commission XI overseeing finance.
The new law addresses several issues that have been the subject of much speculation, including an outline for sharia-based insurance services, a protection mechanism for policy holders and the enforcement of administrative and criminal penalties.
The law also governs matters regarding foreign ownership in local insurance firms, but leaves out the exact limits to be formulated in a supplementary government regulation (PP).
Article 88 paragraph 1 of the law's transitional provisions section stipulates that foreign-owned insurance companies are obliged to transfer ownership to Indonesian citizens or make an initial public offering (IPO) within five years of the law taking effect.
'Further provisions on ownership, including its penalties, will be regulated under the OJK regulation,' Andi explained.
Last Monday, the House agreed not include the foreign ownership cap in local insurance firms in the law to prevent the withdrawal of foreign investments in the country's insurance business.
Currently, ten of the largest domestic life insurance providers in terms of premiums are joint ventures backed by multinational firms, including the UK's Prudential plc, Canada's Manulife Financial and Germany's Allianz. State-owned Jiwasraya is the only local company competing in the top tier.
Highlights of the new law
- Article 7 paragraphs 1 to 3 provide structure to the limits of foreign ownership
- Article 35 paragraphs 1 to 5 obliges insurance companies to legally take the form of limited liability companies (PT), cooperatives or mutual companies
- Articles 42 through 52 regulate the protection scheme for policy holders in case of the provider's dissolution, liquidation or bankruptcy
- Articles 70 through 82 determine the gravity of a penalty that OJK can give out for criminal misconduct, ranging from administrative penalties to fines of Rp 600 billion (US$ 50.113 million)
Meanwhile, the Association of General Insurance Companies' (AAUI) executive director, Julian Noor, welcomed the new law and the role that the OJK played in its supervision. 'Now with the OJK in charge of supervision, there needs to be synchronization of all related regulations,' Julian told The Jakarta Post on Tuesday.
Julian also said that all supplementary regulations needed to be clarified as quickly as possible, especially ones governing the foreign ownership cap. 'There is no way investments in this industry can be restricted. Our laws actually open up such opportunities [to foreign investors],' he said.
As the new law mentions no specific clause regulating a foreign ownership cap, foreigners will still be able to own up to 80 percent of local insurance firms, in line with a 2008 government regulation on the insurance business.
