Liga Asuransi – The development of the insurance industry is still interesting to follow. In the second week of September 2023, we have summarized 7 selected news related to insurance that you should know.
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LPS Boss Asks for Improvements in Insurance Industry Management Before Entering Underwriting
The Deposit Insurance Corporation (LPS) is calling on companies in the insurance industry to immediately improve their management, considering that LPS will be given expanded authority to guarantee insurance policies.
The expansion of LPS’s authority is stated in the Financial Sector Development and Strengthening Law (UU P2SK), where LPS guarantees that depositors feel safe placing their funds in insurance.
The LPS Board of Commissioners, Purbaya Yudhi Sadewa, said that the OJK is still developing this regulation and will be implemented in 2028. Considering the remaining time, insurance companies still have time to adapt to existing rules later.
Understandably, Purbaya said, companies in the insurance industry seem relaxed about their chaotic management. However, this will no longer be possible if the P2SK Law regarding policy guarantees comes out later.
“Even though the OJK regulates it, we are the ones who determine which insurance is included in the guarantee. Suppose in 2028, they can’t improve their management and can’t be accepted into the LPS guarantee program. In that case, they are finished because people won’t trust the company (LPS does not guarantee it),” said Purbaya to Kontan when we met in Jakarta Wednesday (6/9).
So that the insurance policy guarantee rules that will be created will make it easier for policy customers to see which insurance is guaranteed by LPS so that they don’t need to worry about the funds they have with the company.
“I hope that with sufficient time, with clear regulations, everything will be better prepared when we run the policy guarantee program. I don’t want that in 2028, the policy guarantee program starts, and in 2029, dozens of insurances will fall off. So we will be properly screened,” explained Ancient.
Regarding insurance policy guarantees, LPS will only guarantee policies from healthy insurance companies and pay fees to LPS as stated in the law.
LPS details the types of insurance policies LPS guarantees: life insurance, pure insurance, and general insurance. In the future, LPS estimates this could spread to other insurance policies.
OJK Issues Latest Regulations in 2023 Requiring Spin-Off of Sharia Insurance Business Units until 2026
The Financial Services Authority (OJK) has issued POJK 10 and POJK 11 of 2023, focusing on the separation (spin-off) of Sharia insurance business units. Previously, OJK had published POJK 6 of 2023, which discussed the Financial Health of Insurance Companies and Reinsurance Companies using Sharia Principles. POJK 11 of 2023 discusses the separation of Sharia business units for insurance and reinsurance companies, while POJK 10 of 2023 discusses the separation of Sharia business units for guarantee companies.
According to the Head of the OJK IKNB Supporting Directorate, Muhammad Anshori, in 2026, all sharia units of insurance or reinsurance companies are required to separate teams. OJK has socialized POJK 10 and 11 to the Sharia Supervisory Board (DPS) and the National Sharia Council of the Indonesian Ulema Council (DSN MUI) in an event initiated by the Indonesian Sharia Insurance Association (AASI) in Bandung.
There are two forms of separation of sharia units mentioned by Anshori. First, establish a new Sharia insurance company, independently or in collaboration with other Sharia units. Second, by moving its business portfolio to an existing Sharia insurance company.
Apart from POJK 10 and 11, OJK has also issued POJK 6 of 2023, which discusses the Financial Health of Insurance Companies and Reinsurance Companies using Sharia Principles. Even though this POJK regulates more about companies than DPS, Anshori reminded me that DPS needs to understand it because several points need to be considered.
Even though this POJK was only published on April 6, 2023, the discussion is similar to POJK 72 2016. Aspects such as Tabarru’ Funds or Risk-Based Minimum Tanahud Funds (DTMBR) and Risk-Based Minimum Funds (MMBR) remain a concern. Anshori also revealed that there would be more changes in the future, including regarding the Sharia Insurance Industry Consolidation Policy and strengthening Sharia financing insurance governance.
AAUI Proposes 70:30 Risk Sharing between Insurance and Banking in Credit Insurance
The Indonesian General Insurance Association (AAUI) has submitted a proposal to the Financial Services Authority (OJK) regarding risk sharing in credit insurance.
This risk-sharing proposal proposes a 70:30 ratio between the insurance and banking industries. Banks also aim to share the risks of providing credit to their customers.
According to the Executive Director of AAUI, Bern Dwyanto, this step will encourage banks to analyze their customers’ risks more carefully. Risk-sharing will also share the burden when there is a claim so that not all responsibility falls on the insurance company.
By implementing this risk sharing, AAUI hopes that credit insurance performance will improve because not only one party bears the risk.
AAUI Deputy Chair for Statistics and Research, Trinita Situmeang, also noted that the distribution of this ratio exposure could impact the future performance of the credit insurance business, and this change may only be visible in the loss ratio several months after it is implemented.
For information, credit insurance claim data reported by AAUI has increased significantly, with claim payments rising by 31.3% to IDR 6.1 trillion in the first semester of 2023 compared to the same period in 2022, which amounted to IDR 4.7 trillion.
Source: https://keuangan.kontan.co.id/news/aaui-usulkan-pembagian-risiko-untuk-asuransi-kredit
BTN CEO: Claim Debt of IDR 500 Billion Related to Credit Life Insurance at Jiwasraya
PT Bank Tabungan Negara (Persero) Tbk (BBTN) has announced that currently, there are around IDR 500 billion in unpaid credit life insurance claims related to home ownership loans (KPR) from PT Asuransi Jiwasraya. The Main Director of BTN, Nixon LP Napitupulu, explained that several heirs of credit life insurance debtors still cannot obtain a house certificate because they cannot pay off their KPR.
“We ensure that cooperation is safe, unlike the Jiwasraya case. We still have more than IDR 500 billion in outstanding MPL (maximum probable loss) that we cannot cover. And IFG is still trying to do that,” he said at Graha CIMB Niaga, Jakarta, Wednesday (6/9).
Nixon revealed that the heirs could not pay off the policy because the insurance clause required payments to be made by the Jiwasraya insurance company, which amounted to approximately IDR 500 billion.
“Since Jiwasraya has had problems until today, KPRs, yes, NPLs because the debtor died, to this day they have not been paid off. “Because the insurance bank’s closure is the one that pays the Jiwasraya insurance,” said Nixon.
IFG President Director, Hexana Tri Sasongko, said that the NPL worth IDR 500 billion is a credit life insurance product belonging to Jiwasraya debtors being restructured. According to him, an agreement has been reached regarding the restructuring scheme by BTN.
“We have reached an agreement on the restructuring scheme with BTN so that once the funding is available, it will be transferred directly to IFG Life,” he said.
Hexana said that when the funds were available, it was targeted that the transfer could be carried out by the first quarter of 2024. According to him, there was only one policy in the name of BTN Bank. Still, around 600 thousand participants came from BTN credit life insurance customers, which Jiwasraya guaranteed then.
“The solution is that we restructure it, we improve the terms and conditions so that it is healthy so that when it is transferred to IFG Life, it produces a healthy portfolio so that benefit payments will be made at IFG Life,” he said.
OJK Develops Action Plan to Accelerate Growth of the Insurance Industry
The Financial Services Authority (OJK) is working with all parties involved in the insurance industry in Indonesia to design an insurance development plan. Deputy Chairman of the OJK Board of Commissioners, Mirza Adityaswara, revealed that preparing this plan is to support the growth of the insurance business in Indonesia. He explained that this plan document would be implemented effectively as a manifestation of the joint commitment of all relevant parties in encouraging the development of the insurance sector in Indonesia. Mirza conveyed this statement at the virtual 2023 August 2023 Monthly RDK Results Press Conference on Financial Services Sector Assessment and OJK Policy on September 5, 2023.
Apart from that, Mirza also revealed that the OJK would make improvements to the Financial Services Authority Regulation (POJK) Number 67/POJK.05/2016 relating to business permits and the structure of insurance companies, including Sharia insurance companies, reinsurance companies, and sharia reinsurance companies. The update will include provisions regarding capital and the grouping of insurance companies based on their money level. Apart from that, OJK will also regulate provisions related to insurance products. This plan will also include changes to POJK 23/POJK.05/2015 concerning Insurance Products and Insurance Product Marketing Channels. Apart from that, OJK will formulate new provisions regarding credit insurance and suretyship, which currently still follow the provisions issued by the Minister of Finance, namely PMK number 124/PMK.010/2008 concerning the Implementation of Credit Insurance and Suretyship Business Lines.
From January to July 2023, OJK reported that insurance premium income had reached IDR 177.13 trillion. This figure decreased by 2.34 percent compared to the previous year’s period. There was a more significant decline in the life insurance industry, with premium income falling by 7.85 percent year on year (yoy) to IDR 102.12 trillion as of July 2023. This was mainly due to the normalization of premium income performance in the Insurance Products business line, which is Linked to Investment (PAYDI), as explained by the Chief Executive of the Insurance, Guarantee, and Pension Fund Supervisor who is also a Member of the OJK Board of Commissioners, namely Ogi Prastomiyono in the virtual Press Conference Results of the August 2023 Board of Commissioners Meeting (RDK) on September 5 2023.
On the other hand, Ogi stated that general insurance and reinsurance premium income experienced positive growth of 6.30 percent year on year (yoy) to IDR 75.02 trillion. Apart from that, Ogi also emphasized that capital in the insurance industry is generally still in good condition, with risk-based capital (RBC) reaching 460.32 percent for life insurance and 311.53 percent for general insurance, far exceeding the specified threshold. Set at 120 percent.
Can a New Direction in Credit Insurance Save the Insurance and Banking Sectors?
The restructuring process, the impact of the COVID-19 pandemic, and the worsening repayment capacity of banking debtors have become severe challenges for insurance and guarantee companies. The situation is increasingly complicated because the pandemic has caused many victims, including banking customers, and many businesses have had to experience a decrease in their ability to pay, so they need to restructure. This burden then shifts to insurance and guarantee companies because the bank has transferred the risk by purchasing credit insurance premiums in life insurance and business insurance. Credit insurance products, which were initially an easy source of income thanks to sales through banks, have now become a massive burden for the insurance industry. Some companies have even decided to market this product no longer.
The Financial Services Authority (OJK) is trying to overcome this situation. Without credit insurance, banks will become very careful in taking risks, which has the potential to hamper credit distribution. However, if most risks are transferred to insurance companies, the insurance industry cannot cover all risks, especially those exposed during the COVID-19 pandemic.
Regulators are currently drafting OJK Regulations (POJK) related to credit insurance. In the design process, OJK has submitted a Draft POJK (RPOJK) related to credit insurance to the industry to obtain input.
This new policy aims to update the Minister of Finance Regulation (PMK) Number 124/PMK.010/2008 concerning implementing Credit Insurance and Suretyship Business Lines.
Chief Executive of Insurance, Guarantee, and Pension Fund Supervision, who is also a member of the OJK Board of Commissioners, Ogi Prastomiyono, stated that one aspect of this design is the sharing of credit risk between insurance or guarantee companies and banks or leasing. However, some insurance companies expect creditors to share chances in a lower proportion than 20 percent, and OJK accepts this input.
In addition, there are other considerations that the OJK is considering in credit regulations, including specific products that may not require the sharing of credit risk. However, details regarding the product in question have yet to be explained by the OJK.
The hope is that improvements in credit insurance regulations will make the credit insurance and credit guarantee industry more stable. This regulation is expected to be completed by the end of 2023.
On the other hand, the President Director of PT Asuransi Asei Indonesia, Dody AS Dalimunthe, explained that credit insurance is a form of protection that guarantees the creditor’s risk of loss due to the debtor failing to pay the loan according to the agreement. Therefore, careful debtor selection by creditors, such as banks, is the key to this credit insurance. Banks also share the risk burden so that credit insurance can be more controlled. The amount of risk banks share must be negotiated to encourage better selection of debtors.
Dody also mentioned several products that were taken into consideration when sharing risks. This includes credit insurance for working capital loans, investment, and consumer credits, where banks dominate decision-making. However, this risk can be shared without special requirements in a bancassurance scheme, where the bank customer is the insured.
Abitani Taim, Chair of the College of Risk Management and Insurance (STIMRA), believes that credit insurance aims to reduce financial losses for debtors and banks due to certain risks. The benefits of indemnity can be set at a smaller amount than the actual loss, which can encourage better risk management.
For example, the bank or insured may cover a small portion of the loss or benefit, known as a deduction or excess of loss. This is by the principle of indemnity insurance to encourage maintenance of insurance objects and prevent excessive claims.
Increasing the Number of Quality Insurance Agents: Take a Look at the AAUI Strategy Plan
The Indonesian General Insurance Association (AAUI) will collaborate with the Indonesian General Insurance Agent Expert Association (A3UI) to regulate and improve the quality of general insurance agents in Indonesia.
Budi Herawan, General Chair of AAUI, stated that the collaboration between AAUI and A3UI will improve the professionalism of insurance agents, which is considered the key to overcoming the problem of problematic insurance policies. According to him, it is essential to implement this collaboration in real terms to improve the insurance sector they love to be better, healthier, and measurable. Budi Herawan conveyed this during the Memorandum of Understanding (MOU) signing between AAUI and A3UI for cooperation in insurance activities on Tuesday, September 5, 2023.
Budi highlighted that to change and improve insurance agents, there needs to be good governance from all related parties.
For additional information, A3UI is an organization that brings together insurance agents throughout Indonesia and was formed in 2019. One of A3UI’s main goals is to support general insurance agents to become more professional.
Budi also revealed that currently, there are around 66,000 general insurance agents, and the target is to increase this number to reach 750,000 to 1 million agents within the next five years. Over the next three months, they hope to add around 75,000 agents.
Budi Hermawan emphasized that agent training will provide certification and involve more intensive training and a strict selection process. This is considered necessary because the accreditation provided by AAUI will significantly impact the insurance industry.
This article is brought to you by L&G Insurance Broker.
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