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)