Liga Asuransi – Hello protection partner, how are you? Have you ever heard the story about an insurance customer who felt like the world was collapsing when his insurance claim was rejected? Her name is Mrs. Maribati Duha, a tough woman who has entrusted her life protection to an insurance policy. However, unexpectedly, when he faced a difficult situation and tried to submit a claim, he was faced with a harsh reality: his claim was rejected for administrative reasons.
Not because he intended to deceive or hide something, but simply because there was a small piece of information that was considered incomplete. In fact, this information has absolutely no effect on the insured risk. Feelings of disappointment, injustice and confusion mixed into one.
However, the story doesn’t stop there. On a bright Friday morning, January 3 2025, good news came from the Constitutional Court (MK). In the hearing to pronounce the decision in case Number 83/PUU-XXII/2024, the Constitutional Court finally stated that Article 251 of the Criminal Code, which has often been used by insurance companies to reject customer claims, is conditionally unconstitutional.
This decision is a glimmer of new hope, not only for Mrs. Maribati, but also for thousands of other customers who have faced similar situations. Now, insurance companies can no longer reject claims simply because of irrelevant administrative reasons. Justice is finally on the side of those who have been less protected.
This is a new chapter in our insurance industry, friend. A step towards a more just and transparent future. Let’s explore together what this decision means and how it impacts us all.
Background
Article 251 of the Commercial Code (KUHD) has long been the legal basis for the insurance industry in Indonesia. This article regulates the customer’s obligation to provide complete and correct information when applying for an insurance policy. If incomplete or inaccurate information is found, the insurance company has the right to refuse the claim, or even cancel the policy. In practice, these rules are often considered too burdensome for customers, who may not fully understand the technicalities or detailed information required.
However, the Constitutional Court (MK) decided that Article 251 of the Criminal Code was conditionally unconstitutional. This decision emphasizes that insurance companies may not reject claims solely because of incomplete disclosure of information from customers. In other words, rejection can only be done if incomplete information is proven to have a significant effect on the insured risk. This decision is in line with the principles of justice and consumer protection, considering that customers often lack the same knowledge as insurance companies.
This Constitutional Court decision has a big impact on customers and insurance companies. On the one hand, customers get better protection, especially from potential unfair claim rejections. On the other hand, insurance companies face new challenges in the underwriting and risk management processes.
Contents of Article 251 of the Criminal Code
Article 251 of the Commercial Code (KUHD) is one of the articles that has been a guideline for insurance agreements in Indonesia. This article stipulates that the customer or insured has an obligation to provide complete, correct and not misleading information to the insurance company when applying for a policy. If incomplete or incorrect information is found, the insurance company has the right to cancel the policy or reject the claim submitted by the customer.
The original purpose of this article is to protect insurance companies from the risk of moral hazard and adverse selection, namely conditions where the insured hides important information that can affect the level of risk insured. The basic principle promoted by this article is known as “uberrima fides” or good faith, which requires customers and insurance companies to be transparent in agreements.
However, in practice, the application of Article 251 of the Criminal Code is often considered burdensome to customers. There are many cases where claims are rejected due to administrative reasons or the customer’s ignorance in disclosing certain information, even though the information is not significant to the insured risk.
Constitutional Court Decision
The Constitutional Court (MK) in its decision stated that Article 251 of the Criminal Code was conditionally unconstitutional. This means that this article cannot be applied absolutely without paying attention to the principles of justice and consumer protection. The Constitutional Court considers that incomplete disclosure of information by customers does not necessarily constitute a valid reason for insurance companies to reject claims or cancel policies.
There are several main reasons the MK decided on this article:
- Consumer Protection
The Constitutional Court emphasized that consumers, in this case insurance customers, are often in a weak position in understanding the technicalities of insurance. This imbalance demands fairer legal protection for customers.
- Principles of Justice
Rejection of a claim may only be made if the incompleteness of the information is proven to be significant and affects the insured risk. If the undisclosed information is not relevant or does not have a material impact on the risk, then the insurance company may not deny the claim.
This ruling is an important milestone in creating insurance contracts that are fairer and more balanced, while still protecting the interests of both parties.
- Conditionally Unconstitutional
The term “conditionally unconstitutional” refers to an article of law that is declared incompatible with the constitution, unless it is applied with certain conditions in accordance with the principle of constitutionality. In the context of Article 251 of the Criminal Code, this requirement is that insurance companies may not reject claims simply because of incomplete information, unless the information has a direct impact on the level of risk covered.
The Constitutional Court provides guidelines that insurance companies must:
- Proving the Relevance of Information
Indicates that undisclosed information has a material impact on the insured risk.
- Ensure Process Transparency
Educate customers about what information needs to be disclosed and what the correct disclosure process is.
- Avoiding Unilateral Rejection
Do not immediately reject claims without adequate proof regarding the relevance of the information not disclosed.
Thus, Article 251 of the Criminal Code can still be used as a guideline, but must be applied with due regard to the principles of justice and consumer protection. Insurers need to update their approaches, both in the underwriting process and claims management, to align with this ruling.
This Constitutional Court decision opens a new chapter in the Indonesian insurance industry, where insurance contracts must not only be based on law, but also on justice and protection for customers. For industry players, including insurance brokers, this is an opportunity to improve practices and build greater trust with customers.
Impact of the Decision on the Insurance Industry
For Insurance Companies
- Changes in the Underwriting Process
The decision of the Constitutional Court (MK) which declared Article 251 of the Criminal Code conditionally unconstitutional has significant implications for the underwriting process in insurance companies. Previously, insurance companies tended to use a formal approach to reject claims if incomplete information from customers was found. With this decision, companies must implement an underwriting process that is more comprehensive and based on in-depth risk analysis.
Companies must ensure that the information they request is truly relevant to the insured risk and is communicated clearly to customers. This requires companies to revise procedures, forms and training for underwriting teams to adapt to regulatory changes.
- Challenges in Managing Risk and Moral Hazard
One of the concerns of insurance companies is the increased risk of moral hazard, where customers may be less motivated to provide complete information because they feel protected by this ruling. Companies must find ways to balance consumer protection with their operational needs to manage risk.
In this case, tighter internal supervision and the involvement of actuaries in risk evaluation become increasingly important. Claims investigation procedures must also be improved to ensure that claims-related decisions are based on clear and transparent evidence.
- The Role of Technology in Risk Mitigation
Insurance companies can leverage technology, such as Insurtech and data analytics, to improve underwriting and claims processes. With this technology, companies can identify risk patterns based on historical data, predict customer behavior, and ensure transparency in every transaction.
Examples of technology use include the implementation of an AI-driven underwriting system that can automatically analyze customer documents and data as well as blockchain to create a track record that cannot be manipulated, increasing accuracy and efficiency in managing claims.
For Customers
- Better Protection for Customers
The Constitutional Court’s decision provides additional protection to customers by reducing the risk of unfair claim rejections. Previously, customers were often in a weak position due to a lack of understanding of insurance techniques. With this decision, they are guaranteed that claims can only be rejected if incomplete information materially affects the insured risk.
- Reducing the Potential for Unfair Claim Denials
There have been many cases in the past where claims were rejected due to administrative reasons or minor errors that were not relevant to the risk. This ruling ensures that customers are no longer disadvantaged by company policies that are too rigid. Instead, the insurance company must prove that the reason for denying the claim really has a significant impact on the policy.
- Increase Trust in the Insurance Industry
This decision could be an important step in rebuilding public trust in the insurance industry. With more pro-consumer regulations, customers will feel more confident in using insurance products. This is expected to encourage increased insurance penetration in Indonesia, which is currently still relatively low compared to other countries in Southeast Asia.
For Insurance Brokers
- Broker’s New Role as a More Proactive Liaison
This ruling requires insurance brokers to be more proactive in bridging the interests of customers and insurance companies. Brokers must act as consultants who help customers understand the importance of disclosing information and accompany them in the claims process.
Apart from that, brokers must also ensure that the information submitted by customers is in accordance with the insurance company’s needs, so that the risk of moral hazard can be minimized. This makes the role of the broker even more important in creating a balance between the two parties.
- Challenges in Helping Clients Meet Appropriate Disclosure Standards
One of the main challenges for brokers is educating customers about the importance of providing complete and relevant information. Many customers still have limited understanding of insured risks, so the broker’s job is to simplify technical communications to make them easier to understand.
Additionally, brokers must also continually update their knowledge of regulations and best practices to ensure that they provide services that comply with the latest standards. This includes utilizing technology such as CRM (Customer Relationship Management) to efficiently monitor and support client needs.
The Constitutional Court’s decision on Article 251 of the Criminal Code has broad and varied impacts. For insurance companies, this is an opportunity to improve service quality by leveraging technology and adapting internal processes. For customers, this decision provides better protection and increases confidence in insurance. Meanwhile, insurance brokers have a strategic role in ensuring that both parties can fulfill their obligations and rights equally. This change is a step forward towards creating a fairer and more inclusive insurance industry in Indonesia.
Analysis and Perspective from an Insurance Broker
Opportunity
- Increasing Need for Consulting and Risk Mitigation Services
The Constitutional Court (MK) decision on Article 251 of the Criminal Code creates an opportunity for insurance brokers to strengthen their role as risk consultants. With new rules that better protect clients, clients will need more structured guidance to ensure they comply with disclosure obligations without administrative errors that could cost them money.
Insurance brokers can offer risk mitigation services that include detailed analysis of relevant information and training for clients to understand how to convey the correct information to insurance companies.
- Potential to Increase Insurance Literacy Among Customers
There are still many customers in Indonesia who have limited understanding of basic insurance concepts, such as risk, policies and claims. This ruling provides an opportunity for brokers to educate the public through seminars, workshops or digital campaigns about the importance of disclosing correct information and the benefits of insurance.
Increased insurance literacy will not only benefit customers, but can also expand the insurance market in Indonesia by building public trust in this industry.
Challenge
- Managing Client Expectations Regarding Claims
The Constitutional Court’s decision creates new hope for customers that their claims will no longer be rejected so easily. However, the challenge for brokers is to ensure clients understand that claims can still be rejected if incomplete information is proven to have a significant impact on the insured risk.
Brokers need to provide customers with a realistic understanding that the claims process still requires proof and complete supporting documents. This is to prevent customer dissatisfaction who feel “guaranteed” by the Constitutional Court’s decision.
- Maintaining Good Relations with Insurance Companies Amid Regulatory Changes
As the party between the customer and the insurance company, the broker faces the challenge of maintaining a balanced relationship with both parties. This regulatory change could create resistance from insurance companies who feel their burden is increasing.
Brokers must play a diplomatic role by helping insurers understand the importance of this new approach, while providing solutions that enable them to manage risk more effectively.
Broker Strategy
- Customer Education Regarding Information Disclosure Obligations
Brokers must take proactive steps in educating customers about the importance of disclosing correct and relevant information. This can be done by providing simple guidance in an easy-to-understand format, such as infographics, video tutorials, or digital guides.
In addition, brokers can provide customer document checking services before they apply for a policy to ensure the information submitted is appropriate.
- Improving Service Quality Through Technology and Personalization
Technology can be a key tool for improving the efficiency and quality of broker services. By utilizing Customer Relationship Management (CRM), brokers can record and monitor customer needs in real-time. Additionally, the use of technology such as chatbots and digital applications can help provide faster and more accurate personalized services.
Personalization of services will help brokers create positive experiences for customers, strengthen trust and increase their loyalty.
- Building More Transparent Communication with All Related Parties
Transparency is the key to maintaining good relationships with customers and insurance companies. Brokers need to ensure that the information they convey to both parties is clear, complete and accurate.
For insurance companies, brokers must present customer information in a way that makes it easier for them to understand the risks. Meanwhile, to customers, brokers need to explain the reasons behind the requirements requested by insurance companies.
The Constitutional Court’s decision on Article 251 of the Criminal Code is momentum for insurance brokers to strengthen their strategic role in the industry. With a focus on education, technology and transparency, brokers can help create a fairer and more inclusive insurance ecosystem. The challenges arising from these changes can be overcome with a proactive and innovative approach, ensuring that brokers remain trusted partners for customers and insurance companies.
Conclusion
The Constitutional Court (MK) decision regarding Article 251 of the Criminal Code is an important milestone in the Indonesian insurance industry. This decision underscores the need for fairer protection for customers, by confirming that claim rejection cannot be based solely on incomplete information that is not relevant to the insured risk. Thus, customers now have a stronger position in insurance contracts, while insurance companies are encouraged to be more transparent and responsible in claims management.
For insurance companies, this decision is both a challenge and an opportunity to innovate, especially in the underwriting and risk management processes. Technologies such as Insurtech and data analytics can be effective tools to support this change. Meanwhile, insurance brokers have a strategic role as liaisons who help customers understand their obligations, while ensuring insurance companies can manage risks efficiently.
On the other hand, increasing insurance literacy is an urgent need. Collaboration between the government, insurance companies and brokers can help the public understand the benefits of insurance better, thereby increasing trust in the industry.
With more adaptive regulations, massive education and the use of technology, the Indonesian insurance industry can enter a new era that is more inclusive, fair and sustainable. This is the momentum to create a stronger insurance ecosystem, protecting society while encouraging national economic growth.
For all your insurance needs, Contact L&G Insurance Brokers Today!
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