Indonesian authorities beef up regulations for unit-linked insurance plans

15 Feb 2022

In efforts to reduce misunderstanding by policyholders and to enhance operations and governance at insurance companies, the Indonesian Financial Services Authority (OJK) will toughen regulations on investment-linked insurance plans.

In a statement issued on 30 January, Mr Riswinandi, the head of the Non-Bank Financial Industry Supervision Department of the OJK, said that amendments to the regulations would apply to product specifications, product transparency, the criteria to be fulfilled before an insurer can sell such products, and investment management.

The stiffer rules were triggered by numerous complaints made by policyholders unhappy about the diminished value of their investment-linked plans.

On a related note, executive director of the Indonesian Life Insurance Association (AAJI) Togar Pasaribu has said that several key points would need to be addressed in the new regulations, reported Kontan.

For a start, potential policyholders are required to sign a declaration confirming that they are aware when an insurance product involves investment. The expectation is that would-be policyholders know that investments are subject to risk. It is thus essential that financial advisers are in a position to explain the products to potential policyholders.

Secondly, there will be clear rules for the apportionment of premiums between protection and investment. Furthermore, 100% of the first year’s policy premium should not be put aside for acquisition costs. The minimum premium for unit-linked products will also be regulated, added Mr Togar. This can indirectly allow insurers to sieve out prospective policyholders for whom ILS would be suitable.

Finally, how funds from ILS products are to be invested is also to be regulated, said Mr Togar.