Insurance Business in Indonesia: Foreign Investment still Welcome
Indonesian parliament (DPR) decided not to limit foreign ownership in Indonesian insurance companies. Currently, foreigners can have an 80 percent stake in a local insurance company. A new insurance bill on this matter is expected to be passed in a plenary session next month. This bill will enable foreign investors to continue to own local insurance companies through the share-purchase mechanism at the Indonesia stock exchange (IDX). Another important point in the new bill involves the legal entity of the local insurance firm.
Previously, Indonesia’s Insurance Law allowed local insurance firms to operate in the form of cooperatives or mutual companies. However, the new bill stipulates that all Indonesian insurance companies have to take the form of a Limited Liability Company (in Indonesian: Perseroan Terbatas, abbreviated PT).
In line with Indonesia’s recent protectionist approach in other sectors, Indonesian lawmakers initially wanted to curb foreign ownership in local insurance companies at 49 percent (thus preventing foreigners from becoming controlling stakeholders). The most well-known recent implemented protectionist policy of Indonesia (involving the natural resources sector of Indonesia) is Law 4/2009 on Mineral and Coal Mining, which impacted heavily on the country’s mining sector, limits foreign ownership, and includes the controversial ban on mineral-ore exports (implemented in January 2014), forcing miners to process mining output domestically first (in an effort to boost domestic processing facilities in order to generate more revenue by increasing the value of Indonesian exports). Another example of increasing protectionist policies can be found in a new draft bill that limits foreign ownership in Indonesian plantations to a maximum of 30 percent.
The parliament’s decision not limit foreign ownership of local insurance firms further, implies that parliament detects the advantage of foreign investments in the country’s insurance business. Also Finance Minister Chatib Basri recognized that local insurance companies need strong capital, either from domestic or foreign investors, in order develop their business. It is, however, still possible that foreign ownership of local insurance companies is curbed (from the current 80 percent cap) by a new government regulation.
Indonesia’s insurance business is dominated by joint ventures with multinational firms such as Prudential plc, Manulife Financial and Allianz. State-controlled Asuransi Jiwasraya is the only local firm positioned inside the top ten of largest insurance companies currently operational in Indonesia. These foreign insurance companies have been attracted by the country’s fast growing market.
Last year, two large stakes were bought by Japan’s Sumitomo Life and Dai-Ichi Life. The former purchased a 40 percent stake in BNI Life Insurance and the latter purchased a 40 percent stake in Panin Life, thus raising some concerns about foreign domination in the domestic insurance business.
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