Law gives rise to need for liability insurance

Law gives rise to need for liability insurance

JAKARTA (JP): Enactment of the new law on limited liability
companies represents an opportunity for companies offering
liability insurance services, says a local insurance executive.

Chairman of the Indonesian Insurance Council Munir Sjamsoeddin
said yesterday that directors and officers of publicly-listed
firms now will be able to seek protection against potential
litigation.

Under Law No. 1/1995 on limited liability companies, senior
company representatives can be held responsible by investors,
business partners and even employees for the consequences of
their conduct.

"They are responsible for any company liabilities," Munir said
at a two-day seminar on directors and officers (D&O) liability
insurance.

Munir added that directors and officers are subject to serious
financial penalties and even liable for their own personal
assets.

Bankruptcy

In the law, point 2 of Article 90 stipulates that in the case
of bankruptcy due to the mistake or negligence of the board of
directors, all members of the board are jointly responsible if
the company's assets are inadequate to cover the losses.

Munir said local insurance firms can now offer protection in
the form of D&O liability insurance to directors and officers to
protect against new exposure and unforeseen consequences.

Domestically, only PT Asuransi AIU Indonesia offers D&O
liability insurance service.

"Indonesia is funny when it comes to the insurance industry.
It is not very popular here and liability insurance is less
popular because Indonesians do not normally go to court," Peter
Meyer of Asuransi AIU Indonesia said.

Popularity

Meyer explained that D&O liability insurance has been
available internationally since the 1930s, but that it gained
popularity among local companies in the early 1990s when the
government introduced a tight money policy.

At that time, Meyer said a number of local firms sought funds
overseas, which subjected the companies as well as their
directors and officers to international law and jurisdiction.
They thus became liable under the United States' securities laws,
the rulings of its Securities and Exchange Commission or other
international regulations.

"This was the first opportunity for the D&O liability
insurance industry to gain popularity here," Meyer said.

He estimated that this month's implementation of the law will
encourage uninsured directors and officers of publicly-listed
companies to look for D&O protection.

He argued that more and more responsibilities are borne by
publicly-listed company executives, who are even responsible for
their companies' annual statements.

Also under the law, point 3 of Article 60 stipulates that if
the annual statements prove to be incorrect or misleading, the
boards of directors and commissioners are jointly responsible to
the parties suffering losses.

Meyer said his company has so far provided D&O liability
coverage to directors and officers of 10 local leading firms, all
of which have raised funds overseas.

To benefit from the burgeoning market, Munir suggested that
more local insurance firms offer D&O liability insurance
services.

"If more insurance companies enter the D&O liability insurance
market, it could help reduce tight and sometimes uneven
competition among insurance firms in existing traditional
markets, which are already very crowded," Munir said. (rid)