KUPA Could Serve as a Middle Ground for Streamlining State-Owned Insurance
The consolidation or streamlining of state-owned insurance companies currently being undertaken by Danantara should not always result in mergers or the dissolution of legal entities. This is because the primary objective of the streamlining programme is not merely to reduce organisational structures, but is part of the government’s broader vision to create more competitive, efficient, adaptive, and impactful state-owned enterprises while reducing functional overlaps.
Therefore, in addition to mergers, another alternative for the streamlining process of state-owned insurance is the formation of Insurance Company Business Groups (KUPA). The formation of KUPA is regulated under Financial Services Authority Regulation (POJK) Number 23/2023 regarding Business Licensing and Institutional Framework for Insurance, Sharia Insurance, and Reinsurance Companies.
This scheme is worth considering in the streamlining process because it allows several healthy companies with specialised products, captive markets, distribution networks, or specific franchises to remain as independent legal entities within a single business group, featuring a more integrated control structure and capital responsibility.
This means that streamlining state-owned insurance is not just about merging numerous entities into fewer ones, but must also prioritise the principle of prudence, given that the insurance business structure is highly complex, requires specialised expertise, and involves a large workforce.
POJK Number 23/2023 explicitly regulates the conditions under which KUPA can be utilised and who can serve as the parent company. The regulation positions KUPA as one of the three available consolidation schemes. Article 37, paragraph 1 of this regulation provides three options for the consolidation of insurance and reinsurance companies: merger or dissolution, acquisition followed by merger or dissolution, and the formation of KUPA.
Within a KUPA, the parent company is the entity deemed capable of meeting the capital and liquidity requirements of the companies within the group. The formation of KUPA can be implemented when a planned merger is found to be unable to significantly increase the scale of business for the resulting entity.
Furthermore, the shareholding requirements for a parent company in a KUPA do not necessarily need to be dominant or controlling. Article 54 states that the parent shareholder can be a Controlling Shareholder (PSP) or a non-PSP shareholder holding at least 10% of the company.
In a previous analysis by CNBC Indonesia Research titled ‘Reading the Map of State-Owned Insurance Consolidation: Who are the Survival Entity Candidates’, several entities were identified as having captive markets and specialised businesses, with some even larger than the potential survival entities. Given these advantages, it would be regrettable if these entities were forced into a merger.
Simulation of State-Owned Insurance KUPA
Referring to the previous analysis, the general insurance group produces two survival entity candidates: Jasindo and Tugu Insurance, with potential entities for integration being Jasaraharja Putera and Asei. Additionally, there are entities outside the IFG ecosystem, such as Indonesia Re and Pertamina, as well as BRI Insurance and PLN Insurance.
Based on the KUPA simulation conducted by CNBC Indonesia Research, if Jasindo is selected as the survival entity, other entities could be maintained within a KUPA structure with their respective business specialisations. For example, Tugu Insurance could focus on energy and corporate, BRI Insurance on micro-insurance, Jasaraharja Putera on retail insurance, Asei on trade credit insurance, and PLN Insurance on utility and infrastructure.
Even if the credit insurance line does not become a separate entity, Askrindo could join the general insurance KUPA with a specialisation in credit insurance. It should be noted that the determination of specialisations and the entities to be maintained must be based on in-depth studies to achieve optimal results.
In the life insurance sector, Inhealth and Pertalife could become members of a KUPA under IFG Life as the parent company, with Inhealth specialising in health insurance and Pertalife focusing on employee benefits and pension funds.
In the reinsurance sector, if Indonesia Re is designated as the survival entity, Tugure could be maintained with specific assignments such as energy, marine cargo/marine hull, or property and engineering.
Meanwhile, for the guarantee and Sharia lines, CNBC Indonesia Research did not conduct a simulation due to the smaller number of entities compared to the general, life, and reinsurance sectors. In fact, in several lines, there is currently only one existing company, namely the Sharia reinsurance entity.