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Indonesia passes ‘nationalist’ insurance law

Indonesia has tightened its rules on insurer ownership with passage of the New Insurance Law.

The legislation takes effect on Thursday and applies to all businesses in the industry, including insurers, reinsurers, brokers, agents and loss adjusters.

A briefing by law firm Norton Rose Fulbright says the law has “an underlying nationalistic sentiment” that foreign investors should consider carefully.

It warns the reform will have a substantial impact on the country’s insurance market.

Cover for any asset or risk located in Indonesia must now be placed with a local insurer, unless none are willing to underwrite it. Previously, foreign entities could buy offshore.

Insurers and reinsurers must use domestic reinsurance as much as possible under the legislation, to help the local market grow.

IAG is keen to move into Indonesia under its Asian expansion strategy, having identified it as a “market of interest”.

The new law maintains the 20% local ownership rule on any insurance joint venture, but tightens the local ownership structure, so the domestic partner must be fully owned by an Indonesian.

It also features a “single presence” policy that means an individual or entity can only be a controlling shareholder in one company.