JAKARTA (TheInsiderStories) – The government raised foreign ownership above 80 percent in Indonesian insurance companies through Government Regulation No. 3/2020 as a revised for previous rule No. 14/2018 on Foreign Ownership of Insurance Companies. The regulation has been effective since January 20, 2020, as quoted by the secretary cabinet page on Monday (01/27).

Since April 2018, the country caps foreign ownership in insurance companies at 80 percent because it is believed that domestic insurance players still need the knowledge and capital that strategic foreign investors bring from abroad. While the remaining 20 percent had to be from local investors or made through a stock exchange listing.

The new regulation revises a number of key conditions, including the exemption of foreign shareholders with stakes over 80 percent from the ownership limit policy. If a foreign shareholder owns more than 80 percent stake in a private insurance company upon the enactment of the regulation, the company involved is exempted from the foreign ownership limit regulation.

“In the event that foreign ownership in an insurance company which is not a publicly listed company has exceeded 80 percent at the time this regulation comes into force, the insurance company is exempted from the foreign ownership limitation referred to in Article 5 Paragraph 1 and the insurance company is prohibited from increasing the percentage of foreign ownership,” reads Article 6 revision rules.

In Paragraph 2A Article 6, it is added that if an insurance company that wants to increase capital does not obtain a local partner (Indonesian legal entity and Indonesian citizen), then paid-up capital must be made through an initial public offering of shares in Indonesia.

The government also revoked the 20 percent rule through the capital market or required to absorb these local partners, so that foreigners could increase capital according to the portion of ownership.

Based on data from the Financial Services Authority there are currently 22 conventional general insurance companies in the form of a joint venture active in Indonesia. Six of these joint ventures involve foreign investors with a stake that exceeds 80 percent. Meanwhile, there are 23 joint ventures in Indonesia’s conventional life insurance industry, 12 of which involve foreign companies with a stake above 80 percent.

The revelation that several Indonesian state-owned insurers are on the brink of collapse due to financial irregularities has further highlighted the need for the country’s government to shape up its insurance and finance sector and regulatory agency.

A report by Tempo said that, aside from PT Asuransi Jiwasraya, military insurer PT Asuransi Sosial Angkatan Bersenjata Republik Indonesia (ASABRI) is also in financial trouble, and the two cases seem to be related. The two companies are unable to pay out policies and investments totaling almost US$2 billion.

The former executive noted that due to the low insurance penetration in the country, the regulators do not give much importance to it, and are not interested in applying global standards to the sector. Indonesia’s insurance penetration is at less than 2 percent, compared to 4.3 percent in neighboring Malaysia and 5 percent in Thailand.

Former Asuransi Jiwasraya president-director Handrisman Rashim and four other suspects have already been arrested on corruption charges. Among the suspects are real estate businessman Benny Tjokrosaputro and Heru Hidayat, president of a shipping and mining firm.

Meanwhile, since ASABRI is under the Defence Ministry, its condition is less known, the report said. State officials have been avoiding inquiries regarding ASABRI’s problems and insisting that the insurer is in a good state. However, the National Police recently opened an investigation into possible corruption in the company, due to the fact that police officers make up about two-thirds of ASABRI’s 940,000 customers.

Indonesian President Joko Widodo warned that unless the non-banking financial sector implements reforms, people’s trust in it will erode and that would eventually be detrimental to the entire country’s economy.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com