The portion of foreign ownership in an insurance company in Indonesia has been regulated in Government Regulation No. 14 of 2018 on Foreign Ownership in Insurance Companies signed by President Joko Widodo. There are two important points set forth in the provision, namely the maximum limit of foreign ownership to the criteria of foreign shareholders in the form of individual legal entities.

First, the regulation establishes the maximum limit of foreign ownership in the form of business entities and individuals by 80 percent of paid up capital. Given these provisions, foreign investors are prohibited to control shares of insurance companies exceeded 80 percent.

However, such provisions shall not apply retroactively or their application shall commence from the time the regulation is in force on April 18, 2018. Later, the maximum limit of foreign ownership applies only to non-public companies (Tbk). In this rule also prohibits insurance companies to increase foreign ownership that has exceeded 80 percent.

In example, the foreign ownership of an insurance company has reached 88 percent when this regulation is in force, then it decreases to 84 percent, then the company should not increase its foreign ownership anymore. Thus, the share of 84 percent shareholdings becomes the new upper limit for the insurance company.

Head of the Fiscal Policy Office (BKF), Suahasil Nazara said the policy is expected to push the maximum limit of 80 percent of foreign ownership applied to all insurance companies. “This provision will also cause diluted foreign ownership, so it is expected that foreign ownership will be closer to the limits of foreign ownership in general,” said Suahasil in the socialization of PP 14/2018.

According to him, the policy is expected to encourage the participation of domestic investors enjoy the benefits of investing in the insurance sector. “The insurance industry in Indonesia is still very prospective, so every effort of business development or expansion through additional capital should involve domestic investors, either through strategic partnership or public offering of shares in Indonesia,” said Suahasil.

Another important point in this rule concerns the criteria of a foreign legal entity (BHA) that can own shares in an insurance company. BHA shall be an insurance company having a similar business or a holding company which one of its subsidiaries is engaged in a similar business of Insurance.
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“This policy is intended to ensure that the owner of the company has adequate knowledge of insurance business and technology transfer and knowledge transfer,” said Suahasil.

Then, the BHA must have its own capital at least 5 times of the amount of direct participation in the Insurance Company. The provision is expected to provide certainty to maintain the company’s business continuity supported by strong ownership capital. In addition, there are other criteria of OJK that must be met BHA. These requirements include the level of BHA health and rating of independent institutions.

Foreign Ownership by Foreign Legal Entity (BHA) at an insurance company can be done through direct investment, stock exchange transactions and participation in Indonesian Legal Entity (BHI). Meanwhile, foreign ownership by foreigners can only be through transactions on the stock exchange.

For such an excluded insurance company shall increase paid up capital, on each additional capital must be at least 20 percent obtained from BHI and / or WNI. Then, the additional capital is at least 20 percent through the initial public offering of shares in Indonesia.

Meanwhile, Chairman of the Board of Insurance Indonesia, Dadang Sukresna said with the issuance of this regulation provides legal certainty for the insurance industry players about foreign ownership. According to him, the development of the insurance industry today can not be separated from foreign roles.

Dadang assess the potential of the insurance industry in Indonesia is still very large. This can be seen from the comparison between the average premium with the population. In addition, the development of digital economy also positively impact on the increasing insurance industry.

“Insurance companies in Indonesia, both general insurance and active life in the adoption of new technologies, especially digital technology. In the future this could potentially be the catalyst for the expansion of the insurance market and the insurance marketing channel, “Dadang said.