OJK and Insurance Rejuvenation

KOMPAS/PRIYOMBODO

Employees crossed in front of the head office of PT Asuransi Jiwasraya (Persero) in Jakarta, on Thursday (9/1/2020).

Financial problems related to Jiwasraya’s default on the JS Plan policy of Rp 16.7 trillion, the capital, said to be negative Rp 29 trillion, the arrears of Bumiputera\'s customer claims, the alleged investment problems in several other insurers, the impact of the Jiwasraya case on other insurers and the impact on the capital market and vice versa have not yet ended.

The chain of events has led to accusations of weakness at the Financial Services Authority (OJK), even leading to a proposal that the OJK be dissolved and supervision of financial services return to Bank Indonesia (BI). In fact, before the OJK was created, the insurance sector and the capital market were overseen by the Capital Market and Financial Institution Supervisory Agency, not by BI. In response to the accusation, OJK officials denied that before the OJK\'s turn, the responsibility was on the shareholders and the board of commissioners. This discussion will not assess which institutions are guilty or more guilty than others.

In contrast to the very large banking sector government bailout, the insurance sector emerged from the 1998 Asian economic crisis without being bailed out. That does not mean the sector was not hit by the crisis. It may be necessary to study the impact of the absence of a government bailout on what happened to the two oldest life insurance companies in the country to determine what was the result of pure business what were acts of abuse of authority.

Law No. 21/2011, concerning the OJK, established the body to create sustainable and stable growth in the national economy and financial services sector, growth that is organized regularly, fairly, transparently, accountably and is able to protect the interests of consumers and the public. This noble mission demands the OJK\'s regulation and supervision of financial services in an integrated, independent and accountable way. According to Article 49 of the OJK Law, in addition to police investigations, civil servants can be given the task of overseeing the financial sector as part of the OJK with special authority as investigators. This is referred to in the Criminal Code as one of the characteristics of the OJK\'s high authority.

The takeover of authority from the previous institution certainly contains an element of dissatisfaction, at least with the hope that the OJK would be a better regulator and supervisor. Has the OJK fulfilled its mission after eight years?

From various pieces of public information, especially about Jiwasraya, it can be concluded that the problem is a combination of many factors, including management competence and integrity, organizational structure and compliance, good corporate governance (GCG) and supervision in a broad sense and the choice of solutions that were not appropriate for the long term – in addition to the capital factor.

To find out the real situation, it would be interesting to study the differences in the management and supervision systems of the companies that failed to pay with fellow solid insurers who continue to grow and utilize the results for the advancement of financial services in general.

According to Hotbonar Sinaga (Kompas, 31/12/2019), Jiwasraya has no technical director, risk management director or compliance director. In the Insurance Reform Workshop on Feb. 27, National Committee on Governance Policy chairman and Indonesia Stock Exchange former managing director Mas Ahmad Daniri said Jiwasraya did not separate the functions of receiving premiums and investments. OJK Regulation No. 73/POJK.05/2016 concerning corporate governance requires the presence of a compliance director no later than the end of 2019.

If it was a dominant contributing factor to the default, perhaps stakeholders have other considerations that are not yet known to the public.

OJK Regulation No. 43/POJK.05/2019 states that the position of compliance director can be held concurrently by other directors who are not in charge of the insurance, financial, marketing or marketing functions and gives the OJK the right to request the appointment of the director in charge of the compliance function. Is the board of directors\' structure suitable for the prudential principle of managing large public funds? Why did it happen? If it was a dominant contributing factor to the default, perhaps stakeholders have other considerations that are not yet known to the public.

For Bumiputra, in addition to the consideration of the effectiveness of the OJK\'s management of and accountability for the statutory manager it had appointed, the legal vacuum regarding mutual business entities for a long period of time may also have had a major effect.

Collaboration with business people

The dissolution of the OJK could cause uncertainty and new implications for the financial services sector. The best thing is to assess to what extent the OJK has fulfilled its function and what needs to be addressed. The review might begin with the law governing selection and continue to the compartmental structure, up to the accountability of OJK as an integrated independent institution that can respond efficiently to financial service needs, including aspects of its own internal coordination.

The various suggestions put forward by the chairs of the Indonesian Insurance Associations (AAJI, AAUI, AASI, and Apparindo) in the workshop reflected hope of increasing the role of the OJK. Do the insurance sector obstacles have something to do with being under the designation of a nonbank financial institution (IKNB), while insurance services are unique? Even within the general insurance sector – life, sharia and supporting services – there are large differences that cannot be generalized with one rule, one requirement for all. How ready are IKNB human resources, for example, to understand, regulate and oversee the complexity of insurance services and encourage growth?

Another hope is that the OJK has a special commissioner for insurance services, at least that there will be a special deputy for insurance services, integrated arrangements, policies that encourage growth vis a vis "prohibiting to do this, the sanction is this if ...", heavy reporting burdens which hinder business activities. Also, why has the Policy Guarantor Agency enacted in 2017 still not been created? According to Mochtar Kusumaatmadja (in Development Theory), law can play a role as a development guide.

For example, criminalizing the misuse of premiums or delaying payment obligations.

As a regulator, the OJK holds the reins. This theory is in line with the association\'s thinking that the OJK emphasizes its role in aspects of the strategy of developing insurance and supervision services and leaves the business aspect in their hands as long as the OJK acts as a prosecutor, police officer, and judge firmly against violations that arise. For example, criminalizing the misuse of premiums or delaying payment obligations.

As an invitation, the writer asks for the OJK\'s commitment to apply sanctions for delays in the payment of claims that were agreed or required in the policy or if the guarantor did not fulfill the arbitration decision to pay claims within 30 days of the arbitration decision in accordance with Article 40 of POJK No. 69/POJK.05/2016.

A coercive law that has no formal sanctions is imperfect. A sanction will not be useful if it is not enforced. In his book, The Behavior of Law, Donald Black defines law as "social control of government", a rule that encourages good behavior and is useful for preventing bad behavior.

Without law enforcement, order will not be created. The regulatory condition, which is obeyed to prevent violations, is the best option, not imposing sanctions when violated. The solution is a regulation that responds to the needs of all parties in a balanced way that encourages good business practices. For one of the OJK\'s forms of transparency and accountability, it would be good if the OJK could be open about the Indonesian insurance road map. It is not known whether it is already available for the capital market and banking.

The OJK needs to keep an eye on itself

The OJK\'s position as an independent institution outside the government does not mean total freedom from supervision. Lord Acton\'s opinion that power tends to corrupt and absolute power corrupts absolutely applies to all. According to Article 26 of Law No. 21 of 2011, the OJK forms supporting organs, such as the Audit Board and the Governance Ethics Committee and oversees the compliance of the Board of Commissioners, and the Management Ethics Committee oversees OJK officials and employees\' compliance with the code of ethics.

The problem is that the independence of organs directly under the Board of Commissioners is in doubt.

The problem is that the independence of organs directly under the Board of Commissioners is in doubt. Moreover, members with subordinate status do not have immunity, such as the employment status protection of the independence of the OJK leadership, which is reflected in Article 17 of the OJK Law in the guarantee that they cannot be dismissed, except for the reasons stipulated in the law, such as violations of the code of ethics. Then, do the financial institutions that finance the existence of the OJK not need to be represented? Is it possible that the party being overseen would dare to oppose the OJK\'s policies if they are inappropriate? Where will the insured complain if they are not satisfied with the OJK\'s policies or are not served?

It would be too far to bring complaints to the House of Representatives. Moreover, according to its nature, the House\'s decisions are political, so they do not necessarily reflect the interests of businesspeople and the public in an equal way.

Finally, the market expects the effectiveness of the OJK to improve by involving them. OJK collaboration and the close participation of business actors will create a culture that is not solely engaged under development politics that follow regulations alone but is based on common goals so that the existing policies will reflect the needs of the community, especially financial services.

The results of research by David Osborne and Ted Gaebler (Reinventing Government: The Entrepreneurial Spirit is Transforming the Public Sector) show that mission-driven organizations are more efficient, provide better results, are more innovative, flexible and have higher morale than rule-driven ones. The OJK Law needs to be changed if the answer is there.

Junaedy Ganie, Public Policy Observer, Legal and Insurance Expert, Business Practitioner