Jakarta – Finance minister Sri Mulyani Indrawati said the government would establish an agency that would back up insurance policies to ensure payouts after financial issues at some local insurers have tarnished the industry.
The 2014 Insurance Law requires the establishment of a policy guarantee agency (LPP) by 2017.
"We will formulate [the legal basis for] the establishment of the policy guarantee agency mandated by the [Insurance Law] based on corridors to create trust in insurers while also avoiding moral hazard," Sri Mulyani said during a press conference at the Financial System Stability Committee in Jakarta on Wednesday.
The Supreme Audit Agency (BPK) has indicated a potential "systemic risk" over state insurer Asuransi Jiwasraya's failure to pay out Rp 12.4 trillion (US$908 million) on customer policies that matured in December 2019. The case is currently being investigated by the Attorney General's Office (AGO) and the BPK, with corruption allegations implicating former Jiwasraya executives and two business tycoons.
House of Representatives Commission XI has formed a working committee to oversee Jiwasraya, as well as state-owned insurer Asuransi Jiwa Bersama (AJB) Bumiputera and the collapse in value of Asabri's investment portfolio, which may affect its ability to conduct payouts on maturing policies.
Apart from increasing public trust in insurance companies, the LPP is also expected to prevent risks stemming from mismanagement at insurance companies.
"We have learned a lot from the LPS as a Deposit Guarantee Institution. The LPS is for banks, while the LPP is for insurance companies," said Sri Mulyani.
Indonesian Life Insurance Association (AAJI) executive director Togar Pasaribu lauded the government's move to establish such an agency to support the insurance industry.
"We hope the government will continue to conduct risk-based supervision as an early measure to prevent the failure of insurance companies to pay their customers' policies," Togar said in a press statement. (gis/awa)