This article was published in id Investor on March 15, 2021with the title “Lembaga Penjamin Polis Harus Segera Dibentuk”
Liga Asuransi – The government needs to promptly establish the Insurance Guarantee Institution (LPP) considering a series of problematic life insurance cases that have eroded public trust in the industry. Furthermore, the formation of LPP aligns with the mandate of Insurance Law No. 40 of 2014, which should have been realized by 2017.
Currently, there are two scenarios related to LPP. First, LPP can be formed as a new entity. Second, the Deposit Insurance Corporation (LPS), which usually guarantees bank deposits, can play a dual role as a guarantor of insurance policies. This step is taken so that the government does not have to allocate a large fund, given that the establishment of LPP requires a minimum capital of IDR 4 trillion.
If the authority of LPS is expanded, an amendment to the LPS Law is needed, which can be accommodated through the Financial Sector Omnibus Law currently being prepared by the government. The DPR, players in the life insurance industry and observers support the establishment of LPP but caution that the institution should not create moral hazards.
Riswinandi, the Executive Head of the Non-Bank Financial Industry Supervision (IKNB) at the Financial Services Authority (OJK), stated that the formation of LPP is still in the discussion process. The details are still under discussion.
Moch Ihsanuddin, Deputy Commissioner of the Non-Bank Financial Industry Supervision (IKNB) II at the Financial Services Authority (OJK), stated that OJK supports the establishment of LPP as the organizer of the insurance guarantee program. Although OJK supports it, the authority to initiate the formation of LPP is not within OJK’s jurisdiction; it belongs to the government, specifically the Ministry of Finance.
According to Article 54 of Law 40/2014 on Insurance, LPP, acting as a mediation institution for dispute resolution between policyholders and insurance companies, must obtain written approval from OJK before mediation. The mediation agreement is final and binding on all parties. Further implementation is regulated in the Financial Services Authority Regulation (POJK).
Article 53 of the law mandates that all insurance companies and Sharia insurance companies must participate in the insurance guarantee program. In writing, the organization of this program must be regulated within three years after the Insurance Law comes into effect, so LPP should have been established before 2017.
Togar Pasaribu, the Executive Director of the Indonesian Life Insurance Association (AAJI), stated the urgency of establishing LPP. Every time there is information about problematic insurance companies, regulators and the government often hesitate to close them.
“If there is an LPP, the government will be more willing to close problematic insurance companies. That’s one of the benefits of LPP; the government will not hesitate to take action. So, insurance companies, policyholders, and regulators all benefit. This institution is not only urgent but extremely urgent,” said Togar.
Although late, Togar mentioned that now is the right moment to realize LPP. This follows a series of problematic life insurance cases, such as AJB Bumiputera 1912, Jiwasraya, Asabri, WanaArtha Life, and Kresna Life. AJB Bumiputera has had problems since the early 2000s, with various government dispensations that could not be fulfilled by mutual insurance. In the period 2009-2010, Bumiputera received 10 warning letters (SP) from regulators. Since October 21, 2016, OJK officially took over the Bumiputera restructuring process.
Currently, Bumiputera has assets of IDR 10.1 trillion, while obligations have surged to IDR 30.42 trillion, with negative equity of IDR 20.44 trillion. Until June 2020, the total number of members reached 2.85 million, consisting of 2 million individual customers and 847,246 group insurance participants. Bumiputera is currently selling assets to cover some of its obligations, while the government rejects a bail-out.
The Jiwasraya case started with the failure to pay saving plan policies in October 2018, resulting in a debt of IDR 19.3 trillion in November 2020 with negative equity of IDR 38.6 trillion. However, Jiwasraya’s policies are now restructured and transferred to Indonesia Financial Group (IFG Life), with around 52% of corporate clients and 10% of retail customers following the policy restructuring program.
The next cases involve Asabri, WanaArtha Life, and Kresna Life, which are affected by investment losses in the capital market.
Togar emphasized that the presence of LPP’s main goal is to ensure consumer protection as bad governance from insurance companies is revealed. “If we know there is a problem in an insurance company, regulators can act immediately, reduce the number of victims, and force the company to close; that’s where the role of LPP comes in,” explained Togar.
With the existence of LPP, regulators will benefit because they can be firmer and no longer hesitate to take action. The actions of regulators, be it Bank Indonesia (BI) or OJK, will be more measured, and certain, and consumer protection can be achieved effectively. From the company’s perspective, the presence of LPP will be an advantage as it can improve the perception and trust of the public, so people will no longer hesitate to buy insurance products. (hg)
Facing a series of problematic life insurance cases, it is evident that the establishment of the Insurance Guarantee Institution (LPP) is highly urgent. This moment serves as a beacon for the government to promptly materialize LPP, a critical step in restoring public trust in the insurance industry. With LPP in place, the government will gain the courage to take decisive actions against troubled insurance companies, provide optimal protection for policyholders, and strengthen the role of regulators.
Cases like AJB Bumiputera 1912, Jiwasraya, Asabri, WanaArtha Life, and Kresna Life highlight the need for a guaranteed institution that can handle disputes and protect consumers. The existence of LPP is expected to create a more transparent and secure environment, rebuilding public trust in the insurance industry. Thus, LPP becomes an integral solution to maintain the health of Indonesia’s insurance industry and instill positive confidence in stakeholders.
This article is part of the book “BANGKITNYA ASURANSI KAMI” with keynote speaker Professor Muhammad Eddi Purnawan, Member of the OJK Supervisory Board. February 2024. ISBN, IPB Press Publishers.
The price of this book is IDR 155,000 and can be ordered through ligasuransi.com.
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