Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) introduce the Insurance Company Classification Based on Equity or Kelompok Perusahaan Perasuransian Berdasarkan Ekuitas (“KPPE”) under POJK No. 23 of 2023 concerning Business Licensing and Institutional Requirements for Insurance Company, Sharia Insurance Company, Reinsurance Company, and Sharia Reinsurance Company (“POJK 23/2023”). The goal is to strengthen the industry by ensuring that companies have sufficient capital, robust institutional structures, and proper regulatory oversight.

KPPE classifies insurance and reinsurance companies based solely on their equity levels. Companies are grouped according to the amount of equity they hold, which determines both their regulatory obligations and the scope of products they may offer.

Although the goal is to strengthen the industry, imposing operational limitations based on company classification may prevent insurance companies with weaker capital positions from offering certain products they currently sell. These restrictions could significantly impact their business operations until the required equity thresholds are achieved.

Time Frame and Insurance Classifications

The implementation of the KPPE policy is divided into two phases. In Phase 1, which must be completed by 31 December 2026, companies are required to first meet initial minimum equity requirements. Phase 2, to be completed by 31 December 2028, requires companies to meet higher equity thresholds according to their KPPE classification. Indonesian companies are currently adjusting their equity structures to comply with these requirements, particularly as the end of 2025 approaches, leaving only one year to complete Phase 1 compliance.

Phase 1

Below are the minimum equity requirements for each classification in Phase 1, which insurance companies must meet by 31 December 2026:

Phase 2

Further, Phase 2 must be completed no later than 31 December 2028, during which companies are required to meet the minimum equity levels corresponding to their KPPE grouping:

Limitation Under POJK 23/2023

In addition, under POJK 23/2023, companies classified under KPPE 1 are prohibited from conducting business activities or offering Insurance or Sharia Insurance products beyond simple insurance or simple Sharia insurance products. Whereas companies classified under KPPE 2 are permitted to conduct all business activities and offer all Insurance or Sharia Insurance products:

Implication for Companies Not Classified as KPPE 2

As there are currently no additional regulations defining KPPE based on other criteria beyond capital, KPPE classification is determined solely by the required capital for each insurance company category. Consequently, smaller or newer companies that have not yet met the KPPE 2 threshold remain in KPPE 1 and they would therefore be restricted in the complexity of products they may offer once the classification is implemented.

Industry stakeholders anticipate that these restrictions could create operational challenges for smaller companies. As KPPE 1 companies are limited to simple insurance products, they may also face constraints in offering digital insurance products, raising concerns about competitiveness, technology adoption, and market expansion. As of July 2025, the number of insurance companies falling under KPPE 1 is higher than those in KPPE 2. There are 67 companies in KPPE 1 and 49 companies in KPPE 2.[1]

Upcoming SEOJK

To date, no additional regulations have been issued explaining the mechanisms of this classification or the implications and restrictions it may impose on companies. However, it has been reported that OJK are currently finalizing a draft Circular Letter (SEOJK) on the implementation of the KPPE grouping, covering the business activities and lines of business of insurance, reinsurance, Sharia insurance, and Sharia reinsurance companies, to provide further guidance on its application.[2]  The draft SEOJK is said to clarify the limitations on business activities and product lines that may be offered by companies classified under KPPE 1 and KPPE 2, which were previously referred to only as simple insurance products.[3] However, this also raises question why OJK would govern such a significant policy shift through a circular letter, given the substantial impact it may have on the direction of insurance companies’ business operations.

Conclusion

KPPE, under POJK 23/2023, is a key regulatory framework that differentiates insurance and reinsurance companies based on capital strength and the complexity of products they are permitted to offer. Companies classified under KPPE 1 are limited to offering basic insurance products, whereas KPPE 2 companies may provide the full range of insurance and reinsurance services.

While these equity and product restrictions aim to ensure financial stability, they could pose operational challenges for smaller insurers in expanding their operations and modernizing services through digital products. We look forward to seeing how OJK will further regulate and refine this significant policy.

[1] Ibid.

[2] Kontan. (20 September 2025) OJK Finalisasi Penyusunan Aturan Kegiatan Usaha Perasuransian Berdasarkan KPPE. Retrieved from: https://keuangan.kontan.co.id/news/ojk-finalisasi-penyusunan-aturan-kegiatan-usaha-perasuransian-berdasarkan-kppe

[3] Media Asuransi. (8 August 2025) OJK Bakal Terapkan KPPE 1 dan KPPE 2, AASI: Kita Tunggu Detailnya Seperti Apa. Retrieved from: https://mediaasuransinews.co.id/asuransi/ojk-bakal-terapkan-kppe-1-dan-kppe-2-aasi-kita-tunggu-detailnya-seperti-apa/