Why Indonesia Needs a Policy Guarantee Programme

The government has initiated the formation of a Policy Guarantee Programme (PPP) in response to increasing public distrust following a series of defaults by insurance companies in recent years. The PPP is expected to restore public confidence in the national insurance industry. Based on international experience, the establishment of such a programme is not merely a response to crises or defaults, but part of the evolution of consumer protection and strengthening financial system stability. Experience from dozens of countries shows that the existence of an insurance guarantee scheme (IGS) has become a new standard in building a healthy, sustainable, and trusted insurance industry. Indonesia is now on the same path through the implementation of the PPP, which will be run by the Indonesia Deposit Insurance Corporation (LPS). Through the recently enacted revision of the Law on Financial Sector Development and Strengthening (P2SK), the PPP implementation is targeted to be effective by 2027 at the earliest.

Based on a study presented by LPS, there are generally two patterns of IGS formation globally. The first group consists of countries that built an IGS after experiencing insurance company failures that harmed the public. The United Kingdom became an early example when regulators identified a protection gap for policyholders in the mid-1970s, leading to the establishment of the Policyholders Protection Board in 1975. Canada followed a similar path in 1989 after facing a wave of ten non-life insurance company failures between 1981 and 1986. The second group comprises countries that built such systems preventively before a major crisis occurred. In 2005, Malaysia established the Perbadanan Insurans Deposit Malaysia (PIDM), which initially only covered deposit insurance. In 2010, Malaysia expanded PIDM’s mandate to include protection of insurance and takaful benefits. South Korea integrated insurance sector protection into its national financial safety net as early as 1996 through the Korea Deposit Insurance Corporation (KDIC). Indonesia appears to be choosing the second path. Although the Jiwasraya, Kresna Life, and WanaArtha Life cases served as important alarms, the PPP design is currently directed as a preventive instrument and for long-term strengthening of industry trust.

For some Indonesians, the concept of policy guarantees may still sound new. However, globally, this scheme is already an established practice. Data from the Property and Casualty Insurance Compensation Corporation (PACICC) shows that at least 29 countries or jurisdictions have mechanisms to protect policyholders. Europe is the region with the most implementations at 14 countries, followed by Asia with 10 countries. Even countries with the most advanced financial systems, such as the United States, Canada, the United Kingdom, Germany, Australia, and South Korea, have long operated such schemes. This demonstrates that policy guarantees are not a policy experiment but a tested instrument through various economic cycles and financial crises. The most important lesson from various countries is the positive impact that emerges after a policyholder protection scheme operates. In South Korea, public trust in the financial industry increased by about 20% compared to the period before the system operated in 1998. Additionally, the resolution of troubled insurance companies became faster and more coordinated. In Canada, when Confederation Life failed, the guarantee institution Assuris successfully ensured that 100% of policyholders continued to receive benefit protection through a policy transfer mechanism and a structured liquidation process. Meanwhile, in the United Kingdom, a 2024 survey by the Financial Services Compensation Scheme (FSCS) showed that 91% of respondents felt more confident buying financial products because of the protection provided by the scheme. Malaysia even recorded a more direct impact on the industry. After implementing policyholder protection, the average premium growth rate increased from 5.5% to 9.7%. These findings indicate that the benefits of an IGS do not stop at consumer protection but also drive the growth of the insurance business itself.

According to LPS studies, insurance company defaults cannot be completely eliminated and even occur in developed countries. PACICC data shows that during the 2000-2024 period, there were 930 cases of insurance company defaults worldwide, consisting of 324 life insurance companies and 606 general insurance companies. Interestingly, around 68.6% of these cases occurred in countries that already had an IGS. This means the existence of a policy guarantee scheme is not to save insurance companies from bankruptcy. Its main function is to ensure that when a failure occurs, policyholders are not the most disadvantaged party. This lesson is important for Indonesia, where in several previous default cases, the absence of a clear protection mechanism caused lengthy resolution processes and created uncertainty for customers. North America is the most interesting example of IGS effectiveness. This region recorded the largest number of insurance company failures in the world, yet it remains the largest insurance market globally. As many as 93.2% of insurance company failures in North America occurred in jurisdictions that already had a policy guarantee scheme. Despite this, the region’s share of global premiums increased from 44% in 2014 to 48% in 2024.