Impact of the New Insurance Law on Insurance Supporting Businesses

As discussed in our recent newsflash, the new Law on Insurance (“New Insurance Law”) passed by the House of Representatives on September 23, 2014, will bring about major changes for the insurance sector. A number of regulations are expected to be issued to implement provisions of the New Insurance Law and to accommodate the shift of authority over the insurance sector from the Minister of Finance (“MOF”) to the OJK, which occurred as of December 30, 2012, in accordance with Law No. 21 of 2011 on the Financial Services Authority (“OJK Law”).


Under the previous law on insurance, Law No. 2 of 1992 on Insurance Business (“Old Insurance Law”), parties providing auxiliary or support services for insurance businesses were classified as “Insurance Supporting Businesses”. The term Insurance Supporting Business is no longer used in the New Insurance Law. Instead,

  1. Insurance and reinsurance brokerage firms and claims adjuster companies are now categorized as Insurance Business Entities (along with insurance and reinsurance companies), whereas
  2. Insurance agents and actuarial consulting companies are no longer considered part of Insurance Business, and are only addressed with minimum provisions.

Because insurance agents and actuarial consulting companies are excluded from Insurance Business, they are only subject to provisions that explicitly refer to them. This has the legal consequence that none of the implementing regulations of the Old Insurance Law will apply, absent specific reference. We understand that OJK will continue to process applications that were filed prior to enactment of the New Insurance Law under the former regulatory regime.


The New Insurance Law distinguishes between insurance brokerage firms and reinsurance brokerage firms. Insurance brokerage firms provide consultation or intermediary services relating to insurance coverage and act on behalf of policyholders in settling claims, whereas reinsurance brokerage firms provide similar services regarding reinsurance placements and act on behalf of insurance, guarantee and reinsurance companies.


All brokerage firms are required to obtain a business license from the OJK in accordance with MOF Decree No. 425/KMK.06/2003 on Licensing and Implementation of Business Activities of Insurance Supporting Business Companies (“Licensing Regulation”).


Considering that brokerage firms are classified as Insurance Business Entities under the New Insurance Law, the ownership rules under the New Insurance Law apply.

According to the New Insurance Law, Insurance Business Entities must be owned entirely by Indonesian individuals or legal entities, or can be jointly owned by Indonesian individuals/entities in partnership with foreign legal entities. Note that the New Insurance Law defines Indonesian legal entities as those directly or indirectly owned entirely by Indonesian citizens, meaning that a PMA company that is ultimately 100% owned by Indonesian shareholders can qualify as a local shareholder.

For a foreign legal entity to hold shares in an Indonesian Insurance Business Entity, it must be in the same line of business, or hold a subsidiary in the same line of business, as the target company. Foreign individuals are limited to acquiring shares through stock exchanges.

The exact percentage of permitted foreign ownership will be further stipulated under a Government Regulation, but for the time being, Government Regulation No. 73 of 1992 on Organizing Insurance Business, as amended (“Insurance Regulation”), caps foreign ownership at 80% at the time of establishment, with a minimum initial investment of IDR 1 billion, which must be entirely paid up. We understand that the foreign ownership cap may be significantly reduced in the forthcoming Government Regulation.

Fit and Proper Test

Under OJK Regulation No. 4/POJK.04/2013 on Fit and Proper Test of Primary Parties in Insurance Companies, Pension Funds, Financing Companies, and Credit Insurance Companies, the following parties of a brokerage firm are required to pass the fit and proper test upon being nominated, periodically to maintain their position, and at any time required by the OJK:

  1. Directors;
  2. Commissioners;
  3. Members of the representative body;
  4. Controlling shareholders; and
  5. Experts and foreign workers.

Good Corporate Governance

To implement good corporate governance under OJK Regulation No. 2/POJK.05/2014 on Good Corporate Governance for Insurance Companies (“Corporate Governance Regulation”), brokerage firms are required to appoint at least two directors and two commissioners if the annual income derived from providing intermediary services exceeds IDR 10 billion. There are also provisions that specifically apply to directors, commissioners and shareholders of brokerage firms, which cover:

  1. Composition and obligations of the board of directors and board of commissioners; and
  2. Requirements and prohibited conduct applicable to directors, commissioners and shareholders.

In addition, brokerage firms are obligated to follow rules under the Corporate Governance Regulation on:

  1. Remuneration and wage policies for directors, commissioners, and employees;
  2. Public information disclosure;
  3. Relations with stakeholders and insurance agents; and
  4. Business ethics.

OJK Levies

Brokerage firms are obligated to pay levies imposed by the OJK based on Government Regulation No. 11 of 2014 on Levies by the Financial Services Authority, covering:

  1. Direct service fee of IDR 5 million for each business license application; and
  2. Annual fees amounting to 1.2% of their total business revenue for the respective year.

No Composite

The New Insurance Law prohibits composite brokerage firms, and consequently, insurance brokerage firms are only allowed to carry out insurance brokerage activities, while reinsurance brokerage firms are limited to providing reinsurance brokerage services.


Claims adjuster companies are those that provide services to appraise claims and consultation services on insured objects (such as property, motor vehicles and personal liability).

With the exception of the mandatory minimum initial investment, the same provisions that apply to brokerage firms also apply to claims adjuster companies. There is no minimum initial investment for claims adjuster companies.


Insurance agents can be either sole proprietorships or employees of an agency that provide marketing services on behalf of insurance companies. They may also receive premium payments from policyholders on behalf of their insurance company partner.

Applicable Provisions under the New Insurance Law

Because insurance agents are not included in the definition of Insurance Business Entities under the New Insurance Law, only specific provisions under the New Insurance Law apply to insurance agents, including requirements to be registered with the OJK, possess sufficient competence regarding insurance matters, and follow good corporate governance provisions.


In providing services to insurance and reinsurance company clients, actuarial consulting companies provide reserve analyses and calculations, issue actuarial reports, evaluate risks and design insurance programs. While actuarial consulting companies are now excluded from regulation as Insurance Business Entities, individual actuaries that are employed by Insurance Business Entities continue to be subject to OJK oversight and must undergo the fit and proper test, while non-employee actuaries that intend to provide services to Insurance Business Entities must be registered with the OJK.

Applicable Provisions for Actuarial Consulting Companies

The most notable provision under the New Insurance Law is the return of supervisory authority over actuarial companies from the OJK to the MOF. Under MOF Decree No. 210/KMK.01/2013 on Implementation of Duties and Functions of the Former Capital Market and Financial Institutions Supervisory Agency, the Accountant and Appraiser Supervisory Center (Pusat Pembinaan Akuntan dan Jasa Penilai – “PPAJP”) assumed regulatory authority over actuarial consulting companies, although in practice, OJK has continued to act as the regulator  since assuming oversight of insurance businesses at the end of 2012.

Now that the implementing regulations of the Old Insurance Law no longer apply to actuarial consulting companies, the MOF plans to issue its own regulations to govern the sector. We understand that a draft regulation has been prepared and issuance is pending official delegation from the MOF. For now, the transitional provisions of the New Insurance Law allow actuarial consulting companies to continue operating under existing business licenses.

October 27, 2014