Indonesia

Principal Legislation

The principal legislation governing all life and non-life insurance activities in Indonesia is Law No. 40 of 2014 on Insurance, which replaced the earlier Law No. 2 of 1992. This law provides the legal framework for insurance operations and is enforced by the Financial Services Authority (OJK).

Supervision

The insurance industry in Indonesia is regulated by the Financial Services Authority (OJK), which replaced the former Insurance Bureau under BAPEPAM-LK. OJK oversees licensing, operations, financial analysis, and auditing of insurance companies to ensure market stability and consumer protection.

The Federation of Indonesian Insurance Associations (FAPI) represents the interests of both life and general insurers. Within FAPI, there are two main associations: the Indonesia Life Insurance Association (Asosiasi Asuransi Jiwa Indonesia, AAJI) and the General Insurance Association of Indonesia (Asosiasi Asuransi Umum Indonesia, AAUI).

Admitted/Non-Admitted

Non-admitted insurance is generally not permitted in Indonesia, as the law requires insurance to be purchased from locally authorized insurers. However, certain exceptions exist where non-admitted placements are allowed, including marine cargo import insurance, personal insurances purchased via the internet, and risks for which the Financial Services Authority (OJK), which replaced BAPEPAM, has granted specific permission.

Compulsory Classes

• Professional indemnity insurance for insurance brokers
• Fund for road, rail, sea, and air transport passengers under the State Social Insurance Scheme
• Work injury insurance under the state scheme.

State Involvement

There are four state-owned insurance companies operating in Indonesia.

Tariff Classes

There are no statutory tariffs for life and pension insurance. In the non-life market, the only statutory tariff applies to earthquake insurance.

Premium Taxes and Charges

A stamp duty of IDR 6,000 applies to all insurance policies. No other premium or policy taxes are currently imposed.

Policy Language

Policies are issued in Bahasa Indonesia or English.

There were 87 insurers active in the non-life market in 2010, compared to 84 in 2009, 94 in 2007, and 101 in 2004. The market has remained crowded and highly competitive, with some consolidation occurring in recent years.

Coinsurance has traditionally been common for large and medium-size accounts, especially in property, CAR/EAR, engineering, marine cargo, and occasionally large miscellaneous accident policies. However, its use has declined in recent years. Panels of coinsurers can be large, with some participants taking shares as small as 5%. Brokers generally arrange coinsurance, though occasionally it may be arranged directly; agents do not arrange coinsurance.

Currently, Indonesia’s reinsurance market is characterized by a blend of domestic and international reinsurers competing to meet growing demand driven by economic development and increased insurance penetration. Private domestic reinsurers continue to play a key role, but foreign reinsurers provide essential capacity, particularly for large and complex risks. Indonesia has four private domestic reinsurance companies. The trend of increasing market retentions has continued gradually over the past decade.

The distribution of individual life insurance products in Indonesia is primarily through tied agents. Bancassurance is also a highly effective channel, with life insurers valuing partnerships with major banks that have extensive branch networks. Group life business, especially health insurance, is predominantly distributed through brokers.

The Indonesian archipelago is one of the most active volcanic regions in the world. Tsunami is a major exposure in many coastal regions, particularly in West Java, Jakarta, Bandung (Central Java), and Surabaya. The 2018 Sunda Strait tsunami and frequent seismic events highlight the ongoing risk.

Indonesia is not located in the typhoon or cyclone belt, so windstorms are generally not a concern for underwriters, except for flooding caused by monsoon rains. Jakarta, a port city built on alluvial lowland and crossed by over a dozen rivers, is highly prone to flooding.