Following the enactment of Law No. 4 of 2026 on the Amendment to Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (Amendment to PPSK Law), Indonesia's insurance regulatory landscape is moving towards a more comprehensive framework for dealing with financially distressed insurers. Traditionally, the exit of an insurance company from the market has been largely associated with supervisory intervention by the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”), followed, where necessary, by the revocation of the insurer's business license and subsequent liquidation.

Recent legislative developments, however, indicate a broader approach. The Deposit Insurance Corporation (Lembaga Penjamin Simpanan or “LPS”) is expected to play an increasingly significant role in the protection of policyholders and the resolution of troubled insurance companies. This development signals a potential shift from an exit framework primarily centred on liquidation towards one that also contemplates intervention and resolution before an insurer reaches the final stage of liquidation.

From Supervisory Intervention to Resolution

Indonesia's existing supervisory framework already provides OJK with a graduated approach to addressing financial distress within insurance companies. Under Regulation of OJK No. 37 of 2025, insurers may be subject to normal, intensive, or special supervision depending on factors including their governance and financial condition.

Where an insurer's financial position deteriorates, OJK may require corrective measures and, in certain circumstances, restrict specific business activities. The framework also allows distressed entities to pursue recovery alternatives, including mergers, consolidations, acquisitions, and additional paid-up capital.

If these measures are unsuccessful, the traditional regulatory pathway may ultimately result in the revocation of the insurer's business license and the commencement of liquidation.

The developing policy guarantee framework introduces an additional dimension to this process. Rather than viewing liquidation as the only possible outcome following unsuccessful recovery measures, the new framework contemplates circumstances in which a conventional or Sharia insurance company may enter an LPS-led resolution process.

This distinction is significant. Resolution is not simply another term for liquidation. While liquidation focuses on winding down an insurer and settling its obligations, a resolution framework may allow regulatory authorities to take measures aimed at preserving policyholder rights and maintaining the continuity of certain insurance-related functions before the insurer's affairs are reduced entirely to a liquidation process.

A Broader Set of Resolution Tools

One of the most important developments is the range of measures that may be available to LPS when dealing with an insurance company under resolution.

The framework contemplates, among others, the transfer of part or all of an insurer's assets and liabilities to another insurer or a bridge insurer. LPS may also be able to address shortfalls arising from such transfers, make payments relating to guaranteed insurance claims, restore the rights of policyholders, insureds, or participants, and manage insurance policy contracts.

In certain circumstances, the resolution process may also involve stopping the issuance of new policies.

These measures represent a considerably broader approach than a conventional liquidation mechanism. Instead of focusing exclusively on the distribution of an insurer's remaining assets after the revocation of its business license, the resolution framework may facilitate the transfer and management of the insurer's business and obligations while attempting to preserve continuity for affected policyholders.

The potential use of a receiving insurer or bridge insurer is particularly notable. The ability to transfer assets and liabilities, rather than merely transferring a portfolio of insurance policies, suggests a more institution-oriented approach to managing insurer failure.

Policyholder Protection Beyond the Liquidation Stage

The protection of policyholders has long been an important principle within Indonesia's insurance liquidation framework. Existing regulations already recognise the priority of policyholders, insureds, participants, and other parties entitled to insurance benefits in the distribution of an insurer's assets.

The emerging resolution framework builds on this objective but seeks to address policyholder interests at an earlier stage.

This may be particularly relevant where the immediate liquidation of an insurer could disrupt the servicing of policies, the handling of claims, or access to information necessary to determine policyholder rights. By allowing for the transfer or management of insurance assets, liabilities, and policy contracts, an LPS-led resolution process may provide additional mechanisms for preserving policyholder rights before, or instead of, proceeding directly to conventional liquidation.

Nevertheless, the introduction of a policy guarantee and resolution framework should not be interpreted as meaning that every component of every insurance product will automatically be guaranteed. The scope of protection remains subject to the applicable regulatory framework, and the distinction between insurance protection and investment elements remains relevant, particularly for insurance products containing investment-linked features.

New Implications for Controllers and Management

The transition towards a resolution-oriented framework also has implications for the governance of insurance companies.

Under the developing framework, certain commitments from controllers, directors, commissioners, and other relevant parties may become relevant when an insurer enters the resolution stage, rather than only after its business license has been revoked.

This represents an important shift in timing.

Previously, the surrender or relinquishment of certain rights and management interests was associated more closely with the stage following business-license revocation. Under a resolution framework, however, intervention affecting control or management may need to be contemplated while the insurer remains within an active resolution process.

For insurers, this may require a reassessment of corporate governance arrangements and contingency planning. Shareholder arrangements, delegations of authority, internal escalation procedures, and board-level crisis management protocols may need to consider the possibility of a transition from OJK supervision into an LPS-led resolution process.

The legal and governance implications may therefore arise before liquidation begins.

Operational Readiness Will Become Increasingly Important

The emerging role of LPS also raises practical questions concerning an insurer's operational preparedness.

An effective resolution process may depend on the ability to quickly identify and transfer relevant information concerning policies, claims, assets, liabilities, premiums, beneficiaries, and customer communications. Where a receiving insurer or bridge insurer is involved, systems may also need to distinguish between rights and liabilities that have been transferred and those that remain with the insurer under resolution.

This places increasing importance on data accuracy, portability, and reconciliation across different functions within an insurance company.

The issue may be even more complex for insurers that rely on digital distribution channels, technology providers, or insurtech platforms. Customer data, digital policy documentation, premium payment records, claims information, and customer communications may be held across multiple parties within the insurance ecosystem.

In such circumstances, the continuity of insurance services during a resolution process may depend not only on regulatory powers and legal transfer documentation but also on whether the relevant contractual arrangements allow the insurer or regulatory authorities to access and transfer necessary data and operational functions.

Insurers may therefore need to consider whether their outsourcing, technology, and distribution arrangements adequately address issues such as data portability, access rights, transition assistance, customer communications, and the continuity or migration of digital services.

Coordination Between OJK and LPS

The effectiveness of the new framework will also depend significantly on regulatory coordination.

OJK continues to play a central role in supervising the financial soundness and governance of insurance companies. At the same time, LPS is expected to assume an increasingly important role in the policy guarantee and resolution framework.

The transition between these stages will therefore require clarity. Questions may arise regarding when an insurer moves from intensified supervision and recovery measures into a resolution process, how the respective authorities will exercise their powers, and how policyholder rights will be protected throughout the transition.

Further implementing regulations will be important in providing certainty on these issues.

For insurers, however, the absence of complete implementing rules should not necessarily be viewed as a reason to postpone preparation. The direction of regulatory development already suggests that insurers may eventually need to consider resolution readiness as part of their broader governance, risk management, and operational planning.

Looking Ahead

Indonesia's developing insurance resolution framework represents a significant evolution in the regulatory approach to insurer distress.

The traditional model of supervisory intervention followed by license revocation and liquidation is increasingly being complemented by a framework that contemplates earlier intervention, the transfer of assets and liabilities, the management of insurance contracts, and other measures aimed at preserving policyholder rights.

The emerging role of LPS is therefore not limited to the payment of guaranteed claims after an insurer has failed. Instead, LPS may become an important participant in the broader process of managing insurer distress and determining how policyholder interests can be protected throughout the resolution process.

For insurance companies, the key takeaway is that preparedness may need to extend beyond financial recovery and conventional liquidation planning. Governance arrangements, data management, outsourcing contracts, operational systems, and crisis-management procedures may all become relevant to a future resolution framework.

As further regulations are issued, insurers will need to monitor how the relationship between OJK supervision, LPS resolution, policy guarantees, and liquidation will ultimately be implemented. The direction of travel, however, is already becoming clear: Indonesia's approach to insurance company failure is moving beyond liquidation alone.