On 23 February 2017, the Financial Services Authority (OJK) issued Circular Letter No. 9/SEOJK.05/2017 on Micro Insurance Products and Marketing of Micro Insurance Products (Circular Letter 9). Circular Letter 9 became effective on 23 April 2017.
Circular Letter 9, while not in the form of an OJK regulation, now prescribes a detailed manner and approach to the distribution and sale of micro insurance products.
Circular Letter 9:
- defines who the customers in this sector are
- describes policy requirements
- outlines the means of distribution (including mobile marketing)
- requires all insurance companies that market micro insurance products to have a specific working unit/division to manage micro insurance (which is directly responsible to the board of directors)
Circular Letter 9 provides a definition of micro insurance products, ie, any insurance products designed to cover risks for low-income people (namely persons earning not more than Rp 2.5 million a month).
Circular Letter 9 stipulates certain requirements that must be met if insurance companies want to manufacture, distribute or sell micro insurance products, such as:
- The micro insurance products must be documented in a simple document (not more than three pages long) and must be in the Indonesian language.
- The micro insurance policies must be prepared in layman's terms (instead of industry jargon).
- There must be no risk excluded in the micro insurance policies.
- The insurance policies cannot stipulate that in order to make a claim the customers must submit supporting documents consisting of more than four documents.
- The micro insurance products must be in the form of a guaranteed issuance offer or a simplified issuance offer where the policies will be activated once the customers pay the premiums, without any conditions.
- The insurance coverage must be activated not more than 30 days after the insurance company issues the insurance policy.
- Claims must be settled within 10 working days after complete claim application documents are submitted.
Insurance companies can sell micro insurance products through the following channels:
- direct marketing
- insurance agents
- cooperation with bank institutions (bancassurance)
- cooperation with non-bank institutions (eg, branchless financial institutions)
- a marketing workforce (tenaga pemasar)
Except for direct marketing channels, insurance companies must have written agreements with the relevant partners.
Insurance companies must obtain OJK approval for distribution agreements with bank institutions and branchless financial institutions. It remains unclear whether distribution agreements with non-bank institutions other than branchless financial institutions will require OJK approval.
Circular Letter 9 stipulates that micro insurance products can be marketed through certain electronic means, ie, short message service (SMS), telemarketing and smart phone applications. For this type of marketing, Circular Letter 9 stipulates that information disclosed to customers must contain at least:
- the benefits of the product
- the amount of the premium
- the validity period of coverage
- a reference link where the customers can fully access the information, terms, conditions and application requirements of the product
Insurance companies that sell micro insurance products must prepare and maintain an internal standard operating procedure for manufacturing, distributing and selling micro insurance products. The standard operating procedure must contain at least:
- risk selection processes
- procedures for issuing and delivering insurance policies
- procedures for receiving premium or contribution payments from customers
- management and maintenance of customers' personal data
- procedures for submission, processing and settlement of insurance claims
- procedures for responding to complaints by customers, beneficiaries or insured parties
Further, insurance companies must also have a dedicated working unit to develop micro insurance products. The working unit or employees must have a direct reporting line to a director.