When someone purchases an insurance policy, what is actually being\nbought is not merely a document, but a promise: that when a risk occurs,\nthe insurance company will fulfil its obligations. Therefore, when an\ninsurance company defaults or is unable to meet its obligations, the\nissue does not only affect a single company. Public trust in the entire\nindustry can be compromised. This is where the Policy Guarantee\nProgramme (PPP) becomes vital.<\/p>\n
Indonesia has included this programme as part of the financial sector\nreforms through Law Number 4 of 2023 concerning the Development and\nStrengthening of the Financial Sector (UU P2SK). The law incorporates\nthe policy guarantee programme as a key element in strengthening the\ninsurance ecosystem. Preparations are now becoming more concrete. In\nrecent developments, the LPS (Indonesia Deposit Insurance Corporation)\ncontinues to prepare the PPP, which is targeted to be operational by\nJanuary 2028 at the latest, including in terms of regulation, human\nresources, information technology, and data integration with the OJK\n(Financial Services Authority).<\/p>\n
However, there is one equally important question: how can we ensure\nthat the PPP provides strong protection to policyholders without further\nburdening the insurance industry?<\/p>\n
This question is crucial because the industry is currently undergoing\nvarious reform agendas. Insurance companies must strengthen their\ncapital, implement PSAK 117\/IFRS 17, prepare New Risk-Based Capital\n(New-RBC), strengthen governance, and improve the quality of risk\nmanagement. The OJK itself is currently pushing these various\nreforms.<\/p>\n
Therefore, the PPP should not be viewed solely as a mechanism for\n\u2018collecting guarantee funds\u2019. Beyond that, the PPP must serve as an\n\u2018infrastructure of trust\u2019 for the insurance industry.<\/p>\n
Guaranteeing is Not Merely About Collecting Funds<\/p>\n
Experiences from various countries show that policyholder protection\nsystems can be designed with different principles. However, there is a\ncommon thread: consumer protection must go hand in hand with market\ndiscipline, risk management, and system cost control.<\/p>\n
In Singapore, the Policy Owners\u2019 Protection Scheme (PPF) is managed\nby the Singapore Deposit Insurance Corporation (SDIC). This scheme\nfeatures a PPF Life Fund and a PPF General Fund, where the\ncharacteristics of life and general insurance businesses are not treated\nidentically, with funds sourced from levies paid by members that are\nrisk-based. For life business, the basis includes protected liabilities,\nwhile for general business, it may use protected liabilities or gross\npremium income depending on business conditions. Singapore\u2019s protection\nfunds are placed primarily in safe and liquid assets, rather than being\nformed to chase the highest possible investment returns.<\/p>\n
This scheme does not merely wait for a company to fail. In cases of\ninsurance company failure, resolution options may include transferring\nthe business to another company, policy run-off, or terminating policies\nwith compensation according to regulations.<\/p>\n
Singapore also provides an important lesson regarding consumer\ncommunication. Covered products must explicitly state that the policy is\nprotected by the PPF, including the protection limits. Thus, consumers\nunderstand that protection is available, but it does not mean that all\nbusiness risks of the company are automatically borne by the state or\nthe guarantee fund.<\/p>\n
In Malaysia, Perbadanan Insurans Deposit Malaysia (PIDM) operates the\nTakaful and Insurance Benefits Protection System (TIPS), where\nprotection is automatically provided to policyholders who meet the\nrequirements. For protected benefits, there are specific protection\nlimits, while health benefits receive protection according to applicable\nregulations.<\/p>\n
In terms of financing, PIDM explicitly uses a differential levy\nsystem, which is a levy that considers risk profiles, where institutions\nwith better risk profiles are charged lower levies and vice versa. PIDM\nalso states that one of its mandates is to provide incentives for member\ninstitutions to implement good risk management and to carry out their\nmandate by minimising costs to the financial system.<\/p>\n
In the United Kingdom, the Financial Services Compensation Scheme\n(FSCS) is funded by the industry through levies divided by funding\nclass, so companies pay according to their relevant business group.\nThere are also levy caps for each group so that the financing burden is\nnot unlimited. The FSCS also strives for recoveries from assets or\nresponsible parties to reduce the industry\u2019s levy burden.<\/p>\n
International benchmarks in these countries show that guarantee funds\ndo not have to consist of uniform levies. From these various\nexperiences, there is one conclusion that should serve as a fundamental\nprinciple for Indonesia: a good guarantee programme is not one with the\nhighest levies, but one capable of providing adequate protection with\nefficient system costs.<\/p>\n
The PPP Scheme Should Not Be an \u2018Industry Tax\u2019<\/p>\n
The insurance industry is certainly interested in the presence of the\nPPP because this programme can increase public confidence that the risk\nof company failure does not have to be borne entirely by the\npolicyholders. However, if PPP contributions are set too high, are flat,\nand do not\u2026<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/policy-guarantee-programme-building-trust-without-burdening-the-industry-1788519300", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }