The General Insurance Association of Indonesia (AAUI) believes that there are alternatives to capital increases to strengthen the insurance industry in the country. "We propose to find the best solution," said AAUI chairman Budi Herawan last week, according to a report by Bisnis.com.
The Financial Services Authority (OJK) in May 2023 proposed increases in the minimum capital requirement (MCR) for insurance and reinsurance companies. OJK proposes to raise the MCR of insurance companies from IDR150bn ($10m) to IDR500bn by 2026 and to IDR1tn by 2028. Similarly, the MCR for reinsurers is to increase from IDR300bn to IDR1tn by 2026, and to IDR2tn by 2028. The proposal also recommends increasing the MCR for takaful and re-takaful operators.
Mr Budi said that the timeframe announced for the capital hikes to take place "is very surprising".
He said that there were still several problems in the non-life market that needed to be fixed. For instance, several insurers are known to have failed to settle claims or benefits, such as Bumiputera Joint Life Insurance (AJB), Kresna Life Insurance (Kresnalife), and Asuransi Jiwa Adisarana Wanaartha (Wanaartha Life). In addition, there are still some local reinsurance companies that are not financially healthy.
According to Mr Budi, amidst these conditions, capital increases will become a burden on insurers. "So, we should first repair the ecosystem together," he said.
Not to mention that insurance companies are also currently preoccupied with implementing Statement of Financial Accounting Standards (PSAK) 74 concerning Insurance Contracts which will take effect in 2025. Mr Budi suggested that the capital increases take place after PSAK 74 has been implemented.
He also mentioned the OJK's plans to categorise insurance companies into one of two classes based on their capital. Insurers with a large amount of capital will be in the class that allows them to sell complex insurance products while insurers with a lower amount of capital will sell simple products.
Mr Budi said that these restrictions needed to be reviewed, including requiring a study of the insurers' risk profile.