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Legal Updates | The OJK Issues Regulation on Implementation of Insurance and Reinsurance Companies

Recent Developments

On 23rd December 2016, the Financial Services Authority ("OJK") issued Regulation No. 69/POJK.05/2016 on Business Implementation for Insurance Companies, Shariah Insurance Companies, Reinsurance Companies and Shariah Reinsurance Companies ("Regulation 69"). Regulation 69, which became effective on 28th December 2016 and provides more comprehensive provisions on certain aspects of running an insurance business.

Before the issuance of Regulation 69, many provisions were stipulated under Government Regulation (“GR”) No. 73 of 1992 ("GR 73") on the Implementation of Insurance Business, as amended by GR No. 63 of 1999, GR No. 39 of 2008, GR No. 81 of 2008 and Minister of Finance Decree No. 422/KMK.06/2003 on the Business Conduct of Insurance and Reinsurance Companies ("Decree 422").

Regulation 69 does not clearly revoke the provisions of GR 73 and Decree 422. Based on Law No. 21 of 2011 on the Financial Services Authority, regulations are still valid to the extent that the provisions do not contradict OJK's regulations, and the OJK has not issued a new OJK regulation to replace the existing regulations.

The OJK also issued Regulation No. 67/POJK.05/2016 on Licensing and Institution of Insurance Companies, Shariah Insurance Companies, Reinsurance Companies and Shariah Reinsurance Companies on 23rd December 2016 (effective as of 28th December 2016).


Regulation 69, among other things:

  • Provides that failure to comply with the provision under the Data Protection Regulation could lead to administrative sanctions, including verbal warnings, warning letters, temporary suspension of business activities, and an announcement on the online website.
  • Permits a wider product range for some insurance companies and allows insurance companies to market third parties' financial products.
  • Gives the OJK the power to demand the withdrawal of misleading marketing material.
  • Regulates what must be in an agency agreement.
  • Liberalises to a degree which entities agents can work for, and removes implicitly the 6-month break period between agency arrangements.
  • Imposes additional obligations in respect of agents and the delivery of policies.
  • Deals with claims processing and introduces a 30-day payment period for agreed claims.
  • Regulates the content of websites.
  • Requires insurance companies to have a data centre and a disaster recovery centre in Indonesia by 12th October 2017.
  • Sets out guidelines for outsourcing agreements and processes, and limits what can be outsourced to non-Indonesian entities.

Consequently, insurance companies must adjust their operational procedures which include amending their websites and adjusting operational agreements, including agency agreements, co-insurance agreements and outsourcing agreements.

Noteworthy Provisions

Below are some of the noteworthy provisions of Regulation 69.

Business expansions

Regulation 69 introduces the concept of business expansions. Under Regulation 69, an insurance company could expand its business scope by, among other things, selling other financial services institutions' non-insurance products, (i.e., mutual funds) and managing other companies' employee pension programmes and/or health facilities.

Insurance companies (shariah and conventional) can expand their business scope on the following conditions:

  1. General insurance companies can expand their activities to conduct:
    1. unit-linked business activities (1)
    2. fee-based activities (2)
    3. credit insurance and surety activities
    4. any other activities based on an appointment from the Government (3)
  2. Shariah general insurance companies and shariah units of general insurance companies can expand their activities to conduct:
    1. unit-linked business activities
    2. fee-based activities.
    3. any other activities based on an appointment from the Government
  3. Life insurance companies, shariah life insurance companies and shariah units of life insurance companies can expand their activities to conduct fee-based activities.

Any fee-based activities should be for administrative services only (ASO) related to employee benefits (4) and selling other licensed financial services institutions' licensed non-insurance and non-reinsurance products (i.e., mutual funds) (5).

The business expansion plan must be included in the insurance company's business plan approved by the OJK. To obtain the OJK approval, the insurance company must comply with the following requirements:

  1. The insurance company fulfills the solvability level requirement.
  2. The insurance company is not under an OJK sanction limiting its business activities.
  3. The OJK determines that the risk level of the insurance company is low or medium-low.

In addition to the above requirements, the insurance company must comply with other specific requirements under Regulation 69.

With regard to the transition period under Regulation 69:

  1. A general insurance company that has conducted credit insurance and surety activities before the effective date of Regulation 69 is obliged to adjust and comply with the requirements of Regulation 69 within one year after the effective date of Regulation 69.
  2. Any agreements with regard to impermissible fee-based activities related to ASO before the effective date of Regulation 69 are still valid until those agreements expire.

Advertisement material

As a general rule, the OJK requires insurance companies to provide accurate, clear and correct information related to their products. Regulation 69 provides that the OJK is authorised to demand that insurance companies withdraw their advertisement material if the OJK considers that the material is not accurate, not clear or misleading. Under the previous regulations, the OJK did not have the right to do so.

Minimum provisions under an agency agreement

Regulation 69 provides that an agency agreement must contain the following provisions:

  1. a code of ethics
  2. obligations on an agent to comply with the code of ethics
  3. the period to submit premiums or contribution payments to the insurance companies

The OJK has confirmed that the requirements above are only applicable for new agency agreements entered into after the effective date of Regulation 69. However, it would be prudent for insurance companies to move to compliance for all agreements.

Single agent

Based on article 27 of GR 73, an agent can only work at one insurance company at a time and there must be an agency agreement between the insurance company and the agent.

If an insurance company holds two lines of business, i.e., life conventional and life shariah or general conventional and general shariah, the OJK's view is that an agent that works for that insurance company only works as an agent of one insurance company. However, an agent could not work for several insurance companies even within an insurance group with several insurance companies with different business lines.

In addition, Minister of Finance Decree No. 426/KMK.06/2003 on the Licensing and Institution of Insurance and Reinsurance Companies previously prohibited insurance companies from employing agents who were still engaged by other insurance companies. Furthermore, an agent prior to being engaged by another insurance company had to wait six months before being engaged by the new insurance company.

As of the effective date of Regulation 69, the above requirements do not apply.

Under Regulation 69, agents of the insurance companies are still not allowed to enter into an agency agreement with an insurance company with a similar business line. If an insurance company intends to enter into an agency agreement with an agent of another insurance company, the company must ensure that the agent has obtained approval from the other insurance company. So in short:

  1. There is no 6-month "garden leave" after an agent ceases to be an agent of one insurance company.
  2. Agents can be agents of another insurance company in a different business line (but not the same business). However, the agents must have approval from the insurance company with which they are currently engaged.

While it is unlikely that one insurance company would readily give approval to be an agent of another insurance company, the above provisions will now allow agents to work for a group (important as shariah units are spun off).

Requirements for agents

There are additional requirements for agents which include the following:

  1. An insurance company must inform the customers about resigning agents and provide information on the agent or customer service officer that will replace the resigning agent.
  2. An insurance company must provide training (at least twice a year) on its insurance products. The material must include marketing procedures and the procedures for making claims.

Issuance of insurance policies and timing to review the policies

Regulation 69 introduces time requirements on the issuance of insurance policies and reviewing policies.

Insurance companies must ensure that customers have received insurance policies within 10 working days after payment is received by the companies. For non-micro insurance products and products with coverage of more than one year, the insurance company must give the customer a 14-day cooling off period to review the received policies.

Appointment of an appraiser

Regulation 69 provides that an insurance company can appoint an appraiser to appraise any claims and that if an insurance company appoints an appraiser, the insurance company cannot ignore the appraiser's determination (unless there are strong and reasonable reasons for doing so). Regulation 69 also stipulates that claims must be paid within 30 days after the date the insurance company and the customer agree on for the amount of the claim.

Minimum content of companies' websites

Regulation 69 provides that an insurance company's website must present the following information:

  1. A company profile (including references to the business license from the OJK, the organisation structure, office address and contact numbers).
  2. A summary of products.
  3. Details of transaction procedures.
  4. Details of claims procedures and services.
  5. A list of insurance agents.
  6. Company management information as stated in the company's annual report.
  7. Other information that is required by other regulations or that is considered necessary.
  8. Details on the performance of investment funds.

In addition, an update is required within 20 working days after information changes occur.

Data Centre in Indonesia

Before the issuance of Regulation 69, there was no clear requirement on the location of data centres and disaster recovery centres under the insurance regulations. However, Regulation 69 clearly states that an insurance company is obliged to store its data in a company data centre and disaster recovery centre in Indonesia.

Regulation 69 provides that insurance companies must comply with the requirements on data centres and disaster recovery centres before 12th October 2017.

Shariah principles

Previously, provisions on shariah insurance were stipulated under Regulation of Minister of Finance No. 18/PMK.010/2010 on Basic Principles for the Implementation of Insurance Business with Shariah Principles as amended by Regulation of Minister of Finance No. 227/PMK. 010/2012.

Regulation 69 adopts provisions from the previous regulations and stipulates more comprehensive shariah insurance principles.

Requirements on outsourcing

Insurance companies can obtain outsourcing services from third parties. However, the Insurance Law does not clearly define the scope of activities that can be outsourced. The Insurance Law provides that the permitted outsourcing will be further stipulated by the OJK.

Regulation 69 does not stipulate the permitted outsourcing activities. Regulation 69 focuses more on administration matters, e.g., the form of the agreements and the requirements of the service provider.

Consequently, outsourcing would still need to comply with the outsourcing regulations issued by the Minister of Manpower.

Regulation 69 provides that the forms of agreements between insurance companies and services providers are (i) outsourcing agreements and (ii) labour supply agreements. The agreements must at least contain provisions on the types of work, value of work and terms of outsourcing.

Insurance companies can only outsource their work to Indonesian legal entities and those Indonesian legal entities must:

  1. have a valid business license
  2. have financial credibility, a good reputation and sufficient experience
  3. have sufficient manpower support
  4. have sufficient infrastructure
  5. have competition standards
  6. have no conflict of interest with the insurance company

An insurance company may outsource to a foreign service provider work which is related to the research and development of products, information systems and/or other activities that cannot be supported by any Indonesian service providers. An agreement with a foreign service provider must be notified to the OJK at the latest 14 days before the agreement is signed.

Any outsourcing agreements that were entered into before the effective date of Regulation 69 remain effective until they expire.


Regulation 69 provides more comprehensive provisions related to coinsurance arrangements include provisions stating the following:

  1. the principles for coinsurance requirements for insurance companies, which include:
    1. The leader will assume the biggest portion of the transaction.
    2. The claim payments are made by the leader or a member based on approval of the leader.
    3. The coinsurance arrangement must be stated in a written agreement.
  2. the minimum provisions under coinsurance agreements, which include:
    1. Composition of leader and members
    2. A provision stating that the leader is entitled to determine underwriting decisions and claim approvals
    3. Premium payment
    4. Procedures for the distribution of premiums among the members

Mandatory insurance programme

Under Regulation 69, a mandatory insurance programme means a mandatory insurance programme based on laws and regulations to cover particular risks excluding mandatory programmes to provide basic coverage as stipulated under Law No. 40 of 2014 on Insurance. Regulation 69 provides that insurance companies that provide mandatory insurance programmes are subject to the following requirements:

  1. The company has a separate office outside its headquarters to support the programme.
  2. The company has reached a minimum solvability level of 200% and liquidity level of 150%.
  3. The company has employees that have been trained to run the mandatory insurance programme.

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 19th January 2017

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)