The firms are lobbying the government for leeway to make the increase more gradual, as doubts exist whether the firms could even meet the proposed new rules.

The OJK’s plan, revealed in May, is to hike the minimum capital requirement for insurance companies from the current Rp 100 billion to Rp 500 billion in 2026 and Rp 1 trillion in 2028.

For reinsurance firms, meanwhile, the bar would be raised from the current Rp 200 billion to Rp 1 trillion in 2026 and Rp 2 trillion in 2028.

Sharia insurance and reinsurance companies, which are currently required to have half of the capital of their conventional peers, would see a proportional hike.

The Indonesian General Insurance Association (AAUI), which also counts reinsurance firms among its members, said 10 to 15 insurance companies currently had less than Rp 150 billion in equity.

Thus, it proposed that the minimum capital requirements be raised more modestly, namely to Rp 250 billion for insurance companies and Rp 500 billion for reinsurance companies by the end of 2026.

“We support the OJK’s effort to strengthen the insurance industry by increasing minimum capital requirements for existing companies. However, the arrangement should take into consideration two financial years after the implementation of new reporting standards (PSAK 74) on Jan. 1, 2025. So we should assess the impact of that change [first],” AAUI executive director Bern Dwyanto told The Jakarta Post on Monday.

Bern said the most important thing right now was to improve the insurance market in general so that players could increase their profits. That way, the equity of insurance firms would rise too, he added.

Read also: Unit-linked products drag down life insurance premiums in Q1

The Association of Indonesian Insurance and Reinsurance Brokers (Apparindo), meanwhile, expressed dissatisfaction with the OJK's plan to increase the minimum capital requirement for brokers to Rp 5 billion, up from the current Rp 2 billion for insurance brokers and Rp 3 billion for reinsurance brokers.

"We got a mandate from our members to send an official letter to the OJK related to the capital [requirement changes]. In the letter, we request that the rules [remain unchanged], as we disagree with the [proposed] changes," Apparindo chairman Yulius Bhayangkara said last week, as quoted by Kontan.

He said 41 firms represented by Apparindo would be affected if the changes were implemented right now. He proposed a more moderate increase to Rp 3 billion and a longer time for insurance brokers to meet that requirement.

"Based on our last discussion, the OJK seems pretty much in agreement with our proposal," Yulius claimed.

The OJK has acknowledged that representatives of broker associations have objected to the proposed changes.

According to the OJK’s head of non-banking financial industry supervision, Ogi Prastomiyono, the dispute has been resolved, as the watchdog plans not to enforce the paid-up capital increase for existing companies, instead requiring only that they increase their equity gradually.

Forced marriages

AAUI chairman Budi Herawan said the higher minimum capital requirements could create pressure for mergers in the industry.

"It's not that they could not survive, but different companies [just] have different market segments," he said on Thursday, as quoted by Kontan.

Insurance analyst Irvan Rahardjo said the proposed new minimum capital requirements could be "impossible" to meet and argued that an improvement in governance and best practices was more urgent, so as to ensure that insurers paid out customer claims.

He added that mergers between insurance companies would be akin to "forced marriages", as those companies might be different in culture.

"If we merge a healthy firm with a sick firm, what if [the combined entity] becomes sick? If we combine a big player with another big player, where does that leave the smaller companies?" Irvan told the Post on Monday.

He suggested that providing tax incentives for merging insurance companies could be an option to push for "marriages".

Read also: New accounting standards will make life insurance industry more transparent

Nevertheless, Irvan opined that minimum capital requirements were not the only way to ensure the stability of insurance companies. Improving companies' governance, risk management, compliance and asset liability management was more urgent.

He said the OJK had begun that process by requiring insurance companies to implement the PSAK 74 reporting standards, which were modeled on international standards.

However, those changes also needed additional investment, according to Irvan, putting more pressure on insurance firms' balance sheets.

"According to some information, an insurance company needs up to US$2 million for implementation and training for the new standards. Aside from that, actuaries also ask for high salaries, as the pool of [potential job applicants] is quite small," Irvan noted.

The insurance sector had only managed to meet the current minimum capital requirement of Rp 100 billion through a gradual increase, according to Irvan.

"Now, [the OJK] requires Rp 1 trillion in capital within just five years. It's impossible," he asserted.

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