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Easing Insurtech Penetration (Indonesian Law No. 4 of 2023)

Indonesian Law No. 4 of 2023 – Easing Insurtech Penetration  - Murzal & Partners

27 April 2023


Corporate Newsletter – April 2023

Indonesian Law No. 4 of 2023 – Easing Insurtech Penetration  


The insurance industry was being watched by technology start-ups in light of the maturity of the industry which signifies the readiness for disruption by introducing technology to be part of insurance business’s core. The technology under insurtech model allows personalised insurance offerings, lower rate of premium, acceleration of claims from insureds, and even faster risk assessment.

After its first landfall in 2010, the insurtech sector is continously growing across the globe.

In Indonesia, specifically in the past few years, the number of insurtech companies has increased especially in response to the mass movement restrictions in early 2020. This is further supported by the development of Indonesia’s digital economy era which is contributing to the rise of financial literacy within Indonesia’s consumer class.

Similar to other Southeast Asian countries, Indonesia’s insurance regulatory landscape was designed to support the traditional insurance distribution which include:

  1. License requirement to distribute insurance products eg broker or agent license.
  2. Certain activities in relation to the distribution such as premium payment require license to be in place.
  3. Disclosure of products must be made by licensed person.
  4. Limited delegation of authority in assessing and disbursing insurance claims.

The traditional regulatory landscape has, to certain extent, created barrier for insurtech to deploy its technology-based insurance distribution.

Changes to Indonesia regulatory landscape of insurance sector

Since 2020, Indonesia government through its financial services regulator (“OJK”/Otoritas Jasa Keuangan) has been revamping Indonesia’s insurance regulatory landscape from increasing foreign investor ownership limit to easing the distribution process in the market. One of the examples is OJK’s issuance of circular letter in the end of 2020 formalising referral arrangement effectively allowing non-licensed entity to distribute insurance products.

Earlier this year, the Indonesia government has further refined its view in relation to insurance sector in Indonesia by enacting Law No. 4 of 2023 regarding Development and Strengthening of Financial Sector (“Law 4/2023”) which also amends certain provisions under the Law No. 40 of 2014 regarding Insurance (“Law 40/2014”).

Article 51 of Law 4/2023 sets out the intention of the law which is to develop and strengthen the financial services through governance of insurance sector in Indonesia. In our reading of Law 4/2023, we are of the view that the Law also formalises certain views of OJK which was introduced through OJK circular letter; we set out below key changes relevant to insurtech sector.

Note that implementing regulation of Law 4/2023 is expected to be issued in the near future.




Key changes relevant to insurtech sector under the Law 4/2023

No Subject Matter Law 40/2014 Law 4/2023


Business scope

Scope of life and general insurance business

Specifically defined the scope of life and general insurance business. The scope of life and general insurance business defined under Law 40/2014 remains, but can be expanded subject to the needs of the community. The expansion could be in a form of added benefits.

This shows that the insurance companies, to certain extent, is allowed to cater for the needs of certain insurance products.


Governance and distribution

Use of electronic document

Not specifically specified. It is prescribed that electronic document is allowed.



Premium payment

Premium payment can only be paid to licensed entity being insurer or insurance agent or insurance broker. Premium can be paid to third party who is authorised by the insurer through a cooperation agreement between such third party and the insurer; not necessarily licensed agent or broker.



Product disclosure

Product disclosure or explanation can only be made by licensed agent or broker.

Note that under OJK circular letter issued in late 2020, disclosure by non-licensed entity is allowed provided that the details of disclosure were prescribed by the insurer or agent or broker.  

It is also noted that the third party must provide the correct information to the policyholder/insured in relation to the risks covered, benefits, obligations, fees, and premium of the insurance product. This clearly shows that a third party who is not a licensed agent or broker is allowed to provide product disclosure.

We do expect the information under the product disclosure must be prescribed by the insurer/agent/broker.


Mandatory product

Mandatory insurance product

Not specifically specified. A mandatory insurance product may be made available in the market to be purchased by certain community. The elucidation of Law 4/2023 provides examples of mandatory insurance product amongst others third party liability insurance in relation to traffic accident, fire insurance, natural disaster insurance for residential.


In addition to easing the insurance distribution, Law 4/2023 also strengthen the governance of insurance companies which include the following:

  1. Expansion of trigger of the liability of the controller of insurance company with regards to loss; liability will be triggered in case of action influenced by controller, not only in case of direct action of the controller.
  2. Clear prohibition to receive gift or entertainment in return of claim fulfillment or favorable claim assessment.
  3. Sanction for failure to comply to certain provisions (eg governance provisions) also include lowering of company’s health rating which would lead to additional reporting obligations.

With the ease of distribution process of insurance products (as introduced by series of OJK circular letter and Law 4/2023), Indonesia is expecting further growth of the insurtech penetration to the market.


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