The Finance Ministry looks set to appoint the Deposit Insurance Corporation (LPS) as the designated institution dealing with policy protection for general and life insurance companies, according to an LPS executive.
Currently, the LPS covers protection for banks’ deposits with a maximum limit of Rp 2 billion (US$155,948) and for those that do not exceed the LPS rate for each customer. LPS executive chairman Kartika “Tiko” Wirjoatmodjo said the ministry had not made an official statement related to expected appointment. “However, the ministry has signaled the LPS will become the agency that protects insurance policies,” he said on Wednesday.
The establishment of an agency to protect insurance policies is mandated in the new Insurance Law, even though the law stipulates the body will not commence its activities within the next three years. Insurance-policy protection has become part of the country’s future integrated protection plan proposed by the LPS to ensure customers’ funds in financial institutions will be protected under one roof. Globally, only two countries have fully implemented protection plans across all financial sectors; South Korea with its Korea Deposit Insurance Corporation (KDIC) and the UK with its Financial Services Compensation Scheme.
Indonesia’s insurance protection plan will be legally established under a specific law, or through an amendment to Law No. 24/2004 on the LPS, Tiko said. “During our last discussion with the House [of Representatives], the biggest probability is to create a new law as a legal basis for the agency, rather than amend the LPS Law,” he said. Tiko said the LPS was preparing to become an agency through strategic planning, to be discussed with the government and House this year.
According to Tiko, the preparation will include details on the organization and variation of protection measures for insurance policies, which will be different than the LPS’ current task of protecting banks. “Global examples of insurance policy protection only include guarantees for the value of the policy, even though there are maximum limits, such as Rp 500 million,” Tiko said. “We’re still discussing with the Financial Services Authority [OJK] and the insurance industry regarding the best pattern to protect insurance policies, because the activity will be a lot different from what we do now,” he said.
As of December 2014, the LPS had posted Rp 7.83 trillion in premium revenue from banks, which increased from Rp 7 trillion in 2013. The institution invested the majority of the funds collected in debt papers worth Rp 45.5 trillion, which increased from Rp 33.94 trillion in 2013.
According to data from the Indonesian Life Insurance Association (AAJI) and the Association of Indonesian General Insurance Companies (AAUI), 47 life insurance firms and 80 general insurance companies operate across the country. AAJI executive director Togar Pasaribu said the association would fully support the plan to protect insurance policies, but the decision to establish a new agency or appoint the LPS should be referred to the new Insurance Law.
“We will follow any direction from the government regarding the decision. Another thing that concerns us is that protecting banks’ deposits and protecting insurance policies are strikingly different,” he said. AAUI executive director Julian Noor echoed the view that many details regarding the insurance policy protection mechanism required further discussion, especially for general insurance, which had a different model of business to life insurance. “We will start to discuss the new Insurance Law, including insurance protection, with the OJK next week,” he said.
Source: The Jakarta Post, 13 February 2015