2011 Indonesian Law Review: Insurance & Bancassurance

Written by Tengku Almira Adlinisa

In line with Indonesia’s recent rapid economic growth, Indonesia has also become a more attractive market to insurance companies.    A growing middle class with increasing purchasing power has further increased the competition between insurance companies to attract new customers.  One of the key marketing methods for insurance products is by collaborating with a bank,  known as Bancassurance.   While insurance agents remain important in marketing insurance products, Bancassurance also has a significant contribution in insurance product marketing in Indonesia.

Due to the increased use of the Bancassurance model, Bank Indonesia issued BI Circular Letter No. 12/35/DPNP (“BI New Circular Letter”) in December 2010.  This BI New Circular Letter revokes the previous BI Circular Letter No.6/43/DPNP of 2004.  The new BI Circular Letter stipulates the classification of the Bancassurance business model and the type of insurance products that may be marketed trough Bancassurance, as well as improving the transparency of the customer.

Based on the BI New Circular Letter, Bancassurance is defined as any cooperation in marketing activities between a bank and an insurance company in order to market insurance products through the bank’s sales channels.  Pursuant to the BI New Circular Letter, Banccasurance can be conducted through the 4 following methods:

  • Bank Product Reference: A bank will recommend an insurance product as a condition to obtain a bank product.  For example, a housing loan which includes fire insurance for such house that is purchased with the housing loan.
  • Non Bank Product Reference: A bank will refer or recommend an insurance product to their customer, however, an insurance product is not conditional on the sale of a bank product.  For example, the bank may distribute brochures, leaflets, and/or similar marketing materials of an insurance product to the bank’s customer, either directly or through print media, including through a bank’s website.  In the event a customer needs further information on the insurance product, then a bank shall direct the customer to the relevant insurance company as the bank’s partner.
  • Distribution Cooperation: This refers to insurance product marketing cooperation activities, whereby a bank will market an insurance product by providing information directly to the customer.  Such information may be provided either directly to customers and/or through a telemarketing system, including letter, electronic media, and the bank’s website. The bank’s role is not only as an intermediary in forwarding insurance product information to the customer. A bank will also provide an explanation directly to the customer in relation to the insurance product such as the characteristics, benefits and risk of the marketed product and afterward continue to assist the customer to buy the insurance product from the relevant insurance company as the bank’s partner.
  • Integrated Product: A bank will market an insurance product to the customer by way of modification and/or combining an insurance product with a bank product.  This marketing cooperation will be conducted by a bank by offering or selling a bundled product to customers by way of directly marketing and/or using telemarketing services, including letter, electronic media, and the bank’s website.     Therefore, a bank not only has a role to distribute and provide accurate product information to the customer, but the bank also processes the customer’s application.

Overall, the enactment of the new BI Circular Letter provides more legal clarity towards the Bancassurance business in Indonesia.  However, the current regulatory regime is somewhat contradictory.

The new BI Circular Letter and MOF Regulation must be in accordance with each other in governing Bancassurance activities.  As of January 2012 – more than one year since the issuance of the new BI Circular Letter – the MOF has not implemented any new regulation on Bancassurance in order to be adjusted with the  BI New Circular Letter.  Notably, there are several provisions under the BI New Circular Letter that are not in accordance with the current MOF Regulations.

In order to provide more certainty and clarity on the Bancassurance business in Indonesia, it is expected that the MOF can clarify the matter in 2012, so that regulations issued by these two institutions (i.e. Bank Indonesia and the Insurance Bureau of MOF) can be in line with each other.

This article is part of our 2011 Indonesian Law Review series, in which our attorneys discuss recent legal developments  over the past year and track the main trends in each industry. We’ve also published reviews of Environmental Laws, Mining, Investment and Geothermal Mining & Power Production, Infrastructure, Labour & Employment and Shipping.

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