The Financial Services Authority (“OJK”) will soon issue new OJK Circular Letter on Products and Marketing of Micro Insurance Products (“SEOJK Micro Insurance”), which shall become an implementing regulation for provisions on micro insurance products as stipulated in Articles 8 and 45 of OJK Regulation No. 23/POJK.05/2015 on Insurance Products and Marketing of Insurance Products.
Draft of SEOJK Micro Insurance is still being circulated to stakeholders for comments. This Legal Alert shall only serve as a preliminary information and will only highlight certain provisions that might need to be carefully considered by insurance companies before issuing and marketing of micro insurance products. Our final and complete analysis on SEOJK Micro Insurance will be covered in the following Legal Alert once SEOJK Micro Insurance is issued.
- Scope of SEOJK Micro Insurance
SEOJK Micro Insurance regulates among others: (i) characteristic of micro insurance products, (ii) types of distribution channels allowed for marketing of micro insurance products, (iii) requirements for cooperation agreements to be entered into between insurance companies and distribution channels, (iv) criteria for sales persons other than insurance agents and (v) marketing of micro insurance products using digital technology or mobile. SEOJK Micro Insurance also stipulates process of obtaining OJK’s approval for micro insurance products to be marketed as well as operational guideline of micro insurance products that shall be implemented by insurance companies.
- Micro Insurance Policies, Underwriting and Claim Administration
SEOJK Micro Insurance underlines the importance of micro insurance product policies to be plain and simple for policyholders/insureds/participants to read and understand. It will limit the policy page to maximum of 3 (three), and must use quarto paper with arial font at 10ppt. Use of ‘plain’ language is mandatory to replace technical insurance terms, and Bahasa Indonesia shall be the default language although local language (e.g. javanese, sundanese etc.) is also allowed to be used side-by-side with Bahasa Indonesia.
On the underwriting process, SEOJK Micro Insurance will require either Guaranteed Issuance Offer (GIO) or Simplified Issuance Offer (SIO) to be implemented in underwriting conditions of object insured. For claim administration, SEOJK Micro Insurance also stipulates the importance of simplicity of claim process by requiring insurance companies to limit claim documents not more than 4 (four) evidences.
- Premiums and Sum Assured of Micro Insurance Products
SEOJK Micro Insurance emphasizes that premiums of micro insurance products must be affordable for the target market of micro insurance. Risk premiums shall be calculated at the amount of minimum of 50% (fifty percent) from gross premiums. While, sum assured shall be set at maximum of 24 (twenty-four) times of the highest province minimum wage in Indonesia*. (*Please note that SEOJK Micro Insurance does not further elaborate this minimum wage whether it refers to the highest minimum wage amongst all provinces in Indonesia or only in a specific province in Indonesia (e.g. West Java, East Kalimantan, etc.) where micro insurance products to be marketed).
- Distribution Channels for Marketing of Micro Insurance Products
Other than distribution channels commonly used by insurance companies, SEOJK Micro Insurance introduces other alternative distribution channels, among others, financial institutions, micro financial institutions, pawnshops, cooperatives, baitul maal wat-tamwil/BMT (Islamic trusts tasked to distribute alms from muslims to those less fortunate persons), telecom companies, foundations or social organizations and/or other types of business entities after obtaining OJK’s approval. Due diligence of the aforesaid distribution channels shall be conducted by insurance companies prior to enter into cooperation agreements with them.
Sales persons (i.e. have cooperation agreement or employment relationship with the abovementioned distribution channels) is not required to hold agency licenses from the relevant insurance associations prior to marketing of micro insurance products as long as they have obtained insurance trainings from insurance companies or other parties appointed by insurance companies to conduct such trainings.
The use of digital technology or mobile is also permitted for marketing of micro insurance products, among others, via short message services (SMS) or unstructured supplementary service data (USSD) in mobile phone, smart phone, website and/or vending machine.
- Approval to Market Micro Insurance Products
SEOJK Micro Insurance only stipulates OJK’s approval process in marketing micro insurance products through Bancassurance (refers to OJK Circular Letter No. 32/SE.OJK.05/2016 on Distribution Channel of Insurance Products through Cooperation with Banks (Bancassurance)) or through agents from Banks that conduct Financial Inclusion Program.
SEOJK Micro Insurance does not stipulate on OJK’s approval process for non-bank alternative distribution channels as discussed in point D of this Legal Alert, which we assume that approval for such distribution channels may already be included and embedded in the product approval process of the relevant micro insurance products. In other words, it does not need a separate OJK’s approval to market those products through such distribution channels, except when later the same products are also to be marketed through Bancassurance or agents from Banks that conduct Financial Inclusion Program.