High-ranking officials have expressed concern that the fiasco at state-owned insurance company Asuransi Jiwasraya will undermine faith among the public and investors in the country’s financial institutions.

State-Owned Enterprises Minister Erick Thohir gave his assurance on Thursday that the government would take several measures, including establishing an insurance holding company, to ensure Jiwasraya had sufficient cash flow to gradually pay out on its customers’ matured policies.

“We will try to [make the payments] as we don’t want public trust to dissipate while we are talking about [attracting] investment,” he told reporters in Jakarta.

“We know that our economic growth is high but we don’t have good corporate governance. How can the public trust [Indonesia’s financial system]?” he added.

Jiwasraya has been in the spotlight since it announced its failure to pay out on matured JS Saving Plan policies worth Rp 802 billion (US$57.6 million) in October 2018. It was also unable to pay out on policies, which integrated life insurance and investments, worth Rp 12.4 trillion when they came due in December 2019.

The Attorney General’s Office (AGO) has launched a corruption investigation into Jiwasraya over alleged mismanagement and has slapped travel bans on 10 individuals, although none of these has been named a suspect.

According to documents obtained by The Jakarta Post, the insurers failed to create portfolio guidelines that regulated how they should manage investments.

“This case could create systemic distrust in the insurance industry as the people fear that insurers will not be able to pay their claims,” Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira wrote in a text message.

Concern over a “systemic risk” was first voiced by Supreme Audit Agency (BPK) chairman Agung Firman Sampurna on Wednesday.

“The scale of this case is very big. I would go so far as to say this could be gigantic,” Agung said, expressing his concern that the scandal could snowball like that of Bank Century in 2008.

Insurance expert Irvan Rahardjo said the case could have a systemic impact on the banking sector as well.

“Jiwasraya’s case could potentially create a run among bank customers because they will lose faith in banks as they fear banks will not provide transparent and accountable information on bancassurance products offered to them like the JS Saving Plan product,” he said.

Launched in 2013, the JS Saving Plan was sold by a total of seven state-owned, private and international banks. The product offered a return of between 9 and 13 percent to customers, far higher than those of banks’ time deposits.

Jiwasraya has been facing financial problems since 2006, when it recorded negative equity of Rp 3.29 trillion, this increased to Rp 5.7 trillion in 2008.

Hary Prasetyo, former Jiwasraya finance director from 2013 to 2018, said during a program aired on local television on Tuesday that the board of directors at the time had taken several measures to keep the insurer afloat.

“We even reinsured Jiwasraya to save it from sinking,” he said in the program. As the company was facing a liquidity problem, the board of directors at the time opted to invest in high-yielding stocks so it could gain high returns to cover the problem, said Hary.

The BPK's finding showed that the insurer suffered losses of Rp 10.4 trillion from its stocks and mutual fund investments.

The Financial Services Authority (OJK), which is in charge of supervising the country’s financial institutions, including insurance companies and the stock market, was not immediately available for comment when contacted by the Post on Thursday.

The scandal has prompted several lawmakers to float a proposal to create a special committee (Pansus) to resolve the problem. At least five factions — the Gerindra Party, the Golkar Party, the NasDem Party, the Prosperous Justice Party (PKS) and the Democratic Party — have requested informally that the House of Representatives form a special committee on Jiwasraya, House Deputy Speaker Sufmi Dasco Ahmad said.

“What’s important is how we can find out where the money went and resolve the problem,” Sufmi said.

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