The Financial Services Authority (OJK) has issued the first specific regulation on insurance products.
OJK Regulation No. 23/POJK.05/2015 on Insurance Products and Insurance Products Marketing (POJK 23) was issued on 26 November 2015.
POJK 23 provides more comprehensive provisions on insurance products and the marketing of insurance products, including provisions from the registration of new insurance products to ceasing marketing insurance products. The new regulation also officially introduces the concept of micro insurance products to give low-income people access to insurance products.
Before POJK 23, provisions on insurance products and insurance products marketing were only limitedly regulated under Ministry of Finance Decree No. 422/KMK.06/2003 on Insurance and Reinsurance Business Operation (KMK 422).
Below are some of the noteworthy provisions of POJK 23.
Categories of insurance products
With the issuance of POJK 23, there is now a clear product distinction between each line of business, due to the introduction of the following categories of insurance products:
- insurance products that cover one or more of the following risks: losses, damage, costs, losses of profit, liabilities to third parties, or failure by the insured to meet its obligations to third parties (suretyship);
- insurance products that cover risks of death (including life annuity);
- insurance products that cover one or more risks associated with human health;
- insurance products that cover one or more risks of accidents; and
- insurance products that at least provide risks of death coverage and financial investment benefits derived from specially established pools of funds (Investment-Linked Products).
General insurance companies can only market insurance products in categories (1), (3), and (4) above. Life insurance companies can only market insurance products in categories (2), (3), (4), and (5), as well as Micro Insurance Products (defined below) for these categories, except life annuity products and Investment-Linked Products.
Types and criteria of insurance products
The following are some of the newly introduced types and criteria of insurance products under POJK 23.
Joint Insurance Product is defined as an insurance product that is designed to be marketed and underwritten by two or more insurers, based on a cooperation between (1) a general insurance company and other general insurance companies; (2) a life insurance company and other life insurance companies; or (3) general insurance companies and life insurance companies. However, insurance coverage by multiple similar insurers to distribute risks associated with an insured object due to capacity issues should not be categorized as a joint insurance product.
Standard Insurance Product is defined as an insurance product that is compliant with the standard insurance policy prepared by the insurance industry association and approved by the OJK. For example: standard policies for Indonesian fire insurance and Indonesian motor vehicle insurance.
Micro Insurance Product is defined as an insurance product that is designed to provide insurance coverage for financial risks commonly encountered by low-income people, and has the characteristics of being simple, easy, economical and immediate (each of these characteristics are further elaborated under POJK 23).
Factors to be considered in determining reasonable common insurance assumptions and practices for the purpose of premium and contribution calculation are now determined as follows:
- For general insurance companies: (a) pure premium or contribution that is calculated based on risk and loss profile of relevant insurance types in the last five years (at least); and (b) acquisition costs, administration costs and other general expenses.
- For life insurance companies: (a) pure premium or contribution that is calculated based on risk and loss profile, interest rate, mortality table, or morbidity table; (b) projection of premium or contribution investment result; and (c) acquisition costs, administration costs and other general expenses.
When a product is terminated, the minimum premium or contribution refund must be at least in the following amounts:
- for products without a saving and/or investment element, the refund must be at least in proportion to the remaining insurance period, with deductions for marketing or brokerage fees; and
- for products with a saving and/or investment element, the refund must be at least: (i) if conventional products, in the amount of the cash value or fund accumulation reserve; or (ii) if syariah products, in the amount of the participant's investment accumulation fund.
Product Approval and Registration
A new insurance product must be submitted to the OJK for approval, except for standard insurance products.
Insurers are prohibited from marketing insurance products that have not been approved by the OJK. Criteria for new insurance products are as follows:
- a product that has not been marketed by the relevant insurer;
- an amendment to a product that has been marketed, including changes on: (i) risks covered, including exemption and limitation of risk causes; (ii) premium or contribution formula; (iii) change of risk category; (iv) assumptions for premium and/or contribution formula; and/or (v) cash value calculation method.
A new insurance product should be stipulated in a company's business plan.
Insurance products that must be registered with the OJK are:
- new standard insurance products; and
- products that have already been marketed but are amended, but do not qualify under point (b) of the previous paragraph, provided that: (i) the product is marketed to insured individual; or (ii) the product is marketed to non-insured individual, and the marketing has previously ceased. The relevant product can be marketed after obtaining the OJK's receipt of application.
Indonesian licensed insurance companies are now expressly permitted to remote marketing with communication media through insurance marketing channels (i.e., direct marketing, insurance agents,bancassurance; and/or business entities other than banks), provided that all relevant marketing materials contain information regarding (a) the insurer's identity; (b) the products offered; and (c) the policy's terms and conditions.
For investment-linked products, a face-to-face meeting must be held as a follow-up of the remote communications.
Insurance Product Management
Insurance Product Planning: An insurance company must have a development and marketing plan for insurance products that is set by the board of directors, as a part of the company's business plan. Elaboration on development and marketing plans will be stipulated in a separate OJK circular letter.
Insurance Product Monitoring: An insurance company's actuary must monitor the insurance products periodically in accordance with standard practices and the code of ethics of the Indonesian association of the actuarial profession. Based on the evaluation, the company's actuary can give a recommendation to (a) continue the marketing of an insurance product; (b) change the assumptions that are used in an insurance product; or (c) cease marketing of an insurance product.
Cessation of Insurance Product Marketing: The OJK can instruct an insurer to cease marketing an insurance product if the marketed insurance product: (a) is different from the product approved by the OJK; and/or (b) is no longer in accordance with laws and regulations. Insurers must report to the OJK on cessation of product marketing within 10 days after the cessation.
The enactment of POJK 23 is a significant development. Given the more comprehensive provisions provided in POJK 23, insurance companies now have clear limitations and requirements in creating more sophisticated insurance products.