Guide for Directors and Senior Managers of Insurance Companies | Indonesia | Asia Pacific Insurance

Does the CEO, director or senior executives of an insurance company need to be registered or licensed by the insurance regulatory authority?

Directors, commissioners, sharia supervisory board members, internal auditors and company actuaries (also known as primary parties) must obtain approval from the Financial Services Authority (Otoritas Jasa Keuangan or OJK) in the form of a fit and proper test.

Senior executives who are foreign employees can only hold limited positions in an insurance company. A foreign employee can hold a position one level below the board of directors and would be appointed as an actuary or as a consultant. An insurance company can only use a foreign employee to attend to limited functions, such as underwriting, actuary, marketing and/or information systems. An insurance company that uses foreign employees must give prior notification to the OJK.

Is approval from the regulator required for the appointment of a director/senior management of an insurance company? Is there any distinction between persons acting in an executive capacity and persons in a non-executive capacity?

Yes. The fit and proper test requirement applies to candidate officers mentioned in Question 1 and must be passed before a candidate's appointment.

Is there generally any distinction between EDs and NEDs?

The Indonesian Company Law adopts a two-tier board system, namely a board of directors and a board of commissioners. The day-to-day management of a company is conducted by the board of directors, and the board of commissioners supervises the board of directors (at least half of the commissioners must be independent and must reside in Indonesia, and other residency requirements apply depending on direct and indirect shareholdings). Directors must be resident in Indonesia. Consequently, there is an expectation from the OJK that all directors will
be executive directors.

Is approval from the regulator required for the resignation or removal of a director/senior management of an insurance company? Is there any distinction between EDs and NEDs?

No. However, the OJK must be notified of the resignation or removal of directors, commissioners, experts, actuaries, members of internal audit and foreign employees, within 20 working days (for the removal or the resignation of experts, actuaries, an internal auditor or foreign employees), or within 15 working days (for the removal or the resignation of directors or commissioners).

Is there any nationality requirement for directors/senior management of an insurance company? If so, do any exemptions exist?

All members of the board of directors (BOD) or board of commissioners (BOC) of an insurance company must be Indonesian citizens if the insurance company is wholly owned by Indonesian citizens and/or owned by any Indonesian legal entity that is wholly owned or majority-owned by Indonesian citizens. The BOD of a joint venture insurance company in which a foreign party has a direct shareholding can consist of either Indonesian citizens and expatriates or all Indonesian citizens. An independent commissioner of an insurance company must be an Indonesian citizen.

Please refer to our answers in Question 1 on the limitation of positions and functions for foreign employees.

Is there a minimum qualification or minimum number of years of relevant experience applicable to directors/senior management of an insurance company?

There is no clear minimum threshold. However, the OJK, in conducting the fit and proper test for directors and commissioners, will consider the candidate's competence, experience, integrity and financial reputation. There are time restrictions on when ex-OJK officials can be appointed as directors or commissioners of an insurance company.

Are there any other fitness and propriety requirements that apply to directors of an insurance company? What are they?

Yes. Candidates must undertake a fit and proper test, which covers the candidate's competence, experience, integrity and financial reputation.

Are there any other negative factors which will disqualify a candidate from becoming a director of an insurance company?

Yes. The following factors may disqualify a candidate: a past conviction relating to fraud or dishonesty or other criminal offenses, being an undischarged bankrupt or having been a director of a body corporate that went into bankruptcy, or a past conviction for financial crimes.

Is there a residency requirement for directors/senior management of an insurance company (e.g., primary residence must be in each local jurisdiction)?

Yes. All members of the board of directors must be resident in Indonesia, and at least half of the members of the board of commissioners must be resident in Indonesia.

Does the insurance company need to evaluate its directors/senior management before appointing such persons? What certifications, if any, must the insurance company provide to the insurance regulatory authority in respect of its directors/senior management?

Yes. An insurance company is expected to make self-assessment on the competence, integrity and financial reputation of the candidate based on a specific form provided under the prevailing insurance regulations and objectively assess the fitness and probity of directors/ senior management. The self-assessment exercise is to be conducted by a committee of the insurance company in charge of board nomination and remuneration (or by the board of directors of the insurance company if the insurance company does not have a specific nomination and remuneration committee).

Generally, are there any distinctions in the duties and responsibilities or the regulatory treatment for EDs and NEDs?

There is no distinction in regulatory treatment of executive directors and non-executive directors as Indonesia does not distinguish between executive directors and non-executive directors.

Are there any overarching duties and responsibilities for directors/senior management of insurance companies arising from insurance regulations (in addition to general corporate laws)?

Broadly speaking, directors are responsible for the insurer's operations, including compliance with applicable regulatory requirements, with a focus on compliance, investment management, underwriting, risk management and audit.

Will directors/senior management be personally liable for breach of insurance regulations by the insurance company? What penalties are there, if any?

Yes. If it is proven that the officer has acted not in the company's interests, or has not exercised proper diligence in managing the company.

Sanctions include revocation of fit and proper test results by the OJK (where the insurance company then is required to remove the director) and administrative fines. The Insurance Law also provides a longer list of criminal sanctions for management. For example, if a director conducts fraudulent acts, creates misleading or false reports, releases confidential information or undertakes business without appropriate licenses, that activity is deemed as a crime and the director will be subject to criminal sanctions.

Are directors/senior management of an insurance company subject to any periodic filing/notification requirements? What are they?

No periodic filings apply to directors specifically. An insurance company is, among other things, required to report to the Ministry of Law and Human Rights if directors and commissioners resign and/or new directors and commissioners are appointed.

Is there a requirement on minimum number of the board of directors of an insurance company?

Yes. Insurance companies are required to have at least three directors and three commissioners.

Are there any rules around composition of the board of directors or equivalent (e.g., independence requirement or the number of executive- or management-level directors)?

Yes. For the board of commissioners, at least half of the members of the board of commissioners must be independent commissioners.

There is no requirement for insurance companies to have independent directors (unless they are listed companies).

There are strict limits on how many positions a person can hold in other companies.

Are there any mandatory requirements for setting up of other committees (e.g., audit, remuneration committees)? If so, briefly describe the responsibilities of these committees.

Yes. Insurance companies are required to set up the following committees:

Investment committee – This committee is established by the board of directors, and its duty is to assist the board of directors in preparing the investment policy of the company and supervise the implementation of the policy. Its membership consists of at
least one director in charge of investment management and the company's actuary.
Product development committee – This committee is established by the board of directors, and its duty is to assist the board of directors in preparing a strategic plan to develop, sell and evaluate products.
Audit committee – This committee is established by the board of commissioners and its duty is to assist the board of commissioners in supervising and ensuring the effectiveness of the company's internal control systems and the implementation of external and internal audits. Its members include at least one independent commissioner, who will also act as chair of the committee.
Risk supervision committee – This committee is established by the board of commissioners, and its duty is to assist the board of commissioners in overseeing the implementation of risk management as set out by the board of directors and evaluate the risk tolerance that the company can bear. Its members consist of at least one independent commissioner, who will also act as chair of the committee.

Also insurance companies must establish working units that cover underwriting, actuary, claim administration settlement, marketing,
financial (including investment management), risk management, internal audit (with at least one expert and an actuary), administration and accounting, compliance, anti-money laundering and anti-terrorism funding, and services and settlement of complaints (effectively ensuring companies are self contained in line with the OJK's policy in these respects).

Are directors of an insurance company permitted to hold other passive business interests (e.g., non-executive directorships and investments/shareholdings in other corporations)? What disclosures, if any, need to be made to the relevant regulatory authorities? Are there restrictions on the number of positions board members can hold?

There is no regulation preventing commissioners or directors from having investments. Under the Indonesian Company Law, such investments (and any held by family) must be disclosed to the company. In addition, any such investment that reaches 5% or more (whether made onshore or offshore) must be reported to the company.

In relation to the restrictions on the number of positions board members can hold:

A compliance director is prohibited from holding another position.
A president director is prohibited from holding position as a commissioner in a company which is controlled by the insurance company in which he or she is a president director.
A director can hold only one commissioner position in a different insurance sector.
A director, excluding the president director, can hold only one commissioner position in a subsidiary.
A commissioner can hold another position as a commissioner, a director or a member of a sharia board only in a different insurance sector.
An independent commissioner is prohibited from holding a position as an independent commissioner in another insurance company (sharia and conventional) with a similar line of business.

Is there any requirement or prohibition for an insurance company to make a payment to its directors/senior management?

There are no specific regulations. The remuneration of directors is usually determined by the shareholders (unless delegated to the board of commissioners), the honoraria of the commissioners is determined by the shareholders, and the remuneration of senior management is determined by the board of directors.

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