News eDaily08 Aug 2017

Indonesia:Insurance Europe lobbies against recent regulations

| 08 Aug 2017

European insurers are urging the European Union to seek to overturn protectionist regulation in Indonesia, that include mandatory cession requirements and related measures envisaged on foreign ownership and the establishment of Indonesia Re.

Local compulsory cessions diminish the possibility of diversifying a risk, creating high local exposure in the event of, for example, a natural disaster, argues Insurance Europe which is the European insurance and reinsurance federation.

In a country fact sheet on Indonesia, the federation spells out the (re)insurance retention limits which are:

• As of 1 January 2016, Indonesian insurers are required to place all reinsurance of motor, health, personal accident, credit, life and surety business (“simple risks”) with domestic Indonesian reinsurers. The Indonesian regulator (Otoritas Jasa Keuangan, OJK) specifies only a few limited exceptions to this restriction.

• For other insurance business (“non-simple risks”), a minimum of 25% of the (re)insurance must be placed with domestic (re) insurers.

• “Non-simple risks” and exempted “simple risks” must run through a tiered declinature procedure before they can be placed with foreign (re)insurers.

Foreign ownership

Insurance Europe also highlights current and possible measures that could be taken by the Indonesian authorities on foreign ownership limit for (re)insurance companies.

The fact sheet reads: “At several occasions in the past, the OJK publicly stated its intention to lower the foreign ownership of currently 80%. Although this initiative was later dropped, it remains possible that the call from legislators to lower foreign ownership will return. Such a measure would have a significant negative impact on foreign owned companies and could prompt other countries in the region to consider adopting similar restrictions.”

Indonesia Re

Insurance Europe is also wary of the establishment of a new national reinsurer, Indonesia Re.

The Indonesian government is in the process of establishing a new national reinsurer, Indonesia Re, and has indicated that it will further increase its capitalisation. With this increased capacity, there is the potential that the government may seek to further increase mandatory cessions, says the fact sheet.

Data transfer restrictions

In addition, OJK regulations, which came into effect on 28 December 2016, require companies to establish data centres and disaster recovery centres in Indonesia by 12 October 2017. Insurance Europe said: “This is of significant concern to (re)insurers, given that the flow of data across borders is a central part of their business model and is necessary from a compliance and legal perspective. International (re)insurers collect and analyse a significant amount of different kinds of data, some of which is transferred between countries that are not the country of main establishment of the (re)insurer through branches or subsidiaries.”

Trade talks

The federation believes that negotiations over a free trade agreement between the EU and Indonesia, launched in July 2016, represent an appropriate platform for the EU authorities to raise the industry’s concerns, with the aim of eliminating the current barriers and supporting the business potential of European (re)insurers in Indonesia. 

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