ENHANCING OJK REGULATION ON LICENSING, GOOD COORPORATE GOVERNANCE, AND FAIR COMPETITION IN NATIONAL INSURANCE POLICY Edy Setiadi Deputy Commissioner of Non Bank Financial Institution Supervision I Financial Services Authority Bali, October 2016
Outline Outline Background Legal and Regulatory Framework Methodology or Business Process Integrated Bancassurance Licensing Final Results Comparisons with Existing Fit and Proper Test Insurance Premium Tariff 2
Integrated Bancassurance Licensing 3
Integrated Bancassurance Licensing Background 1. Improvement of Licensing Process Transforming existing business process from manual to electronic based Improvement the substances of licensing requirement Background 2. Changing the Mindset Utilisation of e-docs to fulfill licensing requirements Original document (hardcopy) is kept and be the applicant s responsibility 3. Optimization of coordination Supervisors will use all data that OJK already had so they won t recul to ask the same data 4. Transparency of Licensing Process Opening access of licensing processed so the applicants could know its progress 4
Integrated Bancassurance Licensing Legal and Regulatory Framework SEOJK NO 32/SEOJK.05/2016 ABOUT DISTRIBUTION CHANNEL OF INSURANCE PRODUCT THROUGH PARTNERSHIP WITH BANKS (BANCASSURANCE) Consumer Protection Aspect: Insurer must make sure the prospective policyholders, the insured, or the participant has obtained a full description of the insurance products that being offered. Model of distribution partnership and integrated product benefits and costs PAYDI benefits, costs, and risks 04 01 Enterprise Risk Management in Bancassurance Insurer has authority of underwriting and claim decision, also ensure that Bank operated in Bancassurance comply with regulation regarding the Application of Risk Management for Bank Legal and Regulatory Framework Requirement of Insurer that will market Insurance Product through Bancassurance : Meet the Financial soundness Not subject to admistration sanction Incorporate bancassurance work plan in corporate business plan Obtain bancassurance registration from OJK 03 02 Application Procedure of Bancassurance Registration: Submit documents (by online) & upload the documents to SPRINT (Licensing and Registration Electronic System)
Integrated Bancassurance Licensing Approval Scheme of Bancassurance bank insurance 2 working days approval 19 working days rejection 6
Integrated Licensing of Bancassurance Comparisons with Existing Before Integration There are redundancies of analysis activity doing by the Banking Supervisor and the IKNB (Non Bank Financial Institution) Supervisor. Example: analysis of the level of financial health insurance companies analysis of rights and obligations of each parties analysis of marketer requirements Many documents required by the Banking Supervisor and the IKNB (Non Bank Financial Institution) Supervisor are the same Example: Cooperation Agreement Marketing kit There are sequential processing stages. Compliance check conducted by the Banking Supervisor and the IKNB (Non Bank Financial Institution) Supervisor. Total processing time, maximum 101 days After Integration Redundancy is eliminated, using joint working paper. Joint working paper is entered by the Banking Supervisor and the IKNB (Non Bank Financial Institution) Supervisor in accordance with their respective authorities. Documents are given once through a single window. The processing application is performed in parallel. Applicant make self assessment to complete and to check documents. Total processing time, maximum 19 days. 7
Fit and Proper Test (FPT) 8
Fit and Proper Test (FPT) Background Background 1. Creating a healthy insurance industry aside from improving financial condition 2. Alignment of regulations concerning fit and proper test that applies for the Financial Companies in banking, capital market, and non bank financial institution in order to avoid regulatory arbitrage and inconsistencies in the implementation of the fit and proper test at the Financial Companies which are regulated and supervised by OJK. 3. Granting of licensing services for the management and shareholder of Financial Services Institutions which are faster, more precise, easier, and more transparent 4. Obligation of Financial Services Institutions manager, which act as the Lead Entity, has the authority to manage the Lead Entity and other Financial Services Institutions in their financial conglomerates. 9
Fit and Proper Test (FPT) Legal and Regulatory Framework (1) Legal and Regulatory Framework (1) No. Legal Basis Setting Date 1 POJK 4 year 2013 aside from Article 3 paragraph (2) point a (in nominated time of FPT), Article 3 paragraph (2) point b (in expiry time of FPT), and Article 18 paragraph (4) 2 POJK No. 27/POJK.03/2016 concerning Fit and Proper Test for Financial Services Institutions Key Persons 3 SEOJK Nomor 31/SEOJK.05/2016 concerning Fit and Proper Test for the Institutions Non-Bank Financial Services Key Persons November, 21 st 2013 July, 22 nd 2016 August, 30 th 2016 10
Fit and Proper Test (FPT) Legal and Regulatory Framework (2) Legal and Regulatory Framework (POJK 27/2016 and SEOJK 31/2016) 1. Controlling shareholder of insurer (although they already has shares), member of the Board of Directors; member of the Board of Commissioners; and Sharia Supervisory Board (although have approval and appointed by the AGM) and Corporate Internal Auditors and Actuaries must obtain approval from the FSA prior to conduct business. 2. FPT Assessment Factors, namely : a. integrity and financial soundness and solvency candidate of controlling shareholder (PSP) that own share in company. b. integrity and financial soundness controlling candidate that don t own share in company. c. integrity, financial soundness and competence except controlling shareholders candidate or controlling candidates. 3. FPT Procedures a. Application submissions to the FSA with the administrative requirements document b. Administrative assessment conducted through presentation/explanation controlling shareholders and controlling candidate, conducted by administrative assessment preceded by self-assessment except controlling shareholder and controlling candidates. 4. Fit and Proper Test results : a. Duration of the assessment results 30 working days after the documents complete. b. FPT Results APPROVED / DENIED c. Assesment result written by the FSA and could be notified to the other party. 11
Fit and Proper Test (FPT) Legal and Regulatory Framework (3) Legal and Regulatory Framework (POJK 27/2016 and SEOJK 31/2016) 5. Consequences of the FTP s results that will not be approved by FSA: a. For PSP candidate, that own shares required to shift, do not exercise their control, and to restrict their shareholder rights. b. For Board candidates, Board of Commissioner candidate and / or member of the Sharia Supervisory Board who have been appointed in the General Meeting of Shareholders required to held General Meeting of Shareholders s regarding revocation of appointment. 6. The period for resubmit FPT a. Minimum of 6 months from the date of rejection; or b. < 6 months with the condition they are not approved for the competency requirements and propose to other positions (equivalent or lower, the same as the previous positions with lower complexity or other financial institutions). 7. Cancellation FPT approval by the FSA: a. Submission of information and documents that are incorect; and / or b. There is information obtained from other authorities that resulted the parties which has been approved becoming ineligible. 8. FTP-related sanctions against violations include : written warnings; downgrading; annulment of the fit and proper test results; restrictions on business activities; management replacement orders; Putting Management in the banned list of key persons; cancellation of approval, registration and attestation; and / or revocation of business licenses. 12
Fit and Proper Test (FPT) The difference from the previous regulation (1) Criteria Required parties ruled by FPT Assessment factor in FPT assessment procedure Previous Regulation (POJK 4 year 2013) board of directors board of commissioners member of sharia supervisory board member of representative board member controlling shareholders Experts expatriate Competence Integrity Financial reputation administrative review interview Verification of data and information New Regulation (POJK 27/2016) controling shareholders board of directors board of commissioners member of sharia supervisory board internal auditor Actuary Competence Integrity Financial soundness Financial solvency administrative assesment through presentation and explanation Requirement for company to do self assessment prior to administrative assessment 13
Fit and Proper Test (FPT) The difference from the previous regulation (2) Criteria Term of the determination results Previous Regulation (POJK 4 year 2013) 60 working days after complete application documents are received New Regulation (POJK 27/2016) 30 working days after complete application documents are received sanctions Ending term of FPT result written warnings Suspension of business activities revocation of business licenses 5 (five) years as of the date of stipulation by the OJK written warnings Downgrading cancellation of the fit and proper test results restrictions on business activities management replacement orders Putting Management in the list of barred key person cancellation of approval, registration and attestation revocation of business licenses. - 14
PREMI TARIFF OF INSURANCE 15
AMANDMENT PLAN OF SEOJK 21/2015 Background Background 1. The Premium must be set at the adequate level, not-overpriced, and non discriminatively applied (Article 20 Paragraph (1) of Government Regulation No. 72 Year 1992) 2. Determination of premium insurance level must be based on well risk analysis calculation (Article 21 of Government Regulation No. 73 Year 1992) 3. Insurance company that markets property insurance and/or motor vehicle Insurance must set premium or contribution rates, determined by OJK (Article 5 POJK Number 2 Year 2015) 4. There is changes in risk and loss profile of vehicle and property insurance so that the existing premium rate doesn t reflect the new risk profile 5. Support the fair business practice competition to be healthier among non-life insurance company in Indonesia 16
AMANDMENT PLAN OF SEOJK 21/2015 Methodology of Premium Rate Determination (1) Methodology of Premium Rate Determination Step 1. Data Collection General insurance companies submit Insurance Risk Data Report, i.e for the motor vehicle and property insurance (last 5 years data) 17
AMANDEMENT PLAN OF SEOJK 21/2015 Methodology of Premium Rate Determination (2) 2. Vehicle & Property Flow Modeling Flow Chart Raw Data Cleansing Data Descriptive Statistics Proposed Modelling Calculating E(N), E(X), and Premium Rate Selecting Distribution Testing Goddness of Fit Estimating Parameter Distribution 18
AMENDMENT OF PLAN SEOJK 21/2015 Determination Of Premium Rates Methodology (5) Step 3 Smoothing Process and Legal Drafting Premium rates which are produced by statistical approaches, are then processed by using smoothing activities to produce premium rates motor vehicle insurance and possessions which are more reflects the risk profile, and more workable. Team which is in charge of carrying out the smoothing process, consists of element: OJK General Insurance Association of Indonesia (AAUI) Data Center Management Agency National Insurance (BPPDAN) Actuary PT Asuransi MAIPARK Indonesia Risk Engineer 19
AMANDEMENT PLAN OF SEOJK 21/2015 Arrangement Plan of Premium Rate (1) No. Uraian Rencana Pengaturan 1 Changes in motor vehicle insurance premium rates (TLO and Comprehensive) 2 Changing of Property Insurance Premium Rate There are increases in insurance premium rates for certain categories and regions that reach ±50% (TLO) and ±100% (Comprehensive) There are decreases in insurance premium rates for certain categories and regions that reach ±15% (TLO) and ±25% (Comperhensive) There is no not increase/decreas in insurance premium rates for certain categories and regions (TLO & Comprehensive) There is an increment in insurance premium rates with certain occupation code that reaches ±20% There is a decrease in insurance premium rates with certain occupational code that reaches ±5% There is no increment / reduction in premium rates for some specific occupational code 3 The new occupation code There rise new occupation code reaching ±86 occupation code There redefenition for certain occupational code. example: occupational code 213 Bricks and tile works SEOJK 21/2015 be Brick and Structural Clay Tile, and structural Clay products. There is the elimination of certain occupational code 20
AMANDMENT PLAN OF SEOJK 21/2015 Arrangement Plan of Premium Rate (2) No. Description Arrangement Plan 4 Acquisition Cost Re-arrangement concept, criteria, and the amount of acquisition cost 5 Premium rate of vehicle insurance for the expansion of law responsibility to the third party Progressively Calculated as well as tax calculation 6 Premium Rate Discount Re-arrangement of discounted premium rate at property insurance based on sum insurance (without earthquake risk) for some sum insurance (1 location and multilocation) 7 Coverage for property insurance for one location and multiple locations 8 Discounted rates for motor vehicle insurance premiums above 100 units The assertion that the insurance coverage for one location and multi-location does not include a risk for earthquakes Elimination of the requirement that would require policy renewal to be able to get discount 21
THANK YOU 22