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Call for reform amid Jiwasraya fiasco

Solid evidence: A Harley Davidson confiscated from state-owned insurer PT Asuransi Jiwasraya’s former president director, Hendrisman Rahim, sits parked on the terrace of the Attorney General’s Office (AGO) building in South Jakarta on Thursday

Riska Rahman (The Jakarta Post)
Jakarta
Fri, January 17, 2020

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Call for reform amid Jiwasraya fiasco

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olid evidence: A Harley Davidson confiscated from state-owned insurer PT Asuransi Jiwasraya’s former president director, Hendrisman Rahim, sits parked on the terrace of the Attorney General’s Office (AGO) building in South Jakarta on Thursday. The AGO has named Hendrisman and four others suspects in a corruption case related to Jiwasraya’s failure to pay out on policies. (JP/Dhoni Setiawan)

President Joko “Jokowi” Widodo called for reform of the country’s financial services industry as the government moves to salvage ailing state-owned insurer Asuransi Jiwasraya.

“The nonbanking financial services industry that consists of insurance and pension funds [among other services] needs reform, improvements in terms of regulations, supervision, as well as capital,” he said in his remarks at the financial services industry annual meeting in Jakarta on Thursday.

The reforms, he went on to say, were needed to encourage prudence and transparency in the industry and for it to adopt a proper risk management system to maintain the public’s trust.

“Don’t let a lack of trust undermine our economy,” Jokowi stressed. He said the government was ready to assist the Financial Services Authority (OJK), which supervises the financial industry, in implementing such reform.

Indonesia’s insurance industry is in the spotlight following the financial calamity that has struck Jiwasraya, leading to a corruption case currently being investigated by the Attorney General’s Office (AGO). The country’s oldest insurer failed to pay out more than Rp 12 trillion (US$879.3 million) on customers’ policies that matured in 2018 and 2019, allegedly as a result of investment mismanagement.

The AGO arrested on Tuesday five people, including the insurer’s former president director and two businessmen, for their suspected roles in alleged corruption at Jiwasraya.

Meanwhile, another state-owned insurer Asuransi Sosial Angkatan Bersenjata Republik Indonesia (Asabri) also suffered losses of around Rp 10 trillion from plunging stock investments. Several stocks held by Asabri have been linked to Jiwasraya. Asabri, however, claimed the situation was only temporary and would not affect its ability to pay out customers’ claims.

Jokowi on Thursday denied that the call for reform was related to the insurers.

“The reform has been planned for a long time and that [the two cases] is merely a coincidence,” he said.

OJK chairman Wimboh Santoso echoed the sentiment, saying that his institution had been implementing reforms since 2018 and highlighting the need to accelerate reform in the nonbanking financial services industry.

“It needs serious efforts because we haven’t carried out any reform in the [nonbanking financial services] industry,” he said, adding that a part of the reform would include a requirement for detailed reporting on an institution’s potential risks and closer supervision of industry players.

Experts have lamented the OJK’s lack of action in preventing Jiwasraya’s problems.

Insurance expert Irvan Rahardjo told The Jakarta Post on Wednesday that the OJK seemed to show no initiative whatsoever in saving the ailing insurer from sinking, even after the Supreme Audit Agency published its first investigation result in 2016.

“The case was then handled by the AGO because there was no real action by the OJK to solve Jiwasraya’s problems,” he said over the phone.

Article 9 of Law No. 21/2011 on the OJK stipulates that the body has the authority to supervise, probe and investigate financial institutions or related parties, as well as to protect consumers. This broad authority makes the OJK a “superbody”.

Despite its superbody status, Irvan said the OJK did not perform its function properly to find out what was going wrong with Jiwasraya before the case blew up in late 2018.

“[The OJK] is very rigid when it comes to issuing new regulations for the financial services industry, but is weak when it comes to enforcing them,” Irvan said.

Center of Reform on Economics (CORE) Indonesia economist Piter Abdullah echoed the same sentiment, saying that Jiwasraya’s case raised questions over the OJK’s function to prevent such scandals from occurring.

OJK spokesperson Sekar Putih Djarot defended the authority, saying the OJK had properly conducted its supervisory function.

“We have asked Jiwasraya to prepare a long-term and sustainable plan to improve its financial health after its temporary effort to conduct financial reinsurance,” she told the Post by text message.

The OJK’s nonbank financial industry executive supervisor Riswinandi also said it approved the establishment of Jiwasraya’s subsidiary Jiwasraya Putera to help the ailing insurer get back on its feet.

The establishment of Jiwasraya Putera is a part of the government’s efforts to rescue the company after stating it will not bail the insurer out. The government will also form an insurance holding company in mid-February to provide cash flow for Jiwasraya.

Meanwhile, Attorney General Burhanuddin said the AGO had raided several corporate offices that were allegedly involved in the scandal.

“Not only have we confiscated assets from the suspects, we have also seized laptops and mobile phones from those [raided] locations and are cloning their data into our information and technology system to find any possible files linked to the case,” said Burhanuddin during a meeting with lawmakers on Thursday.

He declined to reveal the roles of individual suspects in the case, stressing that it was still being investigated by AGO investigators. (glh)

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