The insurance sector is one of the industries in Indonesia that has restrictions on foreign ownership of a company (See Overview of the Negative Investment List). Having the ceiling set at 80%, foreign investors will effectively need to have one or more local partners in establishing a new insurance company, i.e. form a joint venture. The same limit applies in taking over an existing company. Insurance companies in this regard may pertain to ventures providing conventional life insurance services, conventional general insurance services, conventional reinsurance services, Shariah-compliant life insurance services, Shariah-compliant general insurance services and Shariah-compliant reinsurance services.

The foreign investor must be a firm involved in the same line of business, or a parent company which has a subsidiary involved in the same line of business. On the other hand, it is also possible for foreign individuals to own a stake in Indonesian insurance companies. However, this can only take place through the capital market.

In starting a new insurance joint venture (See Joint Venture Company Establishment in Indonesia), a foreign investor is first required to set up a foreign investment company (PMA) (See Incorporating a PMA Company in Indonesia) and obtain a principle license from the Investment Coordinating Board (BKPM). After having secured this, an investor can proceed to apply for a business license from the Financial Services Authority (OJK). With regards to an established domestic investment company (PMDN) which already has a license, a foreign firm planning to acquire majority share in the said company will still need to obtain a principle license from the BKPM and request a status change from PMDN to PMA for that company.

Obtaining a Business License

Indonesia’s insurance industry is overseen by the OJK as the government body with the authority to issue licenses and regulations, administer sanctions, and implement policies related to the financial sector. In applying for an insurance business license from the OJK, the following are the primary requirements:

1. To provide copies of the PMA’s Articles of Association.
2. To provide details of the PMA’s organisation structure, Board of Directors and Board of Commissioners.
3. A PMA in insurance must have a minimum equity of 100 billion IDR; a PMA in reinsurance must have a minimum equity of 200 billion IDR.
4. To establish a guarantee fund of at least 20% of the mandatory minimum equity.
5. To have qualified shareholders, directors, commissioners, Shariah Board members, actuaries and internal auditors in accordance with requirements and assessment procedures specified in OJK regulations.
6. To determine at least one controlling shareholder.
7. To employ certain experts.
8. To have a proper work plan.
9. To have a proper risk management system.
10. To have products to be marketed.
11. To disclose business agreements with affiliated parties which contain rights and obligations, or transfer of certain functions from the PMA.
12. To have a system through which the PMA processes and submits its reports to the OJK.
13. Confirmation from the relevant authority in the foreign principal’s country of origin.
14. Any other requirements deemed necessary to support healthy business growth.

The OJK should deliver a verdict on the business license application no later than 30 work days after a complete application has been submitted.

Adding to the information above, it should be noted that any insurance or reinsurance company, whether conventional or Islamic, must appoint at least one controlling shareholder to subsequently report to the OJK. In the event that an insurance company fails to do so, the OJK will step in and appoint one. That said, a party is only allowed to become a controlling shareholder for one conventional life insurance company, one conventional general insurance company, one conventional reinsurance company, one Islamic life insurance company, one Islamic general insurance company and one Islamic reinsurance company.

For more information about investing in Indonesia’s insurance sector or finding a local partner in Indonesia, contact GBG Indonesia

Global Business Guide Indonesia - 2016

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Indonesia Finance Snapshot - Insurance

Total Assets: 853 trillion IDR (2015)
Life Insurance Growth: 17% (Q2 015)
General Insurance Growth: 10% (2015)
Number of Life Insurance Companies: 50
Number of General Insurance Companies: 81 (2015)
Conventional Insurance Penetration : 2.51% (2015)
Islamic Insurance Penetration: 0.08% (2015)
Government Bodies: Bank Indonesia, Ministry of Finance, Financial Services Authority (OJK).
Relevant Law: Presidential Regulation No. 39 of 2014 on the Negative Investment List permits foreign ownership up to 80% in the sector, excluding pensions, and the 2014 Insurance Law introduced increased protection for policyholders.

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