Indonesia's New Insurance Law
On 23 September 2014, Indonesia's parliament (the "DPR") passed the insurance bill into law (the "New Insurance Law"). The New Insurance Law is awaiting the signature of the President and therefore has not been officially published by the Government.
The New Insurance Law will come into force on the earliest of either the date on which it is signed by the President, or 23 October 2014. Once it becomes effective, the New Insurance Law will revoke the 1992 law on insurance (the "1992 Law").
As the New Insurance Law has not yet been published by the Government, the comments set out in this Client Alert are based upon what we understand the final draft of the New Insurance Law passed by the DPR will contain.
The New Insurance Law, which comprises 18 Chapters and 92 Articles, aims to provide a more comprehensive legal framework for the insurance industry based on international standards of best practice. In addition to improving the benchmarks applicable to the insurance industry, the New Insurance Law is intended to provide better protection to policyholders than the 1992 Law.
Notable aspects of the New Insurance Law
The New Insurance Law introduces several new provisions which, amongst other things, apply to life and general insurance for both conventional and sharia insurance companies, as well as conventional and sharia reinsurance companies. It also provides clarity on certain aspects of the 1992 Law.
New key provisions include:
(1) Indonesian shareholder requirements
(2) Foreign investment limits
(3) Controlling party requirements
(4) Single controlling investment policy
(5) Guarantee program
(6) Sharia business units to be separated
(7) Extension of OJK's powers
Further details of these new provisions are discussed in the full text of the alert.
The New Insurance Law aims to introduce a more comprehensive regulatory framework for Indonesia's vast conventional and sharia insurance sector. The New Insurance Law demonstrates a clear intention on the part of policy and law makers to update the current legal regime to meet the existing and future challenges of the industry. While this is to be welcomed, much uncertainty remains in relation to various aspects of the New Insurance Law. It is hoped that these uncertainties will be resolved as and when implementing regulations are issued.
There are changes introduced by the New Insurance Law which require immediate attention and consideration by those having an interest in insurance/reinsurance companies:
(1) An existing joint venture insurance company whose Indonesian shareholder is indirectly owned by foreign parties must ensure that such Indonesian shareholder transfers its shares to an Indonesian individual within a period of five years from the promulgation of the New Insurance Law. Alternatively, the joint venture company must conduct an initial public offering within the same period.
(2) Consideration must be given to the "controlling party" concept and an assessment must be made as to whether existing shareholders or parties may be classified as such as a result of certain contractual or other arrangements.
(3) The New Insurance Law imposes single controlling investment rule which must be complied with within three years from the promulgation of the New Investment Law by those who currently hold multiple investments in several insurance/reinsurance companies.
(4) Sharia business units that form part of conventional insurance/reinsurance companies must be segregated.
(5) Additional parties/persons (the controlling party and the internal auditor) are subject to the "fit and proper" test.
Further details are discussed in the full text of the alert.
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