Indonesia Caps Foreign Ownership in Insurance Companies at 80%
The Indonesian government set a 80 percent cap on foreign ownership in Indonesian insurance companies through Government Regulation No. 14/2018 on Foreign Ownership of Insurance Companies. Suahasil Nazara, Fiscal Policy Head at Indonesia's Finance Ministry, said foreigners can remain controlling a big stake (up to 80 percent) in the domestic insurance industry because it is believed that domestic insurance players still need the knowledge and capital that strategic foreign investors bring from abroad.
The new regulation came into effect per 18 April 2018. Existing foreign players in Indonesia's insurance industry that own a stake that is higher than 80 percent (prior to the implementation of the new regulation) will not need to sell a part of their stake. However, they will not be able to upgrade their business level. Thus, in case these existing foreign investors want to expand further in Indonesia's insurance industry, the government will limit their ownership to 80 percent in line with the new regulation.
Nazara added that the government needs to respect existing foreign players in the insurance industry because some of them "saved" Indonesia after the Asian Financial Crisis had ravaged through the nation (and especially turned the finance industry - including insurance - into a state of despair). The inflow of foreign capital was what contributed significantly to the recovery of the nation.
Meanwhile, Nazara also stated that the foreign ownership cap at 80 percent does not breach any existing cooperation agreements with foreign countries or entities. And although the new regulation is in essence negative for foreign investment because their stake is limited, it is not expected to result in sliding foreign investment in Indonesia's insurance business because this industry still has great potential. For example, the average insurance premium was about IDR 1.5 million (approx. USD $106) per capita in Indonesia, relatively low compared to figures in emerging peer markets in Southeast Asia.
Based on data from the Financial Services Authority (OJK) there are currently 22 conventional general insurance companies in the form of a joint venture active in Indonesia. Six of these joint ventures involve foreign investors with a stake that exceeds 80 percent. Meanwhile, there are 23 joint ventures in Indonesia's conventional life insurance industry, 12 of which involve foreign companies with a stake above 80 percent. For these foreign investors there will be no need to reduce their stake. However, they will not be able to perform a capital injection for further business expansion.