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Can the insurance industry survive regulatory pressures in 2025?
The OJK has prepared new regulations in order to enhance policy provisions, underwriting and claim processes.
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The PT Bumiputera office building (center) stands on Dec. 18, 2016, amid Jakarta's skyscrapers. (JP/Wendra Ajistyatama)
T
he Indonesian insurance industry is facing a confluence of challenges in 2025, exacerbated by macroeconomic pressures, tightening regulatory frameworks such as the minimum equity imposed by the Financial Services Authority (OJK), the implementation of new accounting standards of PSAK 117 adopted from IFRS 17 and an evolving legal landscape.
At the heart of these concerns lies a recent decision by the Constitutional Court, which issued a significant ruling regarding Article 251 of the Indonesian Commercial Code (KUHD) stating that the cancellation of insurance coverage must now be based on mutual agreement between the insurer and the insured, or through a court decision.
It ensures that claim rejections cannot be based solely on incomplete information irrelevant to the insured risk. This landmark ruling has profound implications for the industry, raising critical questions about the clarity of insurance contracts, financial solvency and consumer protection.
As Indonesia seeks to expand financial inclusion and bolster its insurance penetration rate, which in 2024 was only 2.8 percent (SNLIK OJK, 2024), currently among the lowest in the region compared with Malaysia at 4.8 percent, Japan at 7.1 percent, and Singapore at 11.4 percent. The industry must navigate several persistent obstacles.
These include low public trust following high-profile defaults by insurance firms, such as Jiwasraya and Bumiputera, and the slow pace of digital adoption despite the country’s thriving financial digital ecosystem.
In addition, regulatory fragmentation continues to hinder industry growth. While the OJK has introduced stricter governance measures, implementation remains uneven. Insurers face increasing capital requirements and compliance costs, yet there is little room for premium growth in a price-sensitive market.
The Constitutional Court’s decision to annul Article 251 of the KUHD marks a watershed moment for Indonesia’s insurance sector. This article has historically provided insurers with legal safeguards concerning contractual obligations and dispute-resolution mechanisms. By striking it down, the court has introduced ambiguity into how insurance contracts will be interpreted and enforced. To respond to that decision, the OJK has prepared the derivative regulations of the court’s decision in order to enhance the policy provisions, underwriting process and the claim process.
