New Rules for Insurance Product Distribution in Indonesia

In April 2024, Indonesia’s Financial Services Authority (OJK) issued OJK Regulation No. 8 of 2024 (OJK Reg 8), which introduced a long-awaited regulatory change in how insurance products are structured and distributed. This regulation gave insurers and intermediaries six months to comply with the new rules, which come into effect at the end of October. 

We discuss here four key changes under OJK Reg 8 that require attention from the Indonesian insurance industry. 

SURETY BONDS AND CREDIT INSURANCE UNDERWRITTEN BY INSURERS ARE FORMALLY RECOGNISED AS INSURANCE PRODUCTS

Prior to OJK Reg 8, it was not clear if (a) insurers were allowed to underwrite surety bonds and credit insurance, or (b) surety bonds and credit insurance constituted insurance products. OJK Reg 8 expressly includes surety bonds and credit insurance within the definition of insurance products in Indonesia. 

This provides clarity for general insurers that are currently underwriting, or planning to underwrite, surety bonds and credit insurance. 

REQUIREMENT TO PREPARE ‘PRODUCT VISIBILITY ASSESSMENT’ BEFORE REGISTRATION AND LAUNCH OF INSURANCE PRODUCTS

Insurers must register their insurance products with OJK before launching and distributing them. 

OJK Reg 8 specifically requires that insurers, as a matter of prudence, first prepare a product visibility assessment for any new products being registered and launched. Key tests in that assessment include: (a) whether the new product aligns with the insurer’s business plan, and (b) whether the new product has sufficient reinsurance coverage. 

Prior to OJK Reg 8, these tests were considered “nice-to-have” as part of the product registration process with OJK. With the effectiveness of OJK Reg 8, they are now “must-haves.”

GREATER AUTHORITY AND RESPONSIBILITY IN INSURERS’ PRODUCT COMMITTEES 

Insurers are required to have an internal product committee as part of good corporate governance. OJK Reg 8 requires clear signoffs from an insurer’s product committee before the insurer can submit its product registration application to OJK. This committee must be ready to defend such signoffs when OJK conducts a post-launch audit. 

From an operational perspective, insurers must therefore properly document (in writing) their product committee’s decisions and working papers for purposes of any OJK audit. 

PRODUCT RECALLS 

Prior to OJK Reg 8, there was no clear legal basis or framework for recalling insurance products. Previous regulations only contemplated “suspension of marketing activities,” not recalls of problematic products. 

OJK Reg 8 clarifies the legal basis for insurance product recalls, which may be initiated by either OJK or the insurer. Based on OJK’s internal assessment of potential negative market impacts of a particular insurance product, OJK can issue a recall order either to the underwriting insurer or to the public. Insurers cannot appeal against an OJK-instigated recall. 

In our view, the product recall framework is reasonable for two reasons: 

• a recall order does not automatically require the insurer to immediately recall, cancel or suspend activities involving the recalled product. Rather, an action plan should be agreed between the insurer and OJK, and 
• a recall order, which will likely be announced through an OJK media release, is not considered an OJK order for sanctions to be imposed on the insurer. 

The Indonesian-language version of OJK Reg 8 can be found here.

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Please reach out to your usual contact if you have any questions on this new OJK regulation, and on how best to navigate these changes.