Insurance Bankruptcy Ruling

Until 1999, only a few disputed insurance claims had been resolved by arbitration and in district courts. The statutory provisions that became the legal basis for dispute resolutions still based on very old legislation.

State insurer PT Asuransi Jiwasraya has announced a complete scheme of the restructuring of its saving plan policy.

There are three schemes offered, ranging from a 15-year claim payment to a five-year payment with a discount of up to 31 percent. The saving plan product was the cause of the collapse of Jiwasraya\'s financial condition and its failure to pay customers’ claims since October 2018. Therefore, Jiwasraya\'s management offered to stop the existing policy per Dec. 31, 2020, and the customers’ funds will be converted into initial funds for a new program.

There are three claim payment options for saving plan customers, namely JS Mantap Plus Plan A, Plan B and Plan C. JS Mantap Plus Plan A as the main alternative is a full payment or 100 percent in installments for 15 years without interest. Claims were paid in installments: 5 percent (of total claims) each year in the first 10 years and 10 percent each year in the following five years.

Plan B is a claim payment with a faster installment maturity, which is five years without interest. However, payments are made at 71 percent or there is a haircut of around 29 percent of the cash value. Payment is made at 15 percent in the first year, 5 percent in the second, third and fourth years, and the remaining 41 percent is paid in the fifth year.

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Plan C is a five-year installment claim with a 10 percent advance payment by IFG Life, a new company formed to take over Jiwasraya\'s debt. In this scheme, there is a 31 percent haircut so that after deducting the advance payment, the payment of the remaining cash value of about 59 percent is made within five years.

Payment in this third scheme is 10 percent in advance, 5 percent in the second and third years, 9 percent in the fourth year and 30 percent in the fifth year.

Apart from the three options, there are other alternatives if the customers reject the restructuring and continue to maintain their policy at Jiwasraya. However, claim payments will only be made according to the financial conditions of Jiwasraya, which currently has less than one-third of total liabilities. Jiwasraya posted negative equity of Rp 38.5 trillion (US$2.69 billion) as of October 2020. This value continues to deteriorate compared to that in 2018, which was negative Rp 30.3 trillion, and in 2019, which was negative Rp 34.6 trillion. The company’s liabilities and asset conditions as of October 2020 were recorded at Rp 37.2 trillion in traditional policy liabilities and Rp 16.8 trillion in savings policy liabilities.

The company owns Rp 15.4 trillion in assets, with the majority of assets being “not liquid” and of poor quality. Its asset value continued to decline from Rp 23 trillion in 2018 to Rp 18 trillion in 2019.

KOMPAS/LASTI KURNIA

An employee serves customers on Tuesday (21/1/2020) at the Panin Dai-ichi Life insurance company in Slipi, Jakarta. The Financial Services Authority (OJK) recorded revenues of Rp 261.65 trillion (US$19.21 billion) from insurance premiums in November 2019, an increase of 6.1 percent from November 2018.

The Restructuring Acceleration Team noted that 15,771 or 90.3 percent of bancassurance policyholders have participated in the restructuring program, followed by 134,161 policyholders in the corporate category, or 75.3 percent. Retail policyholders who participated in the restructuring reached 65.8 percent or 127,339 participants (data as of April 13).

There are three options that shareholders have. First, the bailout option. However, this option was not pursued, considering that there are no regulations regarding bailouts for the insurance industry, either from the Financial Services Authority (OJK) or the Financial System Stability Committee (KSSK).

Second, the option to liquidate or terminate the company. This option must be approved by the Financial Services Authority (OJK) based on Law No. 40/2014 concerning insurance. This liquidation option was also not taken, considering that other SOEs have pension portfolios at Jiwasraya. The economic, social and political impact wills be large if liquidation is carried out.

Third, restructuring transfer and bail-in options. The three steps are carried out simultaneously. Funding support from Jiwasraya shareholders will be channeled indirectly through PT Bahana Indonesian Business Financing (BPUI). Shareholders take the third option, namely through restructuring, transfer and bail-in so that Jiwasraya does not pass on losses to IFG Life after the portfolio transfer.

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There is another issue of required funding from a state capital injection (PMN) amounting to Rp 20 trillion, plus Rp 2 trillion in 2020, plus interest on debt securities, which will be included in the 2022 Draft State Budget. This figure is still far from what Jiwasraya needs. In addition, of course, the state will also secure the insurance company’s assets after the court ruling on the Rp 16.8 trillion corruption case involving the six defendants in the Jiwasraya case is made and binding.

However, this restructuring has been rejected and a wave of lawsuits followed. Refusals came from retirees in 12 state-owned companies, consisting of Garuda Indonesia, Pupuk Kaltim, Petro Kimia Gresik, Rekayasa Industri, Bukit Asam, Garuda Maintenance Facility, Gapura Angkasa, Timah, Asuransi Kesehatan, Surveyor Indonesia and Sucofindo.

To date, there have been 12 lawsuits registered related to the Jiwasraya case at the Central Jakarta District Court and South Jakarta District Court. At the South Jakarta District Court, a class action lawsuit was recorded in case number 43/Pdt.G/2021/PN JKT.SEL dated Jan. 8 by 195 Korean citizens, KEB Hana Bank customers, KEB Hana Bank, which distributed Jiwasraya’s insurance saving plan product.

Bankruptcy Law shakes up insurance industry

Until 1999, only a few disputed insurance claims had been resolved by arbitration and in district courts. The statutory provisions that became the legal basis for dispute resolutions at that time were also based on very old legislation and the legacy of the colonial ruler, namely the Reglement of de Rechrsvordering, Staablad 1847.52 and the revised Indonesian Regulations or Het Herziene Indonesich Reglement Staatblad 1941.44.

The situation changed after the government enacted Law No. 30/1999 on arbitration and alternative dispute resolutions. However, the existence of this law in reality does not automatically allow policyholders to bring their insurance claim disputes to arbitration to obtain a settlement of the insurance claim they are facing.

The situation shows that there has been an increase in complaints, disappointments and confusion from insurance consumers and policyholders in the process of completing requests/claims for compensation, policy benefits or claims.

Public disappointment at the insurance company was then vented, with insurance customers filing a request for insurance company bankruptcy from 2000 to 2002. The commercial/state court declared the insurance company’s bankruptcy. One insurance company was declared bankrupt by the commercial court in 2002, even though the insurance company was able to pay its obligations.

The company has a sound and healthy financial cashflow, but the Law No. 4/1998 concerning bankruptcy that was in effect at that time did not provide protection to insurance companies from bankruptcy, which anyone could easily file.

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Filing a bankruptcy request is very easy because it only needs two creditors who have overdue and unpaid receivables or bills. This means that it is very easy to make an insurance company bankrupt. The commercial court rulings that have declared the bankruptcy of several insurance companies have rocked the insurance industry because among those declared bankrupt was a sizable joint venture with good financial health and ability to settle its obligations and have millions of policyholders.

Bankruptcy rulings handed down to insurance companies continue. In 2004, there was a large insurance company with a very sound financial condition and was able to pay its obligations, but the court declared bankruptcy in its ruling.

The court ruling has caused increasing anxiety, not only for insurance companies but also for policyholders and the general public. This is because there is no guarantee of certainty for the policies they have purchased if everyone can easily file a bankruptcy request against an insurance company and the court can grant it without a sense of fairness for the insurance company.

Finance Minister permit

Responding to developments and complaints of the Bankruptcy Law and a proposal for immediate amendments, the government submitted a bill on Bankruptcy and Postponement of Obligation to Pay Debt (PPKPU) on May 13, 2002, to the House of Representatives that consists of several proposed changes to Bankruptcy Law No. 4/1998. This includes the stipulation on parties entitled to apply for a request to the court to declare a particular insurance company bankrupt and that the request for bankruptcy can only be filed by the Finance Ministry.

The House approved the KPKPU bill into law with decision No. 09/DPR-RI/2004-2005 concerning the House Approval of the RUU-KPKPU dated Sept. 22, 2004, which was later ratified and promulgated as Law No.37/2004 concerning bankruptcy and the postponement of debt payment obligations.

The threat of bankruptcy hanging over insurance companies such as those carried out against Manulife and Prudential, which have caused widespread adverse effects, are nullified on the condition that insurance company bankruptcy can only be carried out with the permission of the finance minister.

The effort to invite investment will be fruitless if legal uncertainty occurs without respecting the rights of debtors and creditors in civil relations guaranteed by law.

It can be concluded that the background for the amendment of Bankruptcy Law No. 4/1998 into Law No. 37/2004 concerning bankruptcy and the postponement of debt payment obligations is to protect insurance companies from those trying to file bankruptcy requests and on the other hand, open up opportunities to make peace with the mechanism for postponement of debt payment obligations.

However, it should be remembered that when the lawmakers of Law No. 37/2004 decided a request for bankruptcy against an insurance company can only be filed by the Finance Ministry through the commercial court — Article 2 (5) of the Bankruptcy Law is replaced with Article 90 b of Law No. 40/ 2014 concerning Insurance — it essentially restricts the freedom of parties to make contracts that bind themselves to an insurance agreement whose substance is legally strong enough as referred to in Article 1338 of the Civil Code.

Likewise, the negative confirmation used by state-owned PT Asuransi Jiwasraya is related to the restructuring offer for all policyholders. It states that if there is no response (from customers) within 30 days, the insurer will do unilateral restructuring. This also clearly violates the principle of consensus and good faith, which is the basis of the insurance agreement regulated in the Civil Code.

ARSIP PRIBADI

Irvan Rahardjo

Law No. 4/1998, which was issued during the monetary crisis, is intended to make it easier for creditors to leave the country. On the other hand, now Law No. 37/2004 is intended to prevent debtors from pursuing peace and bankruptcy. Thus, the effort to invite investment will be fruitless if legal uncertainty occurs without respecting the rights of debtors and creditors in civil relations guaranteed by law.

We do not want to enforce the law by violating the law because that will only distance us from becoming an investment-friendly country.

Irvan Rahardjo, Arbitrator for the Indonesian National Arbitration Board (BANI)

This article was translated by Kurniawan Siswoko.