Indonesia’s Financial Services Authority (OJK) looks set to introduce mandatory third-party liability (TPL) insurance for all motor vehicles, including motorcycles and cars, starting from January 2025.
This move is much anticipated by the country’s motor insurers and follows the establishment of the Financial Sector Development and Strengthening Act (PPSK Law) in January 2023, which gave the government the ability to require Indonesians to participate in and pay premiums in mandatory insurance programs.
“Government regulations to enforce mandatory insurance are expected to align with the PPSK Act within two years, by January 2025, requiring all vehicles to have TPL,” OJK’s Executive Director of Insurance, Guarantee, and Pension Funds Supervision, Ogi Prastomiyono, said on Thursday.
Motor insurance currently accounts for 13% of total gross written premiums (GWP) in Indonesia’s insurance market and the introduction of mandatory TPL insurance is expected to create significant opportunities for insurers.
“The growth potential in compulsory motor insurance is immense,” Abhishek Bhatia, Founder and Group CEO of Oona Insurance, told (Re)in Asia when speaking about TPL’s potential in the country earlier this month.
Nonetheless, rolling out TPL insurance nationwide will also present many challenges. One of those challenges will be educating millions in the country about the benefits of mandatory insurance for their vehicles.
From an insurance perspective, underwiring risks and claims costs will increase. “Insurers will need to manage the pricing and their reserves, as they will have larger risks coming from such products,” Jessica Pratiwi told (Re)in Asia.
The surge in demand for TPL policies will also strain existing capacity, with the General Insurance Association considering consortiums to share risks and meet capacity needs.
To complicate matters, Indonesia is also introducing new capital requirements for the (re)insurance industry in 2026 and 2026, which Fitch Ratings believes is likely to lead to industry consolidation.
But despite these challenges, the OJK and industry remain optimistic about the implementation of mandatory TPL insurance and its impact on the industry as a whole.
“With the OJK actively promoting mandatory insurance policies, we welcome the implementation of mandatory TPL and are optimistic that it will happen in the near term,” Bhatia said.
Wayan Pariama, Chief Risk Officer at Zurich Asuransi Indonesia, agrees with the sentiment and thinks it could have a positive impact more broadly.
“We expect to see that this may trigger an increase in insurance penetration across the board, as public awareness around (insurance) is more recognised and established,” Pariama tells (Re)in Asia (see story below).
