Policy Guarantee Programme: LPS to Implement Two Priority Systems
The Indonesian Policy Guarantee Institution (LPS) has established two priority programmes following the activation of the Policy Guarantee Programme planned for 2027.
Ferdinan D. Purba, Member of the LPS Board of Commissioners for Policy Guarantee Programmes, stated that the first priority programme is the implementation of risk-based premium funding mechanisms. Unlike LPS’s current flat-rate premium system for banking deposit guarantees, the new scheme will determine insurance company contributions to the guarantee fund based on each company’s risk profile.
“Under this scheme, contributions paid by insurance companies to the guarantee scheme will be determined based on the risk profile of each company,” Purba explained during a limited discussion in Jakarta on Thursday, 12 March 2026.
According to Purba, this approach will deliver several important benefits for the insurance industry. Notably, it will incentivise companies to adopt better risk management practices. The risk-based premium mechanism is also expected to mitigate potential moral hazard in the insurance sector, as companies with higher risk profiles will pay larger contributions to the guarantee scheme.
Implementation of the system is also anticipated to promote more prudent business conduct in the insurance sector, as risk costs will be directly reflected in the contribution amounts each company must pay. Additionally, the mechanism is viewed as creating a fairer contribution system within the guarantee scheme, ensuring that companies with higher risk exposure to the scheme contribute proportionally more.
Purba noted that risk-based premium practices have been adopted in various countries including Taiwan, Malaysia, South Korea, and Canada. These countries typically transitioned from flat premium schemes to risk-based premiums over two to five years following the activation of their policy guarantee programmes.
As the second priority programme, LPS will strengthen resolution capabilities through the development of a Resolution Lab. This platform represents a simulation system and analytical tool suite designed to enhance LPS’s capacity to manage insurance company failures.
Through the Resolution Lab, LPS can conduct various resolution scenario simulations for insurance companies, including policy portfolio transfers, insurance company insolvency scenarios, and stress test simulations resulting from catastrophic events.
“The Resolution Lab is equipped with a policy sandbox and analytical models that enable more comprehensive analysis. With this approach, the resolution process can be conducted more quickly, more accurately, and more measurably when insurance company failures occur,” he explained.
Pilot testing of the risk-based premium mechanism and Resolution Lab development will proceed in stages following the activation of the Policy Guarantee Programme in 2027. Both mechanisms are targeted for full operational status by 2030 at the latest.