We Will Revoke Permits of Errant Companies
Wimboh Santoso, Chairman of Board of Commissioners, Financial Services Authority
FINANCIAL Services Authority (OJK) came under tight scrutiny in the midst of default and graft scandals that hit Asuransi Jiwasraya. Many, including the House of Representatives (DPR), put partial blame on the financial regulatory agency for failing to closely supervise the state insurer. The mismanagement is estimated to have caused the state losses of up to Rp17 trillion.
Chairman of OJK’s Board of Commissioners, Wimboh Santoso, 62, said the agency had already foreseen the problems in 2004, and Capital Market and Financial Institution Supervisory Board (Bapepam-LK)—which would later become OJK—had warned the state-owned enterprises (SOEs) ministry which hold the majority shares in Jiwasraya. “The bottom line was they needed capital injection. But there were never follow-ups,” Wimboh said in the special interview with Tempo at the new OJK office in Solo, Central Java, on February 16.
Before seeking bailout, Jiwasraya made futile efforts to improve its capital adequacy ratio through reinsurance and asset revaluation for several years. “These measures failed to bring in additional cash flow, therefore, in December 2012 they came up with the saving plan,” explained the financier who was involved in the post-monetary crisis (1997-1998) banking reform project. It was the same saving plan, he said, that created whole new problems for Jiwasraya.
Wimboh, who succeeded Muliaman Hadad in July, 2017, dismissed allegation that the OJK was negligent in its oversight over Jiwasraya. He said the OJK even terminated Jiwasraya’s reinsurance policy in early 2013. He added that absence of ecosystem in the money market for insurance products also played a role in the escalation of the scandal. The insurance industry lacks the short-term lending facility such as the interbank call money market of the banking sector which helps banks facing liquidity difficulties.
Wimboh sat down with Tempo reporters Mahardika Satria Hadi and Ahmad Rafiq, following a program to promote micro wakaf (charity) financing in Ibnu Maktum Islamic Boarding School, Karanganyar, Central Java. In the interview that lasted nearly two hours, he talked about various issues: from the problems Jiwasraya and other insurance companies are facing, widespread emergence of dubious investment companies to mushrooming online lenders.
When did the OJK first notice the looming troubles in Jiwasraya?
In 2004 when the OJK was still Bapepam-LK. We had warned the management (of Jiwasraya) and informed its owner, that is, the SOEs ministry. The bottom line was they needed capital injection but there wasn’t any follow-up. Perhaps they were still confident that they could still manage through other measures.
What other measures did they take?
Improving the capital adequacy ratio through reinsurance in 2008. That was for the balance sheet. It offered a temporary solution and they also had other businesses to cover the shortfall although, in reality, these businesses never performed. In 2012, the authority—still Bapepam-LK—said they really had to find other ways. They opted to revaluate assets. Actually, they were already facing liquidity problems that same year. More aggressive sale of general insurance did not generate results either. They then came up with the saving plan in December, 2012.
Is the product offered by only Jiwasraya?
Not, Jiwasraya is not the only insurer that offers the plan. The plan is for a combination of saving and protection and promises a certain amount of income in a certain time frame. It is similiar to deposits and is sold via banks under different names but in essence they are all the same. This is what bancassurance is about. When I was with Bank Indonesia, we had a lengthy debate on whether this practice should be allowed or not. In the end, banks were granted permission on certain conditions. For example, they must manage them well and clients must be made aware that they are not banks’ products. Banking products are guaranteed by the Deposit Insurance Corporation (LPS) whereas these products are not. The saving plan is not a pure insurance product.
Has Jiwasraya been reminded to this effect?
Bapepam-LK has reminded it to regularly review the product.
What is OJK’s role in this case after the agency was established?
Well, reminding Jiwasraya. The OJK terminated reinsurance since January 2013. We always maintain communication.
When the scandal broke out, all eyes fell on the OJK because its oversight function was deemed ineffective since the alleged violation had been going on for long.
Now, everything is open and that is the agreement among all the components: Jiwasraya, the SOEs ministry and the OJK. Why must we cover it up? This is precisely the time. If you ask why it was not monitored in the past, then please ask the previous OJK board.
Doesn’t the OJK have the authority to intervene troubled insurance companies?
Our authority is clear including to regulate. Right now, even the exit policy is not clear. For example, what to do when the capital cannot be deposited when it is due in which case intensive supervision is necessary for a few months. Otherwise, oversight can be elevated to special supervision which can last for a few months. Usually three months in the banking sector but there is no provision for the insurance industry. That’s what we still need to prepare.
What actions can the OJK take against insolvent insurance companies?
The OJK does have the authority, actually to revoke business licenses of errant companies—be it government or private. And we have in fact barred Asuransi Jiwa Bumi Asih Jaya.
Can the license cancellation sanction be imposed on large insurance corporations?
It doesn’t matter if they are large or small. But we understand that Jiwasraya is owned by the government. If it wants to inject capital, the government must have a proper bailout process that we don’t know about. That’s outside OJK’s corridor.
The OJK is not involved to that extent?
OJK’s duty is to remind the management (of Jiwasraya) to top up capital. Otherwise it’s dangerous. It’s up to the management to convince the owner.
What is the management’s response?
The solution now is to set up a subsidiary that can net about Rp3 trillion in cash. This subsidiary will be sold and given concession to cover insurances—well, insurances of SOEs’ businesses—in the next few years. This is still in the process. We have given the deadline to sell the subsidiary by March.
Did Jiwasraya previously prepare other scenarios?
It only has business scenarios. This problem cannot be solved with normal business scenarios even if they bend over backwards. They hired marketing people but only to sell the same saving plan.
How is the communication between the OJK and SOEs and finance ministries?
How the government injects capital is the government’s prerogative. The OJK is not involved in it. It is still a highly confidential matter to discuss or exchange ideas.
When you first joined the OJK, how was the oversight over non-banking financial institutions?
We knew that there were several cases, such as Bumiputera, which are now being processed. We even canceled the sale of assets because it didn’t bring in any cash flow.
How about the cases at Asabri and Taspen?
According to the Government Regulation No. 102/2015, external oversight over Asabri and Taspen is not carried out by the OJK but four other institutions.
(As per the article 54 of Government Regulation No. 102/2015, external oversight over Asabri and Taspen is carried out by the inspectorate-general of the defense ministry, the general supervision inspectorate of the national police, the inspectorate-general of the armed forces and the inspectorate-general of the finance ministry, the supreme audit agency and independent auditors.)
The OJK does not oversee Asabri dan Taspen?
No, in accordance with the regulation which came after the OJK law. The OJK law is very general and the detailed explanations are inked in the government regulation. Does the regulation run counter to the law? Well, please go ahead and discuss. However, of course it is not suitable to oversee a non-profit or a government-owned enterprise using the regulations for commercial enterprises.
So the OJK has carried out its maximum supervision over Jiwasraya?
Actually, it very much depends on how the Jiwasraya board will convince the owner to find solutions for generating cash flow for the company.
Can the Jiwasraya case have widespread effect on the insurance market?
The size of case is not so significant compared to the industry as a whole. It’s just that the market jitters should be measured.
How big is the impact?
The insurance industry still has a high growth. It didn’t affect the system significantly.
(According to OJK’s data as of December, 2019, Jiwasraya has asset worth Rp22.03 trillion whereas the assets of the insurance industry and the financial industry are valued at Rp1,371.2 trillion and Rp11,300.14 trillion respectively).
What if the insolvency continues?
The policy holders will be affected.
How does the OJK prevent scandals like Jiwasraya from recurring?
What we should fix now is not just insurance but also the ecosystem in its financial sector. If the bank faces liquidity problems, they have interbank call money market mechanism or repurchase agreement (Repo) with Bank Indonesia. But the insurance industry doesn’t have these options or ecosystem. So, they resort to unusual schemes like their saving plan. People were attracted to fantastic interests offered by the plan.
What kind of ecosystem will be created?
A healthy money market ecosystem for the insurance industry should be developed via the capital market, more sooner than later.
Wimboh Santoso in Palembang, South Sumatra, February 6. ANTARA/Nova Wahyudi
What else needs to be done?
Its source of funds. Investment should be improved and rights issue mechanism should be applied transparently and correctly. Rights issues, be it for new shares or other instruments, must be offered carefully and cautiously, not aggressively, in line with the actual reality without relying on speculations.
Does it mean the sale of saving plan was actually forbidden?
Especially for Jiwasraya, yes. Other insurance companies may sell it but under supervision.
How about rogue investment managers?
If we don’t fix that, there will be other insurance products that will meet the same fate. You have to fix the top of the supply chain including the traders. It is often claimed that mutual funds are protected but if your main investment is in stocks, how do you protect them? They (insurance companies) cannot promise to protect the stock prices. Nobody can guarantee that stock prices will continue to increase or remain stable.
Has the OJK received any complaint from Jiwasraya clients?
Yes, after the case blew up but not before that. They were getting high returns, why would they report? Only when the interest fell to 6 percent after we cautioned that it was unrealistically high, the clients began to pull out and reported to us. I chided that they were quiet when they enjoyed the windfall from the high interest rate.
Who are the majority of the Jiwasraya insurance policy holders?
There are two groups. The first is the middle to high income public who hold the saving plan that is worth billions of rupiah each. But the real victims of the saving plan are small policy holders who need money for their kids’ education.
The case has exposed Jiwasraya’s rotten management to the public. What is your response?
This is a good momentum to improve the financial sector as a whole. I vow to take reform initiatives in the non-banking financial industry including its ecosystem to make the insurance industry stronger like the banking industry. I will rally the help of my former staff who were involved in the previous banking reform initiatives. We will apply the same initiatives by making adjustments step by step.
Is OJK’s authority not strong enough?
The OJK has relative strong authority. But we have to be careful in exercising it in the field particularly when there are problems. The authority to bail out and resolve is in the hands of the management and the owner, not OJK’s. So, if people need to collect their dues, please go to the management. If it doesn’t have the money, then ask the owner. The supervisory authority’s job is to monitor only.
You’ve mentioned that non-banking financial institutions (LKNB) have not been touched by reform measures. How will the OJK undertake them?
Actually, we announced the internal LKNB reform plan to the public in early 2018. OJK’s new board of commissioners will initiate it and in fact, we need to accelerate it.
What do the initiatives look like?
From reviewing and amending the regulations, oversight methods and even reporting system, risk management guidelines, governance to formulating insurance guarantees. Although it is mandated by the law and the initiator is the finance ministry, the OJK will proactively prepare them. Similar to what the LPS has but for insurance.
What’s the difference from LPS’s?
LPS’s guarantee public’s rund deposits. Ours will protect policy holders.
What has been done to realize it?
We’ve tightened the maximum loan limits. We will also look at risk managements. Everything has to be spelled out in the annual business plans. So far, cash flow projections have not been indicated or reported daily. This is liquidity. Mismatch can cause troubles.
Why do fraudulent investment companies keep popping up and claiming victims?
It’s like asking why there are still people who steal flip-flops or why there are motorbike riding robbers still roaming the streets. What we do is, among others, educating the public, for example, through religious approach to strengthen their faith so they will not be easily lured by false promising of high return (investment).
How does the OJK protect the public entangled in online lending schemes?
Through advocacy and mediation if there are disputes. So, there is no financial assistance involved. Online lending platforms have both legal and illegal players. Legal lenders have clear identities and register themselves with the fintech lending association (AFPBI) and they have to assure that they will not ‘hit and run’. The association members must comply with the agreement and those which fail to do so face the risk of closure.
What should the public do so as not to get trapped in dubious investment schemes?
We can only remind the public to not just see the (high) interest rates. That’s why the OJK made available a cheap and collateral-free funding platform for the grassroots communities through micro wakaf banks. The aim is not just to provide loans, but also to foster them. We foster them in groups, with 20 participants in each group. They utilize wakaf fund, not commercial fund. Then we created a financial institution for the purpose. It’s like mediating between philanthropists with money and the poor who have no access to formal financing facilities.
How do you view the shadow banking activities in Indonesia?
Shadow banks (non-formal banking entities that act like formal banks) are not always bad. It’s not possible to avoid online shadow banking activities given the advancement of digital technology. If there are no shadow banking providers in Indonesia, Singapore or other countries will still provide. But the OJK also closely monitors them as they are also financial products. Meanwhile in other countries, they go unchecked as they are considered innovation. But you should not make a fuss if you lose. Only in Indonesia, people cry foul when they suffer losses.
WIMBOH SANTOSO | Place and date of birth: Boyolali, Central Java, March 15, 1957 | Education: Bachelor of Economics, Sebelas Maret University (1983), Master of Business Administration, University of Illinois, US (1993), PhD in Financial Economics, Loughborough University, UK (1999) | Career: • Head of Bank Indonesia’s Representative Office, New York (2012),• Director of Banking Research and Regulation, Bank Indonesia (2010-2012),• Head of Bank Indonesia Representative Office, New York, and Executive Director of International Monetary Fund (2013), • President Commissioner, Bank Mandiri (2015),• Director, Indonesian Banking Development Institute (2016), • Chairman, Board of Commissioners, Financial Services Authority (2017-now).