With Indonesia’s oldest life insurer tottering on the brink of collapse following years of alleged mismanagement, authorities plan to tighten surveillance of the industry by overhauling regulations and setting up a rescue agency.
The government plans to draft an omnibus law for the financial industry, including insurance, as some of the existing rules are “ancient and inadequate,” Finance Minister Sri Mulyani Indrawati told reporters in Jakarta on Wednesday. As the crisis at state insurer PT Asuransi Jiwasraya has hurt investor confidence, formulation of the new law “is of the highest priority,” she said.
Indonesian authorities are under pressure to rescue scandal-hit Jiwasraya after it failed to pay some of its 7 million-plus clients following claims of mispricing, reckless investment activities, aggressive window dressing and liquidity pressure. The government has placed another pension and insurance firm, PT Asabri, under a watch list following significant erosion in the value of its stock market investments.
“We feel that the framework for managing and preventing crises is not perfect,” Indrawati said. It’s time to review the current approach which defined systemic risk as only applying to banks, she said.
A panel of experts will be formed to provide inputs for the omnibus law that will be key to restoring faith in the insurance industry, she said.
“If we identify a situation, in which an authority must take action, it turns out that the legal basis is not there or it’s inadequate,” Indrawati said.
The government may need to revise the laws on prevention and management of financial system crises, as well as the regulations governing Bank Indonesia, the Financial Services Authority, the deposit insurance agency and the banking industry, Indrawati said.
The crisis at Jiwasraya prompted the parliament this week to set up a working committee to study the problems at troubled private and state-run insurance firms as well as banks and propose solutions. It will review the performance of Jiwasraya, PT AJB Bumiputera 1912, Asabri, PT Taspen and PT Bank Muamalat Indonesia.
Jiwasraya is expected to receive a government bailout after an audit last year showed the insurer had negative equity of 27.2 trillion rupiah ($2 billion). Indonesia had 151 insurers at the end of November with total assets of more than 1,345 trillion rupiah, official data show.
Photograph: Vehicles travel along a highway in this aerial photograph taken in the Antasari area of Jakarta, Indonesia, on Friday, Feb. 1, 2019. Photo credit: Dimas Ardian/Bloomberg.
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