Regulation of Insurance and Reinsurance Contracts in Indonesia

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SSEK Indonesian Legal Consultants founding partner Ira A. Eddymurthy and Maria Yudhitama, an associate at the firm, have contributed the Indonesia chapter of the new Practical Law global guide to insurance and reinsurance.

SSEK Legal Consultants has one of the leading insurance law practices in Indonesia and has been involved in numerous high-profile cross-border transactions. SSEK’s insurance clients include ACE, Chartis Insurance, Dai-ichi Life, Hanwha Life and Prudential.

The following is an extract from the Indonesia chapter of the Practical Law global guide to insurance and reinsurance written by SSEK Legal Consultants.

Insurance Contract

Under the Indonesian Commercial Code, insurance is an agreement between the insurer (insurance company) and the insured party under which the insurer agrees to compensate the insured party on the occurrence of uncertain events (such as losses, damages and loss of revenue) in return for receiving premiums from the insured party.

Additionally, under the Insurance Law, insurance is a written agreement between the insurance company and the policyholder under which, in return of a premium, the insurance company agrees to either:

  • Provide compensation to the insured party or policyholder due to losses, damage, costs, loss of revenue or legal liability to any third party that may be suffered by the insured party or the policyholder due to uncertain event.
  • Provide payment due to the death/life of the insured party according to a stipulated benefit and/or based on the result of fund management.

The object of insurance can be in the form of life, health, liability, goods and services, and any other interest that may be lost, damaged, and/or decrease in value (Insurance Law).

Reinsurance Contract

A reinsurance contract is a written agreement between an insurance company and a reinsurance company to allocate the risk exposure of the insurance company to claims from its policyholders.

All insurance and reinsurance contracts are regulated under the:

  • Insurance Law and its implementing regulations.
  • Indonesian Civil Code.
  • Indonesian Commercial Code.

Form and Content Requirements

An insurance policy must be in writing in Bahasa Indonesia (or in bilingual format) and cannot include any wording that may be open to multiple interpretations regarding risks and the insurer’s and insured’s obligations, or which result in the insured having difficulty in claiming payment. The Financial Services Authority (Otoritas Jasa Keuangan or OJK) requires that insurance policies must contain at least the following clauses:

  • Period of insurance.
  • Benefit to the insured/insured value.
  • Method of premium payment.
  • Grace period for premium payments.
  • Exchange rates used for an insurance policy in a foreign currency, if premium and benefit payments are in Rupiah.
  • Agreed time of receipt of premium payment.
  • Company’s policy if the premium is paid after the end of the grace period.
  • The period within which the company cannot review the validity of the particular insurance policy (incontestable period).
  • Cash value table for life insurance policies that contain cash value.
  • Calculation of dividend policy (or the equivalent) for life insurance policies that promise dividends (or the equivalent).
  • Termination of coverage, by either party, including the conditions and reasons.
  • Requirements and procedures for filing claims, including supporting evidence.
  • Dispute resolution venue.
  • Governing language for any insurance policies written in more than one language.

In addition, any changes to the insurance policy must be notified to policyholders within 30 days before such changes become effective.

Commonly Found Clauses

Commonly found clauses in general insurance policies include the following:

  • Calculation of payment and premium.
  • Claim procedure.
  • Policy duration.
  • Governing law and jurisdiction.
  • Reinstatement value.
  • Average relief.
  • Appraisement.
  • Duty of disclosure.
  • Fraudulent report.
  • Reimbursement.

Common clauses in life insurance policies include the following:

  • Calculation of payment and premium.
  • Claim procedure.
  • Governing law and jurisdiction.
  • Duty of disclosure.
  • Additional insured.
  • Change of policyholder.
  • Administrative cost.

To read the full guide to insurance and reinsurance in Indonesia, click here.

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