The Financial Services Authority (OJK), Indonesian insurance regulator, with effect from 24 March 2025 will implement a new regulatory approach in the insurance sector with the introduction of OJK Regulation No 37 of 2024 (Regulation 37/2024).
The new regulatory system that will enhance flexibility and effectiveness in addressing regulatory violations. It will focus more on managing significant risks rather than rigidly adhering to predefined rules.
The new regulation will replace the previous compliance-based system under OJK Regulation No 17/2017 (Regulation 17/2017) with a more risk-based approach to administrative sanctions.
According to media sources under the new regulation, OJK aims to improve the effectiveness of administrative sanctions by shifting focus from rigid rule adherence to a more flexible risk management approach. By addressing the most significant risks, the new system is expected to enhance regulatory oversight and compliance within the insurance industry.
One of the major changes introduced by Regulation 37/2024 is the broader scope of OJK’s authority. Previously, OJK could only impose sanctions for violations of insurance-specific regulations. However, the new regulation allows OJK to penalise companies and individuals for breaches of any financial sector regulations, ensuring more comprehensive supervision and enforcement.
While these measures aim to enhance accountability, some aspects still remain unclear, particularly the enforcement of position bans on companies and the precise definition of "other parties" subject to the regulation.
In a commentary on the new regulation the international law firm Baker McKenzie writes that Regulation 37/2024 introduces two new types of administrative sanctions 1) Financial soundness downgrade - applicable to insurers and reinsurers and 2) Prohibition on holding positions as a controller, controlling shareholder, director, commissioner, sharia supervisory board member, or other executive roles – applicable to insurers, reinsurers, brokers, agents, actuarial consultants, public accountants, appraisers, and other parties.
The law firm says, “While the prohibition on holding positions can be imposed on individuals, it remains unclear how OJK will enforce this prohibition on insurance and insurance-related companies, aside from restricting them from holding positions as controller and controlling shareholder.”
The new regulation 37/2024 also introduces a clear distinction between administrative and substantive violations, with different penalties for each category.
- Administrative violations refer to infractions that do not significantly impact financial health, such as minor reporting errors. Sanctions may include written warnings and administrative fines up to IDR 1bn (approximately $66,000).
- Substantive violations involve serious breaches that threaten financial stability, such as fraudulent activities or major compliance failures. These may result in business restrictions, license revocation, larger fines, or bans from holding key positions.