OJK Issues Rules On Separation Of Sharia Units For Insurance And Reinsurance Companies

Illustration. (Photo: Doc. Antara)

The Financial Services Authority (OJK) has issued Financial Services Authority Regulation Number 11 of 2023 concerning the Separation of Sharia Units for Insurance and Resurance Companies (POJK 11 of 2023) to strengthen the regulation and supervision of the insurance industry.

"The issuance of POJK is a follow-up to the mandate in Law Number 4 of 2023 concerning P2SK which regulates obligations for insurance companies and reinsurance companies that have sharia units, to separate sharia units after fulfilling certain requirements set by the OJK," said Head of the Department of Literacy, Financial Inclusion, and OJK Communications Aman Santosa through an official statement in Jakarta, quoted from Antara, Saturday, July 22.

To fulfill this mandate, it is necessary to improve the framework of the regulation, especially the provisions regarding the separation of sharia units in the insurance and reinsurance industries, which currently still refers to the provisions in Law Number 40 of 2014 concerning Insurance.

"Through this POJK, it is hoped that the implementation of the separation of sharia units can be carried out properly so that it can realize the purpose of creating a sharia insurance industry and sharia reinsurance that can grow sustainably and does not harm the interests of policyholders and participants," said Aman.

Furthermore, Aman explained, the main arrangements in POJK 11 of 2023 include: (1) General Provisions; (2) Separation of Sharia Units; (3) Incentives in the Separation of Sharia Units; (4) Other Provisions; (5) Transitional Provisions; and (6) Closing.

POJK 11/2023 stipulates that Insurance Companies and Resurance Companies are required to separate sharia units if sharia units meet all requirements set by the OJK, namely:

a. The value of the tabarru' funds and investment funds of sharia unit participants have reached at least 50 percent of the total insurance fund value, tabaru funds and participant investment funds in its parent company; andb. The minimum equity of sharia units has reached at least as large as:

1. IDR 100,000,000,000.00 (one hundred billion rupiah) for Islamic units of Insurance Companies; and 2. IDR 200,000,000,000.00 (two hundred billion rupiah) for sharia units of Reinsurance Companies.

In addition, the separation of sharia units is also carried out in the event that there is a request (initiative) from insurance companies or reinsurance companies or the implementation of the authority of the Financial Services Authority in the context of consolidation. The form of separation of sharia units can be done in two ways, namely:

a. Establishing a sharia insurance company or new sharia reinsurance companies resulting from sharia unit separation followed by the transfer of membership portfolios to Islamic insurance companies or new sharia reinsurance companies resulting from separation of sharia units; or b. Transferring all participating portfolios to sharia units to sharia insurance companies or sharia reinsurance companies that have obtained business licenses.

Insurance companies or reinsurance companies that have sharia units are required to separate sharia units with a deadline of no later than December 31, 2026. The hope of this provision is that after December 31, 2026, there will be no more sharia units operating in the insurance and reinsurance industries.