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Client Alert - New Insurance Law

Indonesia’s New Insurance Law

On 17 September 2014, the House of Representatives officially promulgated Law No. 40 of 2014 concerning Insurance (“New Insurance Law”). The New Insurance Law is intended to replace Law No. 2 of 1992 concerning Insurance Business (“Previous Insurance Law”). Further, the New Insurance Law places more explicit, specific and stricter provisions on insurance business activities than the Previous Insurance Law did. The New Insurance Law also designates the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) as the supervisor and regulator of insurance companies.

New Aspects of the Insurance Business

The New Insurance Law covers a new aspect of the insurance business, namely, sharia insurance, which is conducted based on the sharia principles set by the Indonesian Ulama Council (Majelis Ulama Indonesia).

Article 7 of the New Insurance Law stipulates that an insurance company may be owned by an Indonesian entity and a holding company which its subsidiary engages in the same insurance business field (general insurance, reinsurance, or sharia). Through this article, a foreign national may also own shares in an insurance company provided that these shares are acquired through a commercial transaction on the Indonesian Stock Exchange (IDX). These provisions were not present in the Previous Insurance Law.

The New Insurance Law also contains more specific and stringent  requirements for obtaining an insurance business permit from the OJK, including factors such as the capability of company executives, the feasibility of risk management systems, and confirmation from the supervisory authorities of the country of origin (in the event of foreign capital participation).

Specific Obligations of  Insurance Companies

Under the New Insurance Law, after obtaining a business permit an insurance company is obliged to carry out certain actions which are explicitly stipulated, including:

  1. Implementing good governance as determined by the OJK;
  2. Appointing at least one controller who is capable of appointing company executives and/or influencing company executives’ policy. A controller (whether an individual or a legal entity) acting as the majority shareholder can serve as controller of only one kind of insurance company at one time. All insurance companies must comply with this provision by 17 September 2017, which is three years from the promulgation of the New Insurance Law;
  3. Complying with the provisions on financial health and risk mitigation methods as determined by the OJK;
  4. Forming a warranty fund according to standards determined by the OJK. The purpose of a warranty fund is to ascertain the interest of an insured party in the event of liquidation;
  5. Reporting its activities to the OJK periodically;
  6. Disclosing its financial health, position, and performance in one Bahasa Indonesia nationally-circulated daily newspaper;
  7. Complying with the standards of insurance business behaviour as determined by the OJK, including provisions on policies, claim settlements, premiums, underwriting, expertise, and product distribution;
  8. Settling insurance claims in a way that is prompt, simple, accessible, and fair as determined by the OJK;
  9. Implementing anti-money-laundering procedures and preventing the funding of terrorism as determined by the OJK;
  10. Becoming a member of the mediation institution, whose function is to settle disputes between insurance companies and insured parties; and
  11. Becoming a member of the insurance company association in accordance with its particular business field.


Corporate Actions

Corporate actions of insurance companies, such as mergers, acquisitions and consolidations, are subject to certain procedures as well as prior approval from the OJK.  Also, according to the New Insurance Law, bankruptcy applications for insurance companies shall only be proposed by the OJK to the Commercial Court prior to a proposal from the creditor(s) of the relevant insurance company, as the OJK has replaced the Ministry of Finance in this matter.

From the perspective of insured parties, the New Insurance Law ensures and provides more comprehensive protections.  For instance, in the event of liquidation or bankruptcy, Article 52 of the New Insurance Law explicitly stipulates that the Insurance Fund shall be utilized for the interest of the insured party.

Authority of the OJK as Supervisor and Regulator

The OJK is authorized to deactivate the executives of an insurance company in the event of any of the following:

1.    The insurance company has been sanctioned regarding the limitation of its business activities;
2.    The insurance company is deemed unable to fulfill its obligations;
3.    The insurance company is deemed to be financially unhealthy or to have not conducted its business activities in compliance with the prevailing laws and regulations; or
4.    The insurance company is deemed to have facilitated financial crimes.

In the event of any one of the above, the OJK is authorized to appoint a statutory administrator who would take over management of the insurance company so as to maintain its stability.

The New Insurance Law also requires that insurance business service providers – such as actuarial consultants, public accountants and appraisers – be registered with the OJK

Finally, compared to the Previous Insurance Law, the New Insurance Law establishes a stricter penal code. For example, under the New Insurance Law, if an insurance company submits inaccurate information, data or documentation to the OJK, the sanctions can include imprisonment for a term of up to five years and a fine of up to IDR 10 billion.


The New Insurance Law has clearly established more specific and stringent obligations for insurance companies to follow, as well as more thorough protection and security for insured parties, thus raising standards and enhancing regulatory integrity in the industry.


If you have any questions relating to this article, please contact:

Cornel B. Juniarto
Partner, Hermawan Juniarto
Tel +62 21 2995 9057

Stefanus Brian Audyanto
Senior Associate, Hermawan Juniarto
Tel +62 21 2995 9057

Ghema Ramadan
Associate, Hermawan Juniarto
Tel +62 21 2995 9057


Posted in News and Media on Sep 17, 2014