OJK Drafts Burden Sharing Policy for Insurance Companies

The Financial Services Authority (Otoritas Jasa Keuangan– “ OJK ”) is preparing a new regulation to anticipate imbalances between premiums and credit claim risks that could burden insurance companies. This measure is being taken to create a healthier credit ecosystem through periodic risk-sharing (burden sharing) between insurance companies and credit providers.

"We want to ensure that the premiums set truly reflect the assessed level of risk, based on prudential principles and improved risk management," said Djonieri, Head of the Department of Insurance, Guarantee, and Pension Fund Regulation and Development of the OJK, to Hukumonline.

This new policy will focus on the mechanisms of risk sharing and the duration limits of coverage, as well as adjustments to acquisition costs, in accordance with the provisions of OJK Regulation (“ POJK ”) No. 20 of 2023 on Insurance Products Which are Associated with Sharia Credit or Financing, and Suretyship or Sharia Suretyship Products (“ POJK 20/2023 ”). Under this regulation, insurance companies must bear 75% of the credit insurance risk, while the remaining 25% must be borne by the credit provider.

"Thus, this regulation can help reduce the moral hazard in credit distribution," he added.