In a meeting that tackled Indonesia’s rules on foreign investments, a member of the House of Representatives, Mukhamad Misbakhun, requested a more aggressive limitation of foreign ownership in the nation’s insurance companies. He argued that Indonesia’s economic sovereignty in the insurance sector must be taken into consideration.
He stated that the Ministry of Finance should introduce President Joko Widodo’s vision and mission – nawacita – when composing the bill of government regulations related to foreign ownership for insurance companies. One of the president’s nine points on the government’s agenda, nawacita serves to continue the spirit and ideals of Soekarno as the founding father of Indonesia. The plan includes maintaining political sovereignty, independence in economy and personality in culture.
Considering that Indonesia’s economy is not as stable as those in more developed countries, Misbakhun suggested that the government consider this idea in order to minimize potential incidents of problematic insurance firms going unchecked. Although according to law number 40 of 2014 related to insurance, foreign ownership of an insurance company is capped at 80 percent, Misbakhun wants to make the cap more conservative.
He also suggested looking to India as a case study to mimic. In India, a foreign party may only own up to 51 percent of any domestic insurance company. Misbakhun considers this to be a good ratio because the sovereignty of the country can be maintained, he claims.
Contrary to Misbakhun’s opinion, Indonesia’s Minister of Finance Sri Mulyani Indrawati says 80 percent foreign ownership in the insurance industry can potentially bring a positive impact to the national economy. She added that foreign ownership in the industry will improve its capital strength.
Fundamentally, insurance is the business of managing risks and losses. This implies that it is necessary for an insurance company to have great capital strength in order to absorb risks in case of loss. For this reason, people like Indonesia’s finance minister see foreign investments as a way to provide a robust financial safety net for local firms.
Moreover, she stated that by limiting foreign ownership up to 80 percent, it would not threaten the level of national economic sovereignty. In fact, thanks to foreign ownership, the archipelago’s insurance industry is enjoying a period of growth. This is proven by insurance assets that grew more than eight fold in the last five years from Rp.105.2 trillion (US$7.8 billion) in 2010 to Rp.853.4 trillion (US$64 billion) in 2015.
Additionally, while Indonesia’s has a Rp.44.81 million (US$3,364) annual income per capita, locals spend around Rp.1.03 million (US$77) per year on insurance. With a population of nearly 260 million, this illustrates the possible potential of the industry in Indonesia.