The Urgency of Mandatory Insurance Program in Indonesia

 


During the first quarter of 2023, Jakarta Post and other media reported on several disasters such as floods that inundated residential areas and agricultural land in Kudus Regency which caused farmers to fail their crops, Landslides on Serasan Island, Natuna Regency which caused dozens of houses to be damaged and a number of people died, and Pertamina Depot fire in Plumpang, North Jakarta which caused loss of life and burned dozens of residents' houses.

Previously, it is still vivid in our memories, the tragedy at Kanjuruhan Stadium, Malang which occurred after the Arema FC vs Persebaya Surabaya match on October 1, 2022. This tragedy caused 754 victims and 135 of them died. In addition to the severe damage to the stadium facilities, 13 cars were also reported to have been damaged by the mass burning (Jakarta Post).

When viewed from the point of view of protecting the public against potential losses, the four different incidents that occurred in different provinces above actually lead to the same conclusion, namely the urgency of developing a Mandatory Insurance Program in Indonesia.


Mandatory Insurance Program

Currently, although Indonesia already has several Mandatory Insurance Programs, their scope is still very limited. One of the mandatory insurance programs that probably almost everyone takes part in is the Road Traffic Accident Mandatory Fund Contribution (SWDKLLJ), which is basically a type of third-party liability (TPL) insurance or protection insurance for legal obligations to third parties that will be given to traffic accident victims. This insurance is paid by motorized vehicle owners at the time of registration and renewal of the Vehicle Number Certificate (STNK).

In addition to SWDKLLJ which is regulated by Minister of Finance Regulation No. 36 of 2008, we are also familiar with airplane accident insurance where the premium is purchased together with the purchase of a plane ticket. This insurance is regulated through Government Regulation No. 33 of 1964. In addition to the two examples above, there is a National Health Insurance program and Work Accident Insurance which are also mandatory insurance programs regulated by Law No. 40 of 2004.

If we look at examples of Mandatory Insurance Programs in several other countries, there is still room for Indonesia to develop or expand the scope of this program. South Korea for example, there are more than 40 compulsory insurance products regulated by the government, including, but not limited to: motor vehicle insurance, insurance for gas accidents, natural disaster insurance, insurance due to oil pollution, compensation insurance related to environmental disasters, sports safety insurance, sports facility insurance, elevator accident insurance, fire protection insurance, and so on.

Meanwhile in Malaysia, there are at least 10 compulsory insurance products which include motor vehicle insurance (TPL), insurance for mal medical practices, travel insurance, fire insurance for residential buildings and apartments, and so on. Other countries such as Taiwan have mandatory insurance programs such as third-party liability insurance for kindergartens and schools, third-party liability insurance for entertainment venues and malls, insurance for factories and storage of dangerous goods, and aircraft insurance including for passengers and their luggage.


Encouraging Stakeholder Initiatives

Even though it has not yet been included in the Mandatory Insurance Program, several regions in Indonesia have actually developed initiatives to protect people’s loss such as farmers from potential losses due to crop failure. The Ministry of Agriculture is pushing for the Rice Farming Business Insurance Program (AUTP), which is currently claimed to have protected 997,960 hectares of the target of 14 million hectares of rice fields (pertanian.go.id). Through this program, the Provincial Government of Central Java has registered farmers with AUTP in 29 districts in Central Java. In Central Java itself, during April – December 2022, PT. Jasindo has paid compensation claims equivalent to 520 hectares or more than 3 billion rupiah (Jatengprov.go.id).

Based on the 2022 World Risk Report (WRI), Indonesia is ranked in the top 3 in the world for the most disaster-prone countries after the Philippines and India. Therefore, it is necessary to encourage the emergence of other initiatives to protect the public from risks that may arise. For example, for densely populated urban areas where there is a risk of fire, such as in Jabodetabek, the government, including the local government needs to encourage a fire insurance program for residences. Important and risky facilities such as fuel depots or terminals, need to be protected with insurance that protects potential losses that may befall the community and the houses around the depot.

Meanwhile, for activities such as football matches and musical performances, for example, protection for players, spectators, officials, and the protection of buildings and their facilities need to be a prerequisite for permits. Payment of self-protection insurance premiums for spectators can be combined with ticket costs, so that all spectators can be protected.

 

The Mandate of the P2SK Law

Law No. 4 of 2023 concerning the Development and Strengthening of the Financial Sector (UU P2SK) has regulated that the government can establish a Mandatory Insurance Program according to needs. While further provisions regarding the implementation of the Mandatory Insurance Program are regulated by Government Regulation after obtaining the approval of the DPR.

The P2SK Law also provides an explanation that the Mandatory Insurance Program among others includes third-party liability insurance related to traffic accidents, fire insurance, and residential home insurance against disaster risk. The explanation in the P2SK Law provides the potential for expanding the existing compulsory insurance in Indonesia so that risks that may occur as a result of fires and natural disasters can be transferred to insurance companies.

The word "among others" in the explanation of the Law means that the Mandatory Insurance Program can be expanded and is not only limited to the three things above. It would be even better if the Government Regulation could accommodate other programs such as pre-existing mandatory insurance and expand with other programs such as farmers' insurance for protection against crop failure, insurance for sports activities and facilities as has been practiced in other countries, insurance for large-scale events, third party liability insurance for hazardous facilities, and other programs as needed.

Apart from being a means of developing and deepening the insurance sector in Indonesia, the Mandatory Insurance Program is a form of the state's efforts to protect the public.


Agung Wasono, Executive Analyst Department of Regulation and Development of Non-Bank Financial Industry, Otoritas Jasa Keuangan (OJK). Email: agung.wasono@ojk.go.id

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