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Indonesias New 2014 Insurance Law


The House of Representatives (“DPR”) recently passed the bill on Insurance. The provisions of the bill will come into force after the president assents to it or at any rate within 30 days of its passage at the DPR. The 2014 Insurance Law will replace Law No. 2 of 1992 on Insurance. Within Indonesia’s legislative structure the Insurance Law regulates insurance businesses, core insurance concepts however are largely left to the Civil and Commercial Codes.


Implementing regulations of the 1992 Insurance Law will continue to remain in force to the extent they do no contradict the 2014 Insurance Law and until they are replaced by new implementing regulations.


Businesses Regulated Under the Scope of the 2014 Insurance Law

The 2014 Insurance Law regulates any business related to:

a.     Insurance

b.     Sharia Insurance;

c.     Reinsurance

d.     Sharia Reinsurance;

e.     Marketing and distribution of insurance or sharia insurance products (Agents);

f.      Insurance brokerage;

g.     Reinsurance brokerage;

h.     Loss assessment; and

i.      Providers of supporting services for Insurance Companies (Article 55(1) defines such as: consultants, public accountants, and asset appraisers).


Ownership, Capital Structure and Form of Entity

An insurance business can be in the form of the following legal entities:

a.     Limited liability corporation;

b.     Cooperative; or

c.     Existing Mutual Business, which is treated as a legal entity.


Legal entities under Indonesian law are considered as independent subjects of private law capable of owning assets and bearing liabilities (i.e. entering into contracts under its own name against its own properties).

An insurance business can be owned only by:

a.     Indonesian individuals;

b.     Indonesian Entities wholly owned, directly or indirectly, by Indonesian individuals;

c.     Foreign entities jointly with an Indonesian individual or wholly Indonesian-owned entities (the foreign entity or its subsidiary must be in the insurance business);

d.     A foreign person through the stock exchange.


The 2014 Insurance Law requires that a foreign entity intending to own a stake in an insurance business to be engaged or to own a subsidiary engaged in the insurance business so as to promote transfer of capital and knowledge. Article 7(3) stipulates that a Government Regulation will be enacted to set out the terms and conditions under which a foreign entity or person is permitted to own an equity stake in an insurance business.


Restrictions on foreign ownership will be qualitative and quantitative in nature. We anticipate that the qualitative limitation will regulate the foreign entity’s technical capacity, e.g. is capital availability, governance rating, and financial health rating. Quantitative restriction will concern the limits of foreign shareholding (usually denominated in terms of percentage of paid up capital or voting shares). The elucidation to the 2014 Insurance Law provides that quantitative restriction will be flexible, taking into account domestic demand and supply. We interpret this particular provision as gradual adjustment of the negative investment list, which sets out restriction on foreign ownership, and which, under the current investment law, is issued by the President.

Controlling Party

Articles 13 and 15 introduces the concept of a “controlling party,” defined as an entity or individual having the capacity to directly or indirectly control the Board of Directors and the Board of Commissioners. We interpret this broad definition to mean shareholders within the insurer’s articles of association as well as the ultimate shareholder in a wider corporate structure.  


Every Insurer, Sharia Insurer, Reinsurer and Sharia Reinsurer must nominate at least one controlling party. In the event there is a party that controls the insurer de facto, but which the insurer has not designated as a controller, the Financial Services Authority (“OJK”) is authorized to deem such party as a Controlling Party.

There are two key responsibilities of a Controlling Party(s):

(i)         taking responsibility in the event the entity fails to fulfil its obligations to the policyholders, the insured or the participants, where such failure is caused by the influence of such party (Article 13); and

(ii)        to take responsibility for the losses suffered by the entity it controls (Article 15).


While the Article 13 provision may sound as though it pierces the corporate veil by making the Controlling Party responsible, there is scope to interpret responsibility under this provision to not mean liability.[1] However, please note that the 2014 Insurance Law mandates OJK to further regulate with respect to the Controlling Party. Depending on the actual articulations of such regulations, the Controlling Party may be liable in case the insurer defaults.[2]


Article 15 provisions, on the other hand, may be interpreted as making the controlling party jointly responsible for losses suffered by the insurer or reinsurer as a result of the negligence of BOD members it controls in carrying out their duties under Article 97 of Law No. 40 of 2007 on Limited Liability Companies (“Company Law”) insofar as these members cannot demonstrate to have fulfilled the tests under Article 97(5) of the Company Law.[3]

Corporate Actions
Ownership Changes, Mergers, Acquisition, and Consolidation

Every change in the shareholding composition must be reported to and approved by the OJK prior to the corporate action. Tying this provision with provision on authority approval under the Company Law, this means that prospective shareholders will not have perfect title to the shares, including exercising rights attached to share ownership, such as voting and dividends, until the OJK has approved the corporate action. With respect to transactions through the stock exchange, notification and approvals are not required insofar as the transactions do not change the Controlling Party.


Changes to shareholding composition must not lessen the rights of beneficiaries.

Dissolution, Liquidation and Bankruptcy

The 2014 Insurance Law provides for two routes to Dissolution: voluntary and mandatory.


Voluntary dissolution, initiated by the insurance business itself, requires prior notification to the OJK of its intention to cease operation. In such case, the insurance business must settle all outstanding obligations. We interpret this provision to include remaining in operation until all coverage obligations cease. After the obligations have been settled, the OJK will revoke its license and cease operations.


Mandatory bankruptcy can only be initiated by the OJK. A creditor wishing to declare an insurer or reinsurer bankrupt must file the request with the OJK, who will consider the request and make a decision within 30 days. At any rate, a bankruptcy petition cannot be filed for the purpose of enforcing a judicial decision.

Premium Collection

Premiums or contributions are payable by the policyholder directly to the insurer or to the insurer via insurance agent or broker. The insurance coverage becomes effective the moment the insurer or the agent receives the payment of the premium.

Guarantee Funds

Article 20 requires that every Insurer, Sharia Insurer, Reinsurer and Sharia Reinsurer must set up a guarantee fund for the purpose of fulfilling the beneficiaries’ rights in the event of liquidation, the amount of which will be regulated under OJK regulations. The guarantee funds may not be encumbered by any collateral and may only be assigned to another party or disbursed upon OJK’s approval.

Asset Management and Separation of Assets

An insurance business is required to separate assets and liabilities related to the beneficiaries from other assets and liabilities (e.g. own assets and assets for investment).

Policy Guarantee Program

Article 53 provides that in order to protect policyholders, the insured, and participants, every Insurance and Sharia Insurance business has to participate in the policy guarantee program. The program is intended to protect beneficiaries from defaults and liquidations of insurance businesses. The program will be implemented by a primary legislation (law), to be enacted within three years of the 2014 Insurance Law coming into force. Upon the implementation of the guarantee program, Insurers and Sharia Insurers will no longer needs to maintain guarantee funds under Article 20.

[1] There are three reasons as to why responsibility cannot be interpreted as liability.

First, under the Company Law, a company’s shareholder is not personally liable for the liabilities of his company but for the four grounds listed under Article 3(2) of the Company Law. The 2014 Insurance Law has no provision that adds to or modifies these grounds.

Second, only obligations (perikatan) that arise out of the law or contracts are capable of creating legal liabilities whose satisfaction/fulfilment is securable against the obligor’s personal assets (see Article 1131 of the Civil Code). On the other hand, the provision of Article 13 cannot be characterized as imposing on the Controlling Party obligations that creates liabilities within the meaning of Article 1131 of the Civil Code. The controlling party is not a party to the insurance agreement and the provision adopts the word responsible (bertanggung jawab) instead of liable (menanggung).

Third, Article 13 responsibility arises between the Controlling Party and the OJK. The OJK, however, has no mandate under the law to espouse the unfulfilled claims. Rather, its mandate is regulatory and supervisory.

[2] The OJK may require, for example, that the controlling party partially guarantee the financial obligations of the insurer it controls as a condition of equity ownership. Guarantee provisions to this effect have been adopted in at least two industries: banking and mineral resources.

[3] Under Article 97 of the Company Law members of the BOD are personally, and jointly and severally liable for losses suffered by a company as a result of failure to discharge their fiduciary duties unless all five tests of of Article 97(5) of the Company Law are met.

The provision of Article 15 may be interpreted to extend this liability to the party that controls the negligent BOD member, such that they become personally, and jointly and severally liable. 

[Last update: 2014-10-10 12:05:53]

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