JAKARTA, KOMPAS — The government is preparing steps to transform the insurance industry and the nonbank financial industry (IKNB) and their businesses. This effort is carried out to strengthen the insurance industry while increasing public confidence, which has been disturbed by a case of default on claims that befell PT Asuransi Jiwasraya and Life Insurance with Bumiputera.
The transformation measures prepared by the government include the establishment of a policy guarantor institution, strengthening the legal basis for the Financial System Stability Committee (KSSK), an omnibus law on the financial sector in the form of a Bill on Development and Strengthening of the Financial Sector, and the strengthening of regulations related to the supervision and governance of the nonbanking financial sector by the Financial Services Authority (OJK).
This transformation is being carried out following problems that occurred in the life insurance industry. Jiwasraya, Bumiputera and Asabri have allegedly suffered large investment losses. As a result, Jiwasraya failed to pay customer claims of Rp 12.4 trillion (US$906.55 million) by the end of 2019.
Finance Minister Sri Mulyani Indrawati said that one of the mandates of Law No. 40/2014 concerning insurance was the implementation of a policy protection program. The aim is to create trust in insurance institutions and prevent fraud. The policy protection program will be run by a separate institution.
"The institution is like a deposit insurance institution for banks, while a policy guarantee institution is for insurance," Sri Mulyani said this week in Jakarta.
In Law No. 40/2014 on insurance, the government provides protection for policyholders through a policy guarantee program. The program aims to guarantee the return of part or all of the rights of policyholders, the insured or insurance company participants.
According to Sri Mulyani, the process of establishing a policy guarantor institution is still under internal government study. Later, the government will issue a legal umbrella for the policy guarantee institution in the form of the Policy Guarantee Program Bill. This bill regulates the details of the implementation of the policy guarantee program as mandated by Law No. 40/2014.
The drafting of the Policy Guarantee Program Bill does not only regulate the institution, but also the scheme and design of the policy guarantee program. Aspects related to insurance are considered complex, judging by the type of business, line of business and its principles.
Related to financial system stability, Sri Mulyani said, Law No. 9/2016 concerning prevention and management of crisis in the financial system has not been able to cover the entire financial sector. The foundation of the KSSK law only focuses on the systemic problems of the banks.
"Problems in nonbank financial institutions are not reflected in Law No. 9/2016. The KSSK does not have a place to deal with nonbank financial institution problems," said Sri Mulyani.
Now, issues related to nonbank financial institutions, including insurance, are handled by the rules in each financial sector authority. There has been no harmonization of rules for handling nonbank financial businesses, including insurance, among KSSK institutions, consisting of Bank Indonesia (BI), OJK, the Deposit Insurance Corporation and the Finance Ministry.
The framework for handling and preventing crises has not been perfect, so we need legislation that can answer it.
To accommodate all the financial system rules, the government is drafting an omnibus law on the financial sector, the Financial Sector Development and Strengthening Bill. This bill includes the establishment of an insurance policy guarantor institution, regulations regarding the existence of financial technology, and strengthening supervision by the OJK.
"Thus far, the framework for handling and preventing crises has not been perfect, so we need legislation that can answer it," Sri Mulyani said.
To strengthen supervision, the OJK will strengthen regulation and supervision of the insurance sector and other nonbank financial institutions.
Chairman of the OJK Board of Commissioners, Wimboh Santoso, said the OJK\'s three main focuses on reforming the nonbank financial sector are strengthening risk-based supervision covering the aspects of prudence and risk management governance, institutional reforms that include the setting of the status of supervision and infrastructure reforms that include information and reporting systems to the OJK .
The reform is targeted to be completed in two years.
"We realize that the insurance industry needs more serious attention to improve governance, prudence and performance," said Wimboh.
Life insurance industry players welcome the regulator\'s plan to tighten supervision of investments made by insurance companies and other nonbank financial institutions.
The executive director of the Indonesian Life Insurance Association, Togar Pasaribu, said the life insurance industry must run with the principle of prudence and uphold the principles of good corporate governance.