The OJK or the Financial Services Authority (OJK) of Indonesia has introduced set premium rates for insurance and acquisition cost provision to regulate premium rates to protect property and motor vehicles against natural disasters.
The new rule became effective since January 24th, 2014 and is meant to stop unfair competition in Indonesia's general insurance market. All insurance companies are directed to calculate premium rates based on risk and loss profile in at least five years.
The exact prices for premium will be available with the insurance companies as they depend on the kind of motor vehicle and the area in Indonesia.
Few areas are flood prone while others attract more number of tsunamis and therefore the rates are decided according to the degree of loss perceived in the region.
The consumers now have a set rate for the maximum and minimum premium charged by the general insurance companies operating in the nation and are covered for unforeseen natural disasters.
Safety from over-priced rates
Before this law was passed, consumers suffered from over-priced premium rates, and absence of a set minimum rate resulted in unhealthy competition in the insurance industry.
All these issues are addressed by OJK's new rule and now no insurance company in the nation can charge either too high or too low from policy buyers that ultimately hamper the ability of the companies to provide the promised benefits to consumers.
The new law is also applicable to all the finance and banking organisations that are related to the processing business for the insurance sector. All concerned companies may have to face penalties if they do not comply with the new law by OJK.
If they do not comply, these companies may have to face a temporary ban for selling insurance products. All the executives may have to clear certain tests if they do not adhere to new rules and fail to give the right information to the customers.
OJK issued the Circular Letter No. 06/D.05/2013 related to this new law on 31 December 2013 after several relevant discussions with the Indonesian General Insurance Association (AAUI).