Indonesia’s FSA Issues New Regulation on Insurance Products and Marketing
The Financial Services Authority (“OJK”) has introduced a number of significant changes as regards how insurance companies should develop and market their products. These changes are set out in OJK Regulation Number 8 of 2024 on Insurance Products and Marketing Channels for Insurance Products[1] (“Reg. 8/2024”), which supersedes OJK Regulation Number 23 of 2015 on the same topic (“Reg. 23/2015”).[2]
The new regulation comes into force on 29 October 2024, 6 months after its date of promulgation.
In this ABNR Legal Update, we will discuss three key changes introduced by Reg. 8/2024: (a) streamlined approval procedure for insurance products, (b) digital insurance products, and (c) insurance product development.
1. Streamlined Approval Procedure for Insurance Products
Under Reg. 23/2015, every new insurance product had to be reported to the OJK and a letter of approval or registration obtained before the product could be offered to the public. This was to ensure that every new product received appropriate regulatory scrutiny before being marketed to consumers.
By contrast, Reg. 8/2024 permits an insurance company to bring a new product to the market without first reporting it to the OJK or obtaining prior approval provided that it does not come within one of the following three product categories:
a. an insurance product that has a savings or cash-value element;
b. a credit insurance product or sharia financing insurance product; and
c. an insurance product involving suretyship or sharia-based suretyship,[3]
and that either:
a. it has never been marketed previously; or
b. it has been developed on the basis of a previously marketed product but features a material change to the product.
In addition, a product may be brought directly to the market, even if it comes within one of the above 3 categories of product, provided that it has been developed on the basis of a previously marketed insurance product but does not feature a material change to that product.
Reg. 8/2024 further explains that a “material change” to a previously marketed product would include:
a. a change in a risk that is covered, including the exclusion or limitation of liability for a risk; and/or
b. a change in the cash-value calculation method.
Should an insurance product satisfy the above criteria and be marketed without prior reporting to, and approval of, OJK, the insurer only needs to submit a report on it to OJK within 5 working days of the product’s launch.
2. Digital Insurance Products
Reg. 8/2024 introduces detailed provisions on digital insurance products, an aspect not previously addressed by Reg. 23/2015. A digital insurance product is one that involves the use of an electronic system through the product selection, risk assessment, premium payment, and policy issuance stages, with no face-to-face interaction taking place.
Under Reg. 8/2024, an insurance company must adhere to the following requirements in respect of digital insurance products:
a. only individual policies are offered (not group or corporate insurance products); and
b. straightforward risk selection is applied.
Further, the insurer must obtain an electronic system operator’s certificate from the Ministry of Communications and Informatics; establish policies, standards, and procedures to ensure effective IT risk management; and comply with all of the regulatory requirements for the operation of an electronic system.
Should an insurance company wish to market a digital insurance product as part of a collaboration with a third party (such as under a bancassurance arrangement with a retail bank), it must first obtain prior approval from OJK, and comply with various technical requirements relating to the electronic system used in the partnership.
3. Insurance Product Development and Governance
Reg. 8/2024 sets out more detailed provisions on the ongoing obligations of insurance companies to regularly review and monitor their products. One of these obligations is an express requirement to establish a high-level insurance product development committee that is responsible for reviewing products and making recommendations to ensure that products are legally compliant. While such a committee was previously mentioned in an OJK circular, its establishment was not obligatory.
An insurer is also required to adopt and implement detailed guidelines for the development and monitoring of insurance products.
As regards product development, every new product must first be assessed or tested before being offered to the public in order to identify potential risks to the insurance company, policyholders, and other stakeholders. The results of such testing should be reported to the insurance product development committee, which will then decide whether the product should continue to be developed, whether it will need to be reported to or approved by OJK, and/or whether it is suitable for marketing, requires further development, or should be withdrawn.
ABNR Commentary
Reg. 8/2024 certainly marks a step forward in the regulatory landscape for the insurance sector, and should help to better align it with global best practices. In doing so, it introduces some quite significant changes as regards how insurers develop and market their products, attempting to combine greater flexibility and reduced red tape, on the one hand, with better product governance and oversight on the other.
By providing greater flexibility for the introduction of new products to the market, OJK aims to foster innovation and efficiency within the industry and reduce red tape at the regulatory level.
At the same time, the new obligation to establish an insurance product development committee demonstrates commitment on the part of OJK to playing its role in bringing about better governance and risk management in insurers. Additionally, the more detailed regulations on digital insurance signal a recognition of evolving dynamics in consumer behaviour and technological advancements.
Given the changes introduced by Reg. 8/2024, we would advise insurance companies to carefully review and adjust their internal policies and procedures so as to bring them into compliance with the new regulation. Proactive engagement with these changes will help ensure compliance and enhance the overall efficiency and competitiveness of insurance operations.
With more than 50 years advising Indonesian insurers on compliance and regulatory issues, ABNR Counsellors at Law is ideally placed to help you identify what Reg. 8/2024 means for your business, and what you need to do to comply with its requirements. So, should you need any assistance, please do not hesitate to contact partner Mr. Ayik C. Gunadi (agunadi@abnrlaw.com), senior associate Mr. Muhammad Muslim (mmuslim@abnrlaw.com), or associate Mr. Arian Hasyim (ahasyim@abnrlaw.com)
This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.
[1] Peraturan Otoritas Jasa Keuangan Nomor 8 Tahun 2024 tentang Produk Asuransi dan Saluran Pemasaran Produk Asuransi.
[2] Peraturan Otoritas Jasa Keuangan Nomor 23/POJK.05/2015 Tahun 2015 tentang Produk Asuransi dan Pemasaran Produk Asuransi.
[3] “Suretyship” is a type of insurance where one party guarantees the performance of an obligation by another party.
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NEWS DETAIL
19 Jul 2024
Indonesia’s FSA Issues New Regulation on Insurance Products and Marketing
The Financial Services Authority (“OJK”) has introduced a number of significant changes as regards how insurance companies should develop and market their products. These changes are set out in OJK Regulation Number 8 of 2024 on Insurance Products and Marketing Channels for Insurance Products[1] (“Reg. 8/2024”), which supersedes OJK Regulation Number 23 of 2015 on the same topic (“Reg. 23/2015”).[2]
The new regulation comes into force on 29 October 2024, 6 months after its date of promulgation.
In this ABNR Legal Update, we will discuss three key changes introduced by Reg. 8/2024: (a) streamlined approval procedure for insurance products, (b) digital insurance products, and (c) insurance product development.
1. Streamlined Approval Procedure for Insurance Products
Under Reg. 23/2015, every new insurance product had to be reported to the OJK and a letter of approval or registration obtained before the product could be offered to the public. This was to ensure that every new product received appropriate regulatory scrutiny before being marketed to consumers.
By contrast, Reg. 8/2024 permits an insurance company to bring a new product to the market without first reporting it to the OJK or obtaining prior approval provided that it does not come within one of the following three product categories:
a. an insurance product that has a savings or cash-value element;
b. a credit insurance product or sharia financing insurance product; and
c. an insurance product involving suretyship or sharia-based suretyship,[3]
and that either:
a. it has never been marketed previously; or
b. it has been developed on the basis of a previously marketed product but features a material change to the product.
In addition, a product may be brought directly to the market, even if it comes within one of the above 3 categories of product, provided that it has been developed on the basis of a previously marketed insurance product but does not feature a material change to that product.
Reg. 8/2024 further explains that a “material change” to a previously marketed product would include:
a. a change in a risk that is covered, including the exclusion or limitation of liability for a risk; and/or
b. a change in the cash-value calculation method.
Should an insurance product satisfy the above criteria and be marketed without prior reporting to, and approval of, OJK, the insurer only needs to submit a report on it to OJK within 5 working days of the product’s launch.
2. Digital Insurance Products
Reg. 8/2024 introduces detailed provisions on digital insurance products, an aspect not previously addressed by Reg. 23/2015. A digital insurance product is one that involves the use of an electronic system through the product selection, risk assessment, premium payment, and policy issuance stages, with no face-to-face interaction taking place.
Under Reg. 8/2024, an insurance company must adhere to the following requirements in respect of digital insurance products:
a. only individual policies are offered (not group or corporate insurance products); and
b. straightforward risk selection is applied.
Further, the insurer must obtain an electronic system operator’s certificate from the Ministry of Communications and Informatics; establish policies, standards, and procedures to ensure effective IT risk management; and comply with all of the regulatory requirements for the operation of an electronic system.
Should an insurance company wish to market a digital insurance product as part of a collaboration with a third party (such as under a bancassurance arrangement with a retail bank), it must first obtain prior approval from OJK, and comply with various technical requirements relating to the electronic system used in the partnership.
3. Insurance Product Development and Governance
Reg. 8/2024 sets out more detailed provisions on the ongoing obligations of insurance companies to regularly review and monitor their products. One of these obligations is an express requirement to establish a high-level insurance product development committee that is responsible for reviewing products and making recommendations to ensure that products are legally compliant. While such a committee was previously mentioned in an OJK circular, its establishment was not obligatory.
An insurer is also required to adopt and implement detailed guidelines for the development and monitoring of insurance products.
As regards product development, every new product must first be assessed or tested before being offered to the public in order to identify potential risks to the insurance company, policyholders, and other stakeholders. The results of such testing should be reported to the insurance product development committee, which will then decide whether the product should continue to be developed, whether it will need to be reported to or approved by OJK, and/or whether it is suitable for marketing, requires further development, or should be withdrawn.
ABNR Commentary
Reg. 8/2024 certainly marks a step forward in the regulatory landscape for the insurance sector, and should help to better align it with global best practices. In doing so, it introduces some quite significant changes as regards how insurers develop and market their products, attempting to combine greater flexibility and reduced red tape, on the one hand, with better product governance and oversight on the other.
By providing greater flexibility for the introduction of new products to the market, OJK aims to foster innovation and efficiency within the industry and reduce red tape at the regulatory level.
At the same time, the new obligation to establish an insurance product development committee demonstrates commitment on the part of OJK to playing its role in bringing about better governance and risk management in insurers. Additionally, the more detailed regulations on digital insurance signal a recognition of evolving dynamics in consumer behaviour and technological advancements.
Given the changes introduced by Reg. 8/2024, we would advise insurance companies to carefully review and adjust their internal policies and procedures so as to bring them into compliance with the new regulation. Proactive engagement with these changes will help ensure compliance and enhance the overall efficiency and competitiveness of insurance operations.
With more than 50 years advising Indonesian insurers on compliance and regulatory issues, ABNR Counsellors at Law is ideally placed to help you identify what Reg. 8/2024 means for your business, and what you need to do to comply with its requirements. So, should you need any assistance, please do not hesitate to contact partner Mr. Ayik C. Gunadi (agunadi@abnrlaw.com), senior associate Mr. Muhammad Muslim (mmuslim@abnrlaw.com), or associate Mr. Arian Hasyim (ahasyim@abnrlaw.com)
This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.
[1] Peraturan Otoritas Jasa Keuangan Nomor 8 Tahun 2024 tentang Produk Asuransi dan Saluran Pemasaran Produk Asuransi.
[2] Peraturan Otoritas Jasa Keuangan Nomor 23/POJK.05/2015 Tahun 2015 tentang Produk Asuransi dan Pemasaran Produk Asuransi.
[3] “Suretyship” is a type of insurance where one party guarantees the performance of an obligation by another party.