Determination of Premium Rates or Contributions for Property Insurance and Motor Vehicle Insurance Lines in 2017

To:

1. The Board of Directors of General Insurance Companies; and
2. The Board of Directors of Sharia General Insurance Companies,
   At your location.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 6 /SEOJK.05/2017 CONCERNING THE DETERMINATION OF PREMIUM RATES OR CONTRIBUTIONS FOR THE PROPERTY INSURANCE AND MOTOR VEHICLE INSURANCE BUSINESS LINES IN 2017

In relation to the mandate of Article 5 paragraph (5) of Financial Services Authority Regulation Number 2/POJK.05/2015 concerning the Maintenance and Reporting of Insurance Risk Data and the Application of Premium Rates and Contributions for the Property Insurance and Motor Vehicle Insurance Business Lines (State Gazette of the Republic of Indonesia Year 2015 Number 71, Additional State Gazette of the Republic of Indonesia Number 5684), it is necessary to regulate premium rates or contributions for the Property Insurance and Motor Vehicle Insurance business lines in 2017 in this Financial Services Authority Circular as follows:

I. GENERAL PROVISIONS
In this Financial Services Authority Circular, the following terms are meant:

1. Company is a company that conducts general insurance business and/or Sharia general insurance business as referred to in the insurance law.
2. General Insurance Company is a company that conducts general insurance business as referred to in the insurance law.
3. Sharia General Insurance Company is a company that conducts Sharia general insurance business as referred to in the insurance law.
4. Insurance Brokerage Company is a company that conducts insurance brokerage business as referred to in the insurance law.
5. Insurance Agent is an insurance agent as referred to in Law Number 40 of 2014 concerning Insurance.
6. Premium is a premium as referred to in Law Number 40 of 2014 concerning Insurance.
7. Contribution is a contribution as referred to in Law Number 40 of 2014 concerning Insurance.
8. Property Insurance is insurance that covers property against risks of fire, lightning, explosion, aircraft impact or objects falling from aircraft, and smoke (FLEXAS - Fire, Lightning, Explosion, Aircraft Impact, and Smoke) which are covered under the Indonesian Standard Fire Insurance Policy (PSAKI) issued by the Indonesian General Insurance Association (AAUI), including but not limited to Industrial All Risks (IAR) Munich Re wording, Property All Risks (PAR) Munich Re wording, Commercial All Risks, manuscript wording, Association of British Insurers (ABI) wording, Mark IV/V, Comprehensive Machinery Insurance, Electronic Equipment Insurance, and other property policies that cover FLEXAS risks.
9. Motor Vehicle Insurance is insurance that protects the insured from risks of loss that may arise in connection with the ownership and use of motor vehicles.
10. Earthquake Insurance is insurance that covers loss or damage to property and/or insurable interests directly caused by the hazard of earthquakes, volcanic eruptions, fires and explosions following the occurrence of earthquakes and/or volcanic eruptions, and tsunamis.
11. Indonesian Standard Earthquake Insurance Policy, hereinafter abbreviated as PSAGBI, is the policy used to cover the special risk of Earthquake Insurance for the Property Insurance business line.
12. Deductible is the amount of loss that must be borne by the insured for each occurrence of an approved claim.
13. Full Value is the actual value or sound value of an insured object immediately before a loss or damage occurs, calculated based on the costs incurred to obtain/repair the insured object into a new state minus technical depreciation.
14. Loss Limit is the maximum compensation limit set as the insured value where the insured value is smaller than the Full Value and applies to prorata (average) provisions when a claim occurs in cases where the declared Full Value in the policy is smaller than the actual value.

II. APPLICATION OF PREMIUM RATES OR CONTRIBUTIONS

1. Companies marketing products in the Property Insurance and/or Motor Vehicle Insurance business lines are required to apply Premium or Contribution rates.
2. The Premium or Contribution rates as referred to in item 1 include pure Premium or Contribution, administrative and other general costs, acquisition costs, and profits.
3. The Premium or Contribution rates as referred to in item 2 are the Premium or Contribution rates determined by the Financial Services Authority.

III. PREMIUM AND CONTRIBUTION RATES FOR PROPERTY INSURANCE BUSINESS LINES

1. The Premium or Contribution rates for the Property Insurance business line are the Premium or Contribution rates as listed in Appendix I Table I.A which is an inseparable part of this Financial Services Authority Circular.
2. The Premium or Contribution rates for the Property Insurance business line as listed in Appendix I Table I.A which is an inseparable part of this Financial Services Authority Circular:
   a. are Premium or Contribution rates for an insurance period of 12 (twelve) months; and b. do not include Premium or Contribution rates for machinery breakdown coverage for insured values for physical damage (material damage) below USD 300,000,000.00 (three hundred million US dollars) at each location and risk.
3. Companies marketing Property Insurance for FLEXAS risk coverage with an insurance period of less than or more than 12 (twelve) months apply Premium or Contribution rates at least proportionally based on the Premium or Contribution rates as listed in Appendix I Table I.A which is an inseparable part of this Financial Services Authority Circular.
4. Companies marketing Property Insurance for FLEXAS risk coverage may apply insured values using the Loss Limit method.
5. Companies marketing Property Insurance using Loss Limit as referred to in item 4 apply Premium or Contribution rates as listed in Appendix I Table I.B which is an inseparable part of this Financial Services Authority Circular.
6. Companies marketing Property Insurance for FLEXAS risk coverage may add benefits in the form of risk coverage extensions.
7. Additional Premium or Contribution rates for Companies marketing Property Insurance with added benefits in the form of risk coverage extensions are:
   a. additional Premium or Contribution rates as regulated; and/or b. reasonable additional Premium or Contribution rates for each coverage extension not yet regulated, in Appendix I Table I.C, Appendix II Table II.A, Table II.C, and Table II.D, and Appendix III Table III.A, Table III.B, and Table III.C which are inseparable parts of this Financial Services Authority Circular.
8. Companies, based on professional underwriter considerations, may provide Premium or Contribution rate discounts with the following provisions:
   a. For single-location risk coverage:

1. For coverage with an insured value of less than USD 100,000,000.00 (one hundred million US dollars), no Premium or Contribution rate discount is given.
2. For coverage with an insured value from USD 100,000,000.00 (one hundred million US dollars) to USD 200,000,000.00 (two hundred million US dollars), a Premium or Contribution rate discount of up to 10% (ten percent) may be given.
3. For coverage with an insured value above USD 200,000,000.00 (two hundred million US dollars) to USD 300,000,000.00 (three hundred million US dollars), a Premium or Contribution rate discount of up to 20% (twenty percent) may be given.
4. For coverage with an insured value above USD 300,000,000.00 (three hundred million US dollars) to USD 1,000,000,000.00 (one billion US dollars), a Premium or Contribution rate discount of up to 50% (fifty percent) may be given.
5. For coverage with an insured value above USD 1,000,000,000.00 (one billion US dollars), it follows international market mechanisms.
   b. For multi-location risk coverage where the risks covered are accumulated in one or more policies with the same insurance period for one insured company or corporate group:
6. For coverage with an insured value of less than USD 100,000,000.00 (one hundred million US dollars), no Premium or Contribution rate discount is given.
7. For coverage with an insured value from USD 100,000,000.00 (one hundred million US dollars) to USD 300,000,000.00 (three hundred million US dollars), a Premium or Contribution rate discount of up to 10% (ten percent) may be given.
8. For coverage with an insured value above USD 300,000,000.00 (three hundred million US dollars) to USD 1,000,000,000.00 (one billion US dollars), a Premium or Contribution rate discount of up to 30% (thirty percent) may be given.
9. For coverage with an insured value above USD 1,000,000,000.00 (one billion US dollars), it follows international market mechanisms.
   c. For coverage on policies that do not apply Full Value coverage, a Premium or Contribution rate discount may be given based on the insured value relative to the Full Value according to single-location risk coverage as referred to in letter a or multi-location risk coverage as referred to in letter b, and applying Premium or Contribution rates as listed in Appendix I Table I.B which is an inseparable part of this Financial Services Authority Circular.
   d. The calculation of the insured value as referred to in letters a and b does not include the insured value for earthquake risks.

9. The granting of Premium or Contribution rate discounts as referred to in item 8 does not apply to earthquake risks.
10. Companies marketing Property Insurance apply Premium or Contribution rates as listed in Appendix I Table I.A which is an inseparable part of this Financial Services Authority Circular with the following provisions:
    a. The applied Premium or Contribution rates are rates from the lower limit to the upper limit, considering the risk profile of the insured object. b. The applied Premium or Contribution rates are rates according to the type of occupation.
    c. The applied Premium or Contribution rates are rates according to the construction class, with the following provisions:

1. Construction Class 1
   A building is said to be of Construction Class 1 (one) if its walls, floors, all supporting structural components, and roof coverings are made entirely of non-combustible materials.
   Windows and/or doors and their frames, partition walls, and floor coverings may be ignored.
2. Construction Class 2
   A building is said to be of Construction Class 2 (two) if its criteria are the same as those mentioned for Construction Class 1 (one), with the allowance that roof coverings may be made of hard wood shingles, walls may contain combustible materials up to a maximum of 20% (twenty percent) of the wall area, and floors and supporting structures may be made of wood.
3. Construction Class 3
   All buildings other than those mentioned in Construction Class 1 (one) and Construction Class 2 (two). d. Premium or Contribution rates may be applied below the lower limit if the Company provides Premium or Contribution rate discounts as referred to in item 8. e. Premium or Contribution rates may be applied above the upper limit if the Company adds additional Premium or Contribution rates for risk coverage extensions.

11. Companies marketing Property Insurance may apply a single Premium or Contribution rate for multi-location coverage with similar risks and having the same risk characteristics with the following provisions:
    a. The number of insured objects is distributed across at least 100 (one hundred) locations throughout the territory of Indonesia. b. For FLEXAS risks, the majority occupation code is followed.
    c. For insured objects distributed across at least 100 (one hundred) locations, Premium or Contribution rate discounts as referred to in item 8 above may be given against the single Premium or Contribution rate used.
12. Companies apply a minimum Deductible for each occurrence of an approved claim with the following provisions:
    a. For occupation types with minimum time excess as listed in Appendix I Table I.D which is an inseparable part of this Financial Services Authority Circular, the minimum Deductible for physical damage (material damage) is 5% (five percent) of the approved loss value or 0.1% (zero point one percent) of the total insured value for each risk and each location (declared value any one risk at any one location), whichever is greater. b. For business interruption losses, the minimum time excess provisions as listed in Appendix I Table I.C which is an inseparable part of this Financial Services Authority Circular apply.
    c. For occupation types not listed in Appendix I Table I.D which is an inseparable part of this Financial Services Authority Circular, the minimum Deductible is determined based on professional underwriter considerations.

IV. PREMIUM OR CONTRIBUTION RATES FOR MOTOR VEHICLE INSURANCE BUSINESS LINES

1. The Premium or Contribution rates for the Motor Vehicle Insurance business line are the Premium or Contribution rates as listed in Appendix IV Table IV.A which is an inseparable part of this Financial Services Authority Circular.
2. The Premium or Contribution rates as listed in Appendix IV Table IV.A which is an inseparable part of this Financial Services Authority Circular are:
   a. Premium or Contribution rates for an insurance period of 12 (twelve) months; and b. Premium or Contribution rates for motor vehicles with an age of up to 5 (five) years.
3. Companies marketing Motor Vehicle Insurance with an insurance period:
   a. 12 (twelve) months apply Premium or Contribution rates as listed in Appendix IV Table IV.A which is an inseparable part of this Financial Services Authority Circular; b. more than 12 (twelve) months apply Premium or Contribution rates for long-term (multiyears) as listed in Appendix IV Table IV.A which is an inseparable part of this Financial Services Authority Circular on each year basis, considering insured value adjustments; or
   c. less than 12 (twelve) months apply Premium or Contribution rates for short-term as listed in Appendix IV Table IV.A which is an inseparable part of this Financial Services Authority Circular at least proportionally.
4. For vehicle ages above 5 (five) years with comprehensive coverage type, Companies must:
   a. charge an additional Premium or Contribution rate with a value of at least 5% (five percent) of the annual Premium or Contribution rate; or b. charge a Deductible of at least Rp500,000.00 (five hundred thousand rupiah).
5. Companies marketing Motor Vehicle Insurance as referred to in item 1 may add benefits in the form of risk coverage extensions and other additional service features.
6. Risk coverage extensions as referred to in item 5 include among others:
   a. flood including typhoons; b. earthquakes and tsunamis;
   c. strikes, riots, and civil commotion (SRCC – Strike, Riot, and Civil Commotion);
   d. terrorism and sabotage; e. third-party liability (passenger vehicles and motorcycles); f. third-party liability (commercial vehicles, trucks, and buses); g. driver accident; h. passenger accident; and/or
   i. passenger liability.
7. Additional Premium or Contribution rates for Companies marketing Motor Vehicle Insurance with added benefits in the form of risk coverage extensions are the Premium or Contribution rates as listed in Appendix IV Table IV.B which is an inseparable part of this Financial Services Authority Circular.
8. Other additional service features as referred to in item 5 include among others emergency road assistance, replacement vehicle, use of authorized workshops, and use of more expensive specialized workshops.
9. Additional Premium or Contribution rates for Companies marketing Motor Vehicle Insurance with added benefits in the form of other additional service features are additional Premium or Contribution rates determined reasonably according to the agreed additional services.
10. Companies may provide Premium or Contribution rate discounts with a value of up to 10% (ten percent) for coverage with at least 100 (one hundred) motor vehicle units. The provisions for granting such Premium or Contribution rate discounts are as follows:
    a. the discount is given against the total Premium or Contribution value before acquisition costs; and b. the discount is applied to motor vehicle coverage owned by one individual or corporation and is not an object within a vehicle financing or vehicle ownership credit agreement.
11. The application of Premium or Contribution rates for Companies marketing Motor Vehicle Insurance as listed in Appendix IV Table IV.A which is an inseparable part of this Financial Services Authority Circular is done with the following provisions:
    a. the applied Premium or Contribution rates are rates from the lower limit to the upper limit, considering the risk profile of the insured object; b. the applied Premium or Contribution rates are rates according to the regional zone where the insured object is registered, marked with the Motor Vehicle Number Plate (TNKB);
    c. Premium or Contribution rates may be applied below the lower limit if the Company provides Premium or Contribution rate discounts as referred to in item 10; and
    d. Premium or Contribution rates may be applied above the upper limit if the Company adds additional Premium or Contribution rates for motor vehicles aged above 5 (five) years, adds risk coverage extensions, and/or adds other additional service features.
12. Companies apply a Deductible for each occurrence of an approved claim with an amount as listed in Appendix IV which is an inseparable part of this Financial Services Authority Circular.

V. PREMIUM OR CONTRIBUTION RATES FOR SPECIAL FLOOD RISK FOR PROPERTY INSURANCE AND MOTOR VEHICLE INSURANCE BUSINESS LINES

1. Companies marketing special flood risk coverage in the Property Insurance business line apply Premium or Contribution rates as listed in Appendix II Table II.A which is an inseparable part of this Financial Services Authority Circular.
2. Companies marketing special flood risk coverage in the Motor Vehicle Insurance business line apply Premium or Contribution rates as listed in Appendix II Table II.B which is an inseparable part of this Financial Services Authority Circular.
3. Companies marketing special flood risk coverage in the Property Insurance business line using Loss Limit apply Premium or Contribution rates as listed in Appendix II Table II.C which is an inseparable part of this Financial Services Authority Circular.
4. Companies marketing business interruption risk coverage extensions in the Property Insurance business line apply Premium or Contribution rates as listed in Appendix II Table II.D which is an inseparable part of this Financial Services Authority Circular.
5. Companies marketing special flood risk coverage extensions in Property Insurance may apply a single Premium or Contribution rate for multi-location coverage with similar risks and having the same risk characteristics with the following provisions:
   a. The number of insured objects is distributed across at least 100 (one hundred) locations throughout the territory of Indonesia. b. The applied Premium or Contribution rates are rates based on the zone where the majority of insured objects are located. In cases where the zone where the majority of insured objects are located cannot be determined, a reasonable single Premium or Contribution rate is applied based on professional underwriter considerations.
6. Companies apply minimum Deductible provisions for special flood risk coverage as follows:
   a. Property Insurance Line

1. For physical losses (material damage) at 10% (ten percent) of the approved compensation amount.
2. For business interruption losses in the form of a 7 (seven) day time excess.
   b. Motor Vehicle Insurance Line
   10% (ten percent) of the approved compensation amount, at least Rp500,000.00 (five hundred thousand rupiah) per occurrence.

VI. PREMIUM OR CONTRIBUTION TARIFFS FOR SPECIAL EARTHQUAKE RISKS FOR PROPERTY INSURANCE AND MOTOR VEHICLE INSURANCE BUSINESS LINES

1. Earthquake Insurance for the Property Insurance business line:
   a. Companies may determine the insured value for both physical damage and business interruption based on:

1. full value basis; or
2. first loss/sub limit basis.
   b. If the insured value is based on the first loss/sub limit basis, the Company receives a declared value equal to the actual value for the insured object from the insured.
   c. If, at the time of loss, the declared value is smaller than the actual value, the Company may apply under-insurance provisions for the insured object's value.
   d. Companies marketing Earthquake Insurance for the Property Insurance business line apply the Premium or Contribution tariffs and Earthquake Insurance zones as set forth in Appendix III Tables III.A.1, III.A.2, and III.D, which form an integral part of this Financial Services Authority Circular. e. Companies marketing the extension of Earthquake Insurance coverage in Property Insurance may apply a single Premium or Contribution tariff for multi-location coverage with similar risks and identical risk characteristics, subject to the following provisions:
3. The number of insured objects must be distributed across at least 100 (one hundred) locations throughout the territory of Indonesia.
4. The applied Premium or Contribution tariff is the tariff for the majority zone, following the floor count provisions (≤9 (nine or fewer) floors or >9 (more than nine) floors) of the majority of locations in that zone.

2. Earthquake Insurance for the Motor Vehicle Insurance business line:
   a. Companies marketing Earthquake Insurance for the Motor Vehicle Insurance business line apply the Earthquake Insurance Premium or Contribution tariffs as set forth in Appendix III Table III.E, which forms an integral part of this Financial Services Authority Circular. b. Companies marketing Earthquake Insurance for the Motor Vehicle Insurance business line must apply a Deductible of 10% (ten percent) of the approved indemnity value, or at least Rp500,000.00 (five hundred thousand rupiah) per incident.

VII. ACQUISITION COSTS

1. Companies may provide a portion of the Premium or Contribution tariff as acquisition costs in the form of commissions, discounts, and/or other forms to Insurance Brokerage Companies, Insurance Agents, and/or other third parties related to the acquisition of insurance business, including to policyholders, insured parties, or participants.

2. In the event that a Company provides a portion of the Premium or Contribution tariff as acquisition costs as referred to in item 1, the Premium or Contribution received by the Company after deducting the aforementioned acquisition costs must not be less than:
   a. 85% of the Premium or Contribution tariff charged by the Company, while still referring to the provisions on the application of Premium or Contribution tariffs as referred to in Roman numeral III item 10 for Property Insurance; and b. 75% of the Premium or Contribution tariff charged by the Company, while still referring to the provisions on the application of Premium or Contribution tariffs as referred to in Roman numeral IV item 11 for Motor Vehicle Insurance.

3. The acquisition costs referred to in item 1 do not yet account for applicable taxes.

4. For coverage with specific values eligible for Premium or Contribution tariff discounts, acquisition costs are calculated from the Premium or Contribution tariff after the tariff discount.

5. Companies must record received Premiums or Contributions and incurred acquisition costs transparently.

VIII. OTHER PROVISIONS

1. Provisions regarding Premium or Contribution tariffs in this Financial Services Authority Circular apply to the marketing of Property Insurance and Motor Vehicle Insurance products marketed directly by Companies or through third parties.

2. Provisions regarding Premium or Contribution tariffs, Premium or Contribution tariff discounts, the determination of minimum Deductibles, and the provision of acquisition costs as regulated in this Financial Services Authority Circular do not apply to the marketing of Property Insurance and Earthquake Insurance products with an insured value exceeding USD 1,000,000,000.00 (one billion US dollars).

3. Provisions regarding Premium or Contribution tariffs in the Appendix of this Financial Services Authority Circular do not apply to microinsurance products.

IX. CLOSING

1. The provisions in this Financial Services Authority Circular shall take effect on April 1, 2017.

2. Upon the effectiveness of this Financial Services Authority Circular, Circular Letter Number 21/SEOJK.05/2015 concerning the Determination of Premium or Contribution Tariffs for Property Insurance and Motor Vehicle Insurance Business Lines in 2015 is revoked and declared invalid.

Established in Jakarta on January 26, 2017
EXECUTIVE HEAD OF SUPERVISOR
OF INSURANCE, PENSION FUNDS,
FINANCING INSTITUTIONS, AND
OTHER FINANCIAL SERVICES INSTITUTIONS
FINANCIAL SERVICES AUTHORITY, signed
FIRDAUS DJAELANI

A copy consistent with the original
Deputy Director of Law 1 as Acting Director of Law 1 Legal Department signed Wiwit Puspasari