OJK to Prohibit Upfront Fees for Bancassurance Cooperations

 
Fathan Qorib, Andin Aditya Rahman
 
As a follow-up to their focus on bancassurance practices, the Financial Services Authority (OJK) is planning to prohibit upfront fees being imposed on insurance companies by their bank counterparts under bancassurance cooperation arrangements.
 
Dumoli F. Pardede, OJK’s Deputy Commissioner II for the Supervision of Non-Bank Financial Service Industries, explained that upfront fees are operational costs paid by the bank to market bancassurance products.
 
Such fees, said Mr. Pardede, are typically paid for by the insurance company upon entering a bancassurance cooperation. He believes that such upfront fees are a counterproductive financial detriment.
 
“The provision of upfront fees does not guarantee that the cooperation will benefit the insurance company,” stated Mr. Pardede during a seminar in Jakarta last Thursday.
 
Mr. Pardede added that in addition to prohibiting upfront fees, the OJK will also regulate provisions relevant to prudential aspects. These actions are part of an effort to establish a positive business climate for the growth of insurance businesses.
 
These prudential elements include provisions on the supervision of bancassurance products, and equality between insurance and banking corporations, as well as the provision of a level playing field between insurance companies.
 
To this end, Mr. Pardede continued, the OJK is currently waiting for in-depth guidelines from the Commission for the Supervision of Business Competition (KPPU). The guidelines are important for the OJK in regulating exclusive dealings that commonly take place in bancassurance cooperation arrangements between insurance companies and banks.
 
“Exclusive insurance products, of course, will constitute unfair competition practices in the insurance sector,” said Mr. Pardede.
 
Based on data released by the OJK, there were 1057 bancassurance cooperation arrangements as of 21 April 2014, consisting of arrangements between 26 life insurance companies with 40 commercial banks, and 23 general insurance corporation arrangements with 67 commercial banks.
 
 
Also responding to the issue, Chandra Setiawan, KPPU’s Commissioner, asserted that his institution is carefully watching the exclusive dealings of bancassurance cooperation between insurance companies and banks.
 
“The OJK has provided insights on the exclusive practices between insurance companies and banks that can cause unfair business practices,” he added.
 
Mr. Setiawan continued by stating that bancassurance cooperation should provide opportunities for other entities to join, even if they are carried out through exclusive dealings.
 
“Exclusive dealings are allowed but the process should be through tender or a beauty contest,” explained Mr. Setiawan.
 
At the same event, OJK’s plan was applauded by Christine Setyabudhi, Deputy Chairman for Membership and Communications at the Indonesia Life Insurance Association (AAJI).
 
Mrs. Setyabudhi believes that this regulation will benefit consumers as it will provide them with details on insurance products. Further transparency will also generate a deeper understanding of Indonesian citizens regarding insurance products.
 
“With this regulation, we hope that it will make the people and consumers feel more at ease, because they will also know that the commissions are being paid to the bank. When clearly explained, everything should go smoothly,” concluded Ms. Setyabudhi.
 
(hot/kc)