Insurance Law in Indonesia: Terms, Purpose, and Types

Maybe some of you still don’t know the explanation of the law that regulates insurance activities in Indonesia. Knowing in general the Insurance Laws and Laws (UU) is very important to avoid feeling disappointed or feeling disadvantaged due to insurance benefits that are not in line with expectations. Before deciding to buy insurance, consider the following discussion of the insurance law applicable in Indonesia.

What is Insurance Law?

According to the provisions of Article 246 of the KUHD, insurance is an agreement that binds the insurer and the insured. The insurer will receive a premium to be later paid to the insured as a form of compensation for loss, damage or loss of profits as a result of an uncertain event.

Previously, the Law on insurance was regulated in Law No. 2 of 1992 dated February 11, 1992 concerning Insurance Business. On October 17, 2014, the Government of the Republic of Indonesia revoked the Law and issued Law no. 40 of 2014 concerning insurance.

The latest Insurance Law outlines the provisions between the agreement between the insurance company and the policyholder, which form the basis for the acceptance of premiums by the insurance company in return for:

Provide reimbursement to the insured or policyholder due to loss, damage, costs incurred, lost profits, or legal liability. Losses that may be suffered by the insured or the policy holder may occur due to an uncertain event; or
Providing payments based on the life of the insured with benefits whose amount has been determined or based on the results of fund management.

The law also explains in more detail about the insurance business, both conventional and sharia, the term insurance , the parties involved in the insurance business (the insured and the insurer), and when the insurance takes effect and when the insurance can be cancelled.

In addition to Law no. 40 of 2014, the insurance legal system in Indonesia is also based on the principle of interest as regulated in Articles 250 and 268 of the KUHD. In essence, every interest can be insured, whether material or interest.

Article 268 provides limitations on interests, namely they can be valued in money, can be threatened with costs, and are not excluded in the Act.
Article 250 of the KUHD stipulates that the element of interest that can be insured must be present at the closing of the insurance agreement. Without an element of interest, the insurer is not obliged to provide compensation.

Other important matters regarding insurance law can be summarized as follows:

It is an agreement that must comply with Article 1320 of the Civil Code. The agreement is adhesive, which means that the contents of the agreement have been determined by the Insurance Company (standard contract).
There are two parties to it, namely the insurer and the insured. However, it can also be agreed that the insured is different from the one who will receive the dependent.
The existence of a premium as evidence that the insured agrees to an insurance agreement.
The existence of an insurance agreement results in both parties being bound to carry out their obligations.

When is the insurance valid and when can the insurance be cancelled?

In practice, insurance takes effect from the issuance of a temporary contract agreement by the insurance company.

After the insured signs the contract, the insurance company is required to issue a policy as regulated in article 255 of the KUHD. The policy also includes the premium to be paid and other conditions.

However, in the process, either the insurer or the insured has the right to cancel the contract agreement if it does not meet the conditions listed in Article 1320 of the Civil Code.

The validity of the agreement between the insured and the insurer is determined by the agreement between the two parties to bind themselves, the competence in making an alliance, a particular subject matter, and a cause that is not prohibited.

If you do not meet these conditions, then the insurance agreement can be canceled. In addition to article 1320 of the Civil Code, there are several legal grounds that can cancel an insurance agreement:

Article 251 of the KUHD, if the insured provides incorrect data or lies about himself to the insurance company and the company knows it.
Article 282 KUHD, if there is a fraud, dishonesty, or other ingenuity committed by the insured.
Article 272 of the KUHD contains a provision that the insured can release the insurance company from all its obligations.
Article 269 of the KUHD contains losses that were not previously stated in the signed agreement.
Article 599 KUHD, the object of coverage according to the laws and regulations may not be traded.

Insurance Type

In the insurance law that applies in Indonesia, there are several types of conventional insurance, one type of insurance is added, namely sharia insurance. Here is the explanation.
Loss Insurance

Loss insurance is a type of insurance that provides protection against financial losses due to a dangerous event. Loss insurance is usually for certain objects which include:

Motor Vehicle Insurance
Property Insurance
Personal Accident Insurance
Credit Insurance
Money and Property Insurance

Life insurance

Life insurance is a type of insurance that aims to cover a person or family against unexpected financial losses due to the death of the insured. Some companies of the best life insurance in Indonesia include Prudential, Manulife, and many more.

Term Life Insurance
Lifetime Life Insurance
Unit Link Insurance

BPJS Health

BPJS Health is a public legal entity established to administer the health insurance program as referred to in Law Number 24 of 2011 concerning the Social Security Administering Body. The presence of BPJS Kesehatan has a central role in realizing the national social security system in the health sector.

This is because BPJS Kesehatan has fundamentally made improvements to the health financing system, which is currently still dominated by out-of-pocket payments , leading to a more organized financing system based on social health insurance.

BPJS of Employment

BPJS Ketenagakerjaan is a public legal entity that provides protection to all Indonesian workers in both the formal and informal sectors and foreigners who work in Indonesia for at least 6 months.

Sharia Insurance

Sharia insurance appears to meet the demand of people who want to continue to use sharia principles in insurance. In Law No. 40 of 2014, sharia insurance means a collection of agreements consisting of agreements between sharia insurance companies and policy holders and agreements between policy holders, in the context of managing contributions based on sharia principles to help and protect each other by:

Provide compensation to participants or policyholders due to losses, damages, costs incurred, lost profits, or legal liability to third parties that may be suffered by participants or policyholders due to the occurrence of an uncertain event, or;
Providing payments based on the participant’s death or payments based on the participant’s life with benefits whose amount has been determined and/or based on the results of fund management.

Insurance Purpose

Some of the best insurance companies in Indonesia such as Prudential, Manulife, Sinarmas, and Simas Jiwa offer a variety of insurance benefits (protection in the form of insurance). However, the purpose of insurance their remains the same, namely:

As a Risk Transfer Tool

The transfer of risk is submitted by the insured to the insurer. In other words, the customer shares the risk with the insurance company.

By paying a premium, the insured transfers the risk of losses that may occur in the future to the insurer. After receiving the premium payment, the insurance company automatically takes over the burden of the insured’s risk.

Paying Indemnity

Continuing the first point, the insurance company has the right to pay compensation for the insured in accordance with the provisions in the policy. This compensation payment is made by the insurance company after receiving a claim from the insured.

After the assessment process is complete, the insurance company is required to pay compensation to the customer.

Paying Compensation

Based on the insurance law stated in the law, this insurance is mandatory because of the contractual agreement between the insured and the insurer.

Insurance companies are required to protect their customers from threats that may result in death or permanent disability.

For example, if a customer experiences an accident that results in disability so that he cannot earn a living for his family, the insurance company will provide a certain amount of money to the customer who has paid the premium. This is in accordance with the provisions in the policy through an insurance agent.

Prioritizing Customer Welfare

In insurance, if one member (customer) experiences an adverse event or even ends in death, the insurance company must pay a certain amount of money to the member.

In the payment of compensation by insurance companies, the principle of subrogation is regulated in Article 1400 of the Civil Code where the reimbursement of the rights of the debtor (the insured) by a third party (the insurer/insurance party) occurs either by approval or by law.

Insurance Law in Islam

In Islam, buying and selling must meet several elements and conditions, namely the contract, the seller, the buyer, and the goods being traded. In addition, there must also be agreement from both parties, the object of sale is not illegal or unclean goods, and does not contain usury.

Based on that there are some who think that insurance is haram. In conventional insurance, the object being traded can be said to have no form. Then, the management of premiums from customers by the company is usually less transparent. While in Islam, the management of these funds must meet the requirements as mentioned in the previous paragraph.

Sharia Insurance Law

Sharia insurance answers the needs of Muslims who want to get protection based on Islamic principles and principles so that they do not violate religious sharia.

The sharia insurance company only functions as a manager of the participant’s fund contributions. The context of sharia insurance is raising funds, not buying and selling as in conventional insurance.

The goal is to help fellow participants in need. so that the contributions of funds that have been deposited are considered as grants. As for Islamic insurance, which contains investment, fund management, and investment, it aims to share the profits equally. Investment in sharia insurance is also ensured that it does not contain usury, gharar, and maisir.

Summarized, the following is a brief explanation of sharia insurance law:

Protection is managed according to sharia
Element please help in contributions or tabarru funds’
The accumulated grant funds are used for good
Share the risk and profit
The form of muamalah (human relations as social beings) in financial management
Disputes are resolved by prior consultation

Thus, once you know and understand the law contained in the Insurance Law, you don’t have to worry anymore if you feel aggrieved because this legal basis has explained in detail the company’s obligations and customer obligations. This is intended so that both parties get their rights fairly.

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