LPS Prepares Three Schemes To Guarantee Insurance Policy

Member of the Board of Commissioners for the LPS Policy Guarantee Program, Ferdinand D. Purba. (Maria Trisnawati / VOI)

BANDUNG - The Deposit Insurance Corporation (LPS) has received a mandate to guarantee insurance policies. through Law no. 4 of 2023.

A member of the Board of Commissioners for the LPS Policy Guarantee Program, Ferdinand D. Purba, stated that to carry out the mandate, his party had prepared three types of guarantees in the Policy Guarantee Program (PPP).

"First, guaranteeing policy claims, if the insurance company has problems, LPS will guarantee payment of claims, both full and partially," he said in the Financial and Insurance Literacy in Bandung, Saturday, December 6.

Second, he continued, the transfer of policy portfolios to healthy companies with customer policies continues with the same benefits, and finally, policy returns. If the transfer cannot be carried out, the LPS will pay for the policy according to the guarantee limit.

The guarantee is estimated to cover a coverage value of between IDR 500 million, which Purba says covers about 90 percent of the average policy value in Indonesia.

"This scheme will be automatically carried out by LPS without the need for options from policyholders," he added.

Purba also said that PPP would be formalized through Government Regulations (PP), with technical provisions such as the value of the guarantee limit and the type of products guaranteed to be determined further. According to the P2SK Law, this program will start running in 2028. However, LPS stated that it was ready if there was an acceleration to 2027.

"If it is accelerated in 2027, LPS is ready to implement it," said Purba.

Purba also emphasized that if this program runs, public trust in the insurance industry will increase. As a result, the insurance industry premium will increase.

"The existence of PPP is part of the recovery and resolution framework to deal with the possibility of failure of insurance companies, based on the experience of LPS so far in running the savings guarantee program, public trust in banking increases. Third party funds (DPK) for banks also increased," he explained.

On the other hand, the average growth of third party funds is higher after LPS operates compared to before. The growth is an average of 7.7 percent before LPS operates, then it increases to 15.3 percent after LPS operates.

Taking an example of the implementation of the policy guarantee program in Malaysia, it also appears that there has been a higher premium increase after the enactment of this program. Three years before the enactment of the insurance policy guarantee program, namely the 2007-2009 period, the average insurance premium income growth was 5.5 percent per year.

"After the policy guarantee program took effect in 2010, the average premium growth in the 2011-2013 period was 9.7 percent per year," he explained.

Looking at examples in other countries, he believes that LPS believes that the implementation of the policy guarantee program will increase public trust.

"So that in turn the insurance premium income will increase," said Purba.