Legal Aspects of Risk Management in Bancassurance …

Legal Aspects of Risk Management in Bancassurance Practice at Sharia

Bank (Case Study: Bank X) Avrila Anzani and Aad Rusyad Nurdin

International Undergraduate Program Faculty of Law Universitas Indonesia

E-mail: [email protected]

ABSTRACT

Bancassurance is a mutual cooperation between bank and insurance company. Aside

from its great help in developing both bank products and insurance products, bancassurance allows easier access for one-roof-service towards bank customers. The principal issue of this thesis is how the implementation of risk management by sharia banks in bancassurance cooperation according to the prevailing regulations, specifically in Circular Letter of the Financial Services Authority (SEOJK) No. 33/SEOJK.03/2016 on the Implementation of Risk Management at Banks Conducting Marketing Cooperation Activities with Insurance Companies (Bancassurance); And how the application of this Circular Letter of Financial Services Authority in Bank X. The outline of this paper describes the implementation of risk management as contained in SEOJK 33/SEOJK.03/2016 on Implementation of Risk Management in Banks Conducting Marketing Cooperation Activities with Bancassurance Companies has been sufficient in the sense that the arrangements have been done in detail socialization and supervision have been done with accordingly, and the provisions in SEOJK 33/SEOJK.03/2016 has been executed properly by Bank X in running bancassurance cooperation.

Keywords: Bancassurance, Risk Management, Sharia Banking

ABSTRAK

Kegiatan Bancassurance merupakan suatu kerjasama antara bank dan perusahaan asuransi yang sangat bermanfaat bagi kedua belah pihak. Selain sangat membantu dalam pengembangan berbagai berbagai produk bank dan perusahaan asuransi, di lain pihak juga akan mempermudah nasabah dalam memperoleh pelayanan satu atap. Pokok permasalahan dalam skripsi ini adalah bagaimana penerapan manajemen risiko olek bank syariah dalam kerjasama bancassurance menurut peraturan yang berlaku, secara khusus dalam Surat Edaran Otoritas Jasa Keuanga (SEOJK) Nomor 33/SEOJK.03/2016 tentang Penerapan Manajemen Risiko pada Bank yang Melakukan Aktivitas Kerja Sama Pemasaran Dengan Perusahaan Asuransi (Bancassurance); dan bagaimana penerapan Surat Edaran Otoritas Jasa Keuangan ini di Bank X. Secara garis besar, penulisan ini memaparkan penerapan manajemen risiko sebagaimana tercantum dalam SEOJK 33/SEOJK.33/2016 tentang Penerapan Manajemen Risiko pada Bank yang Melakukan Aktivitas Kerja Sama Pemasaran Dengan Perusahaan Asuransi (Bancassurance) telah cukup memadai dalam artian bahwa pengaturannya telah dilakukan dengan mendetail dan sosialisasi serta pengawasan telah dilakukan dengan semestinya, serta ketentuan dalam SEOJK 33/SEOJK.03/2016 telah dijalankan sebagaimana mestinya oleh Bank X dalam menjalankan kerjasama bancassurance.

Legal aspect ..., Avrila Anzani, FH UI, 2017

Kata kunci : Bancassurance,, Manajemen Risiko, Perbankan Syariah

I. Research Background

Bancassurance is a term, which is now a common term in the Indonesian banking

industry. Basically, bancassurance has long been used by countries in the world, but has not

explicitly used the name of bancassurance. Banks in various countries in Europe such as

Spain, Britain, and Francehave begun selling and marketing of insurance products and

gaining from these activities since decades, however, its the early implementation of the

method of cooperation is still hampered by a variety of things. One those, is the prohibition

for banks to sell insurance products.1

In terms of function, bancassurance is an example of cross-product collaboration to

expand business networks between financial institutions. For the insurance companies,

bancassurance is a way to broaden the scope or capacity of the distribution of its products by

exploiting public confidence in the bank. As for the bank where bancassurance can replace

the lost revenue from the amount of bank interest margins. In addition the bank also offers

the convenience for its customers to ease various transactions and the purchase of products in

the field of finance.2

Through this partnership, the banks and insurance companies are equally benefited.

Banks are benefited by getting the fee-based income.3 Insurance premium will be

automatically will be automatically generated by a bank insurance premiums are fixed in a

certain tempo. Cost of the debit is what is revenue for the bank concerned. The bank also

benefited by settling of the funds that can be “played” back in the money market.4 On the

other hand, insurers obtain partners to expand the scope of product marketing.

The purpose of separating banking and insurance activity itself becomes clear, namely

to maintain a stable liquidity fund and maintain public confidence in the banking institution.

In Indonesia itself, the ban of banks to insurance activities contained in Article 10 letter b of

1 “Asuransi”, hhtp://www.ojk.go.id/asuransi, accessed on 19th August 2016 time 15.25 WIB. 2 Wei Xin Huang. Institutional Banking for Emerging Markets: Principles and Practice. John & Wiley

Ltd. 2007. Page 96 3 Fee Based Income is income from the activities of banks granting certain banking services. (Munir.

Fuady. Hukum Perbankan Modern Berdasarkan Undang-Undang Tahun 1998. (Buku Kesatu). PT. Citra Aditya Bakti. 1999. Page 10)

4 Money Market is a major supporter of international trade and tourism. With the financial markets, payment/exchange of goods or services can be performed by the foreign exchange (forex) through the prevailing exchange rate. In addition to the Money Market, also known as Capital Market, where the Capital Market traded Stocks. (H. Malayu S.P. Hasibuan. Dasar-Dasar Perbankan. Bumi Aksara. 2001. Page 170)


Law no. 7 of 1992 as amended by Act No. 10 of 1998 (the Banking Law) which states that

banks are prohibited from doing business in isurance. However, as quoted in the previous

article banks are still allowed to have equity participation in insurance companies :5

“In addition to the activities referred in Article 6, commercial banks may also conduct

equity participation in banks or other companies in the field of finance, such as leasing,

venture capital, securities, insurance, and clearing house settlement and storage, to meet

conditions set by Bank Indonesia”

This is a consequence of the Indonesian banking system that embraces the commercial

banking system.6 Commercial banking system prohibits the bank conducts business activities

such as investment and financial services such as insurance. This is in contrast to the

universal banking system adopted by some European U4nion countries, which allow banks to

conduct business such as investment banking and insurance.7 In legislation in Indonesia, the

prohibition for banks to conduct insurance activities strictly regulated in article 10 letter b of

Law no. 7 year 1992 concerning banking (Banking Law).8 The purpose of separating the

activities of banks and insurance itself is none other than to maintain the stability of bank

funding liquididity and maintain public confidence in the banking institutions. Like the bank

insurance companies are also not allowed to run a business like that conducted by the banks.

However, banks and insurance agencies are allowed to conduct marketing cooperation.

In this case the bank able to market insurance products not a products of the bank itself. This

pattern in the form of cooperation known as Bancassurance. Bancassurance derives from the

Italian that is banca (bank)9 and insurance. Bancassurance itself can be interpreted as

business activity in the form of the distribution agreement between the insurance company

with the bank in which the bank acts as an insurance agent who sells insurance products sales

partners within the coverage area of bank marketing.10 Through this partnership, the banks

5 Law Number 7 of 1992 as amended by Act Number 10 of 1998 concerning Banking, Article 7 letter c 6 An outline, the banking system consisted of 2 that the commercial banking system and universal banking system. The banking system is a universal banking system adopted in some countries in Europe where commercial bank not only provide loans, but also provide capital in securities of companies as well as conduct financial services such as insurance. The commercial banking system is a financial institution that only provides services to businesses, organizations and individuals that include savings accounts and loans. See Lihat http://lexicon.ft.com/Term?term=commercial-bank, accessed on Thursday, 19th Agustus 2016 time 13.34 WIB.

7 Zulkarnain Sitompul, Menyambut Kehadiran Otoritas Keuangan,Pilars No.02/Th.VII/12-18 Januari 2004, hlm3. 8 See article 10 letter b Law no.7 year 1992 concerning banking. 9 Bank comes from the Italian, “Banca” meaning bence which is a bench seat, these words have been selected because at the time billowm, Italian bankers who provide loans its business with sitting on the benches in the courtyard market. See A. Abdurrahman 1993, Ensklopedia Ekonomi Keuangan Perdagangan, Pradnya Paramita, Jakarta, hlm. 80. 10 Interpreted by the authors of the Cambridge dictionary on http://dictionary.cambridge.org/


and insurance companies would benefit by getting the fee based income,11 while insurers

obtain partners to expand the sope of product marketing.

From the legal side, a legal relantionship that exsists between the bank and insurance is

a form of agency relationships whereby the bank acts as an agent (sales representative) who

sell insurance products collaborators, in the marketing area as a bank.12 From the sale of

insurance products, the bank will receive payment in the form of fees or commissions in the

amount agreed upon.

Along with this also Islamic banking is also growing rapidly in Indonesia since the

majority of the Indonesian people are Muslims who want their bank-based Islamic or Sharia

Law in Indonesia. And Islamic banks that now there are more coming from conventional

banks that have long stood up and opened a new branch on the basis of Sharia, it is also seen

by the insurance company that the Islamic banking or banks based Shariah has the potential

market large enough it can not be denied that the insurance company also looked at the

bancassurance cooperation in Islamic banking. The market potential is the reason that

insurance companies want to cooperate with the bank, though cooperation, better known as

bancassurance is the bank and the insurer makes cooperation mutually beneficial, but this

cooperation is not known by the public yet, especially prospective customers in Islamic

Banking with the lack of legal certainty regarding bancassurance in Islamic Banks so as to

make prospective customers feel free to use bancassurance products.

Market potential is the reason why insurance companies want to cooperate with banks,

through a better known cooperation with bancassurance, the bank and the insurer to make a

mutually beneficial cooperation, but this cooperation has not been widely known by the

public, especially the prospective customers in Sharia banking especially with the absence of

legal certainty concerning bancassurance in syariah bank so as to make potential customers

hesitate to use bancassurance products for that writer choose the title “Legal Aspects of Risk

Management in Bancassurance Practice at Sharia Bank (Case Study: Bank X)”.

11 Fee Based Income is income from the activities of banks granting certain banking services that are non-interest. (Munir Fuady, 1999, Hukum Perbankan Modern Berdasarkan Undang-Undang Tahun 1998 (Buku Kesatu), PT. Citra Adiya Bakti, Jakarta, hlm. 10. 12 Ricardo Simanjuntak, Tinjauan Bancassurance di Indonesia, http://www.hukumonline.com/berita/baca/ho19446/tinjauan-hukum-ibancassurancei-di-indonesia,, Accessed on 15th March 2017 time 18.40 WIB.


II. Research Questions

1. How is the implementation of risk management in Bancassurance according to regulation

in Indonesia?

2. How is the implementation of Bancassurance in Sharia Banks in complying with banking

provisions in practice at Bank X?

III. Literature Review

This research will use a normative legal research or a legal research based on

literature. The legal research is done by researching through the reading materials or merely a

secondary data. This juridical normative legal research constitutes studies of literary

materials as the basic data that are classified as secondary data. Such secondary data includes

personal letters, diaries, books, and also official documents issued by the government. This

research will use secondary data as the main source of the materials, which consists of:

1. Primary legal materials that have a binding force. In this research, the author uses law

number 7 of 1992 as already amended by Law number 10 of 1998 and Circular Letter

of Financial Services Authority (SEOJK) No. 32/SEOJK.05/2016 concerning

Marketing Channels of Insurance Products Through Banking (Bancassurance).

2. Secondary legal materials that explain and inform the primary legal materials that the

author uses to analyze, to understand, and to explain the primary legal materials. The

secondary legal materials that are going to be used are books, journals, articles, thesis,

dissertation, theories, newspaper, and websites on the internet.

3. Tertiary legal materials that provides information and explanation about the

aforementioned primary legal materials and secondary legal materials, and in this

researched the tertiary legal material that is used is Black’s Law Dictionary.

IV. Bancassurance Cooperation

Banking institution is the core of financial system in each State. Bank is a financial

institution that becomes the place of individuals, private business entities, state-owned

enterprises, and even governmental institutions to keep funds deposited. Through lending

activities and various services provided, bank serves financing needs as well as payment

system mechanism for all sectors of the economy. The importance of the existence of


banking institutions is what encourages efforts to regulate strictly the course of banking

activities in order to avoid the negative things that are not desired.13

In regard to bancassurance regulation, bank operates a fee-based service activity that

can be categorized in other activities commonly performed by a bank.14 This customary

criterion itself is implied in Article 6 Sub-Article n of Banking Law that has been done by

many business actors, carried out continuously, and considered good by the community so it

can be accepted. Bancassurance in this case has fulfilled all three criteria of that custom.

Bancassurance has been practiced by many banks because it is seen as mutual cooperation

that benefits both parties. In addition, bancassurance is a continuous cooperation in terms of

sustainability, partly because it has been done by many other countries and is not an activity

once completed through a long-term partnership. And finally, bancassurance has been

13 Hermansyah. Hukum Perbankan Nasional Indonesia (Ditinjau Menurut UU Nomor 7 Tahun 1992 Tentang Perbankan Sebagaimana Telah Diubah dengan UU Nomor 10 Tahun 1998 dan UU Nomor 23 Tahun 1999 jo. UU Nomor 3 Tahun 2004 Tentang Bank Indoneisa). Jakarta : Kencana. 2011. Hal 7

14 In principle, activities of a bank (either Commercial Bank or Rural Bank) consist of three classes as follows:

1. Fund Disbursement By Bank The granting of credit in various forms and with various consequences such as bad debts, installation of collateral, and so forth, investments into securities, equality of equity into credible companies, investments into real estate in certain cases

2. Withdrawals by Bank Because basically a bank is an intermediary institution, then in addition to fund distribution activities to the community, bank also has activities in the form of withdrawal of funds from the community. So the funds withdrawn from the community are then channeled back to the community. For that reason, the bank earns a profit in the form of spread of interest rate difference between the fund channeling activity and the withdrawal of the fund

3. Activities are Fee Based In addition to the class of fund disbursement activities from the withdrawal of funds from the community, then there is another group of banking activities, called activities based on fee-based income. This activity is a provision of certain banking services to which banks receive a service fee. A large number of banking activities can be used for these fee-based activities, some of which are explicitly mentioned in the Banking Law: a. Purchase, sell or guarantee at its own risk or on behalf of and / or customers, that is, securities as

follows: Debts, Debt Recognition or other trade papers, State treasury paper and government guarantee certificate, Bank Indonesia Certificate (SBI), Bonds, Trading Letters with a maximum period of 1 (one) year, other Securities with a maximum period of 1 (one) year.

b. Move money either for the benefit of the bank itself or for the benefit of the customer. c. Place funds, borrow or lend funds to or from other banks, using instruments in the form of letters,

telecommunications, point blanks, checks or other instruments. d. Accept payments on securities charges and perform calculations with or between third parties. e. Provide a safe deposit box to store goods and securities. f. Conduct custodial activities for the benefit of another party to be administered separately with bank

property (under contract). g. Place funds from one customer to another in the form of securities not listed on the Stock Exchange. h. Give the collateral of its debtor through a tender hearing so that the collateral purchased is

immediately disbursed. i. Conduct factoring activities, credit card business and trustee. j. Provide financing through profit sharing principles. k. Perform other activities that are commonly done by a bank (such as bank guarantees, acting as

perception bank, interest swap, trust, etc). (Ibid.)


accepted and considered good by the community because the customer is viewed in terms of

effectiveness and efficiency.15

In relation to insurance, bancassurance as a forum for bank and insurance cooperation

certainly cannot be separated from the interests of insurance companies and insurance

principles. Insurance companies see bancassurance as an alternative distribution channel that

can increase market penetration, portfolio development, and reduce production costs that can

increase margins, where with traditional agency systems, companies are experiencing

difficulties to grow because of price competition that causes margin down.16 Basically,

bancassurance is facilitating for insurance products to be marketed also through banks to

create effective and efficient transaction patterns. The benefits of bancassurance cooperation

are essentially win-win. This matter dikarnakan both bank and insurance company will get its

profit respectively. Where the benefits are among others can be seen from the table below17:

Bank Insurance Company Customer Retention Revenue and Channel Diversification Satisfaction of more financial needs under the same roof

Quality Customer Access

Revenue Diversification Quicker Geographical Reach More Profitable Resource Utilisation Creation of Brand Equity Enriched Work Environment Leverage service synergies with bank

In addition to providing benefits as seen in the above column, bancassurance

cooperation is expected to also benefit the bank's customers. The expected profit is

acceptable to the bank's customers, among others:

a. Provide protection for the life and wealth and the certainty of the receipt of

insurance benefits that have been promised if a disaster hits a customer.

b. Get the ease of buying insurance without having to search, so customers can be

more effective and efficient in utilizing the time and cost.

The above benefits cannot be achieved without the existence of a good legislative

management mechanism from the government. Historically, bancassurance cooperation has

undergone various changes, both because of the prevailing regulations and the way society

responds to the existence of bancassurance itself.

15 Refer to article 6 Sub-Article n of Law Number 7 of 1992 as amended by Act Number 10 of 1998 concerning Banking 16 Buletin AAMAI (Asosiasi Ahli Manajemen Asuransi Indonesia) Volume 5 Number 3, Juli 2003 page.9 17 <http://www.slideshare.net/mangesh.marathe/copy-of-bancassurance-presentation> Accessed on 10th January 2017 time 19.25 WIB


V. Bancassurance Related Regulations in Indonesia

The Bank is a special institution that seeks in the financial sector, therefore there is a

provision on what activities may be exercised by a bank as set forth in Article 6 through

Article 15 of the law number 7 of 1992 as already amended by Law number 10 of 1998. Such

provisions are intended to be limitative as set forth in article 10 letter b of banking law, which

is clearly stipulated that banks are not allowed to undertake insurance business. However, in

bancassurance the bank is not the party that produces such insurance services and then sells it

to the customers or its customers, but only as a tool or agent which is an extension of the

insurance company to the prospective insured.Act No. 7 of 1992 as already amended and

amended into law number 10 of 1992, has mentioned various businesses that can be run by

banks in general based on article 6 letter n almost unlimited type. Banks may, by law, also

engage in equity participation in banks between other financial companies, such as leases,

venture capital, securities companies, insurance and clearing-house institutions.

Bancassurance is a partnership between banks and insurance companies in selling

insurance products, is one of banking services that is currently widely developed by banks as

a form of complete service to its customers. Bancassurance is not just selling insurance

products through bank distribution channels, but it is a mindset that focuses on customer

service that sells insurance products by utilizing customer base owned by banks. Cooperation

between banks and insurance companies is a mutually beneficial cooperation with various

value added.

As previously stated, bancassurance activities are still new activities in Indonesia.

Nevertheless, the regulation of bancassurance cooperation has done by the authority of the

Financial Services Authority. Some rules that must be considered in running bancassurance

cooperation include the Financial Services Authority (POJK) Regulation No.

18/POJK.3/2016 on the Implementation of Risk Management for Commercial Banks,

Circular Letter of Financial Services Authority (SEOJK) No. 32/SEOJK.05/2016 concerning

Marketing Channels of Insurance Products Through Banking (Bancassurance), Act Number 7

of 1992 concerning Banking as amended by Act Number 10 of 1998, Law Number 21 Year

2008 concerning Sharia Banking, and the provisions governing the requirements and

procedures for giving orders or written permits to disclose banks. While the regulations

specifically regulating risk management in the framework of bancassurance cooperation are

listed in Circular Letter of Financial Services Authority (SEOJK) No. 33/SEOJK.03/2016 on


the Implementation of Risk Management at Banks Conducting Marketing Cooperation

Activities with Insurance Companies (Bancassurance).

VI. Risk Management in Bancassurance

As mentioned in the Regulation of the Financial Services Authority No.

18/POJK.03/2016 On the Implementation of Risk Management for Commercial Banks, banks

are required to apply effective risk management to all bank operations. And added in the

Circular Letter of the Financial Services Authority No. 33/SEOJK.03/2016 concerning

Marketing Channels of Insurance Products Through Cooperation with Banks

(Bancassurance), banks are deemed to implement risk management into bancassurance

because the Financial Services Authority considers bancassurance as having some benefits

but bancassurance also has the potential to create various risks Against banks, especially

legal risks and reputation risks.

In the Regulation of the Financial Services Authority No. 33/POJK.03/2016 on the

implementation of Risk Management for Commercial Banks The definition of risk

management is a set of procedures and methodologies used to identify, measure, monitor and

control risks arising from the business activities of banks. And as mentioned above

concerning matters involving risk management within a bank, bancassurance is not a

category of risk management because although bancassurance almost has the same

characteristics as risk management but this product is still a collaboration that can result in

loss or risk.

In Circular Letter of the Financial Services Authority No. 33/SEOJK.03/2016 on the

Implementation of Risk Management in Banks Conducting Marketing Cooperation Activities

with Insurance Companies (Bancassurance), the Financial Services Authority assumes that

bancassurance has the potential to pose various risks to banks, especially legal risks and

moreover reputation risk. Therefore, in principle, the arrangement contained in this Circular

Letter aims to avoid banks from various risks in conducting marketing activities with

insurance companies, with this Circular Letter, Bank Indonesia requires banks to engage in

bancassurance activities to implement risk management in accordance with Circular Letter

no. 33/SEOJK.03/2016 issued by the Financial Services Authority on the Implementation of

Risk Management at Banks Conducting Marketing Cooperation Activities with Insurance

Companies.


Sharia bank consists of two words, namely bank and sharia. The word bank means a

financial institution that serves as a financial intermediary of two parties, the party is

excessive funds and the lack of funds. The syariah word in the syariah bank version in

Indonesia is the rule of agreement based on that done by the bank and other parties for the

storage of funds and/or financing of business activities and other activities in accordance with

Islamic law.18

The activities in the Islamic Banking business that are different from conventional

banking are only the procedures that follow Islamic law but in fundamental use with the same

conventional bank, the bank as the financial intermediary (financial intermediary institution)

not only have the task of raising funds (funding) from the community, will But the bank must

also channel the funds (landing) is realized by carrying out financing activities (financing) as

the main task, the implementation of this basic task is realized in the provision of funds for

parties that deficit units (requires funds).19

Thus, sharia banking in conducting its business needs to conduct risk management

process similar to other conventional bank to avoid possible risks in sharia banking and can

be minimized and avoided, of course the risk management must be in accordance with

Islamic law itself.

VII. Risk Management Application in Bancassurance in Practice at Bank Sharia X

Banks operating bancassurance practices in Indonesia certainly have consideration and

through a series of tracking processes on the benefits of engaging in bancassurance

cooperation. In bank X, consideration for bancassurance is basically done to meet market

needs. These considerations arise because of the considerable number of Indonesians in the

past, but low insurance penetration. Insurance penetration is fairly low at that time, among

others, caused by the image that the insurance is considered a tertiary needs and not the basic

needs so that insurance products are more widely used by upper middle class. But over the

times, the view is increasingly shifted and the trend of buying insurance also increases along

with the existence of various insurance products that increasingly adjust to the needs of the

community. This has led banks to adapt to developments and adapt to these trends. As

demand for insurance is increasing, the bank then competes to be able to compete in fulfilling

18 Prof. Dr. H. Zainuddin Ali, M.A., Hukum Perbankan Syariah, Sinar Grafika, Jakarta, 2008, page. 1.

19 Yohannes Ibrahim, mengupas Tuntas Kredit Komersil dan Komsumtif dalam perjanjian Kredit Bank Perspektif Hukum dan Ekonomi, Mandar Maju, Bandung, 2004, page. 49.


the request.

As explained in previous chapters that bancassurance is the cooperation between banks

and insurance companies in the innovation and development of products, in this case the

Bank X is more focused assigned to unit-linked bancassurance products.

Unit link is a combination of insurance with investment, in other words, unit link

products allow the insured to invest and simultaneously insure his life simultaneously, the

way is to make the premiums submitted to the insurer or insurance companies are partially

paid for protection and partly placed on mutual funds in Unit link form.20

In the implementation of this product is easy, where the first time the prospective

customer will be explained about bancassurance products related to the link unit then if the

prospective customer has understood and agree with all the requirements then the prospective

customer is only required to create an account at Bank X, where this account is the place To

deposit premiums to be paid monthly or subject to agreement.21

In the application of bancassurance risk management in Bank X, it is not different from

that in Circular No. 33/SEOJK.03/2016 issued by the Financial Services Authority 22 whereby

the bank must ensure that the Insurance Company that can be a partner bank is an insurance

company that has a level Solvency at least in accordance with applicable provisions.

The Bank shall monitor, analyze and evaluate the performance and/or reputation of the

Bank partner insurance company periodically at least once every 1 (one) year or at any time

in the event of any change in performance condition and/or reputation of the Bank partner

insurance company known through various sources information.

In evaluating the partner insurance company of Bank X, Bank X usually sees from the

financial audit of the bank partner insurance company that will be announced in national

newspapers and in the end of the cooperation of the bank and the insurance company, the

bank must terminate the cooperation before the expiration of the agreement.23 And does not

extend the cooperation if the partner insurance company Bank no longer meet the

requirements of the insurance company that cooperates should have the performance and

solvency that can be trusted in accordance with the requirements and also will terminate the

agreement with the insurance company if the reputation of the insurance company partner

Bank decreased significantly, This will also affect the Bank profile.

If the cooperation of the bank and the partner company of the bank terminates, the bank

20 http://bisniskeuangan.kompas.com/ accessed on 24th April 2017 time 22.20 WIB. 21 The result of interview by Mrs. Sandra Leka as Operation officer of Bank X 22 The result of interview by Mrs. Sandra Leka as Operation officer of Bank X 23 The result of interview by Mrs. Sandra Leka as Operation officer of Bank X


shall terminate the marketing of the insurance product contained in the said cooperation

agreement, and the bank shall inform the continuation of the settlement of the rights and

obligations of the client in connection with the marketed insurance product that the

cooperation with the insurance company has expired.

Cooperation agreements must be written in Indonesian for understanding to all parties

because of the place of this agreement, both the bank and the insurance company are in the

country of Indonesia. In the cooperation agreement, contains clauses about the clarity of

rights and obligations of each party (Bank and partner insurance company Bank), especially

the existence of clauses stating the responsibility of each party in conducting bancassurance.

These responsibilities include but are not limited to any risks incurred by the bank and

what is covered by the bank partner insurance company, such as for the Reference business

model and / or Distribution Cooperation, the Bank does not bear the Risk of the past

insurance product sold for the business model Integration Products, Bank is only responsible

for Risk of Bank products.

There are also specific clauses related to the unit-linked business model, in clauses

related to the business model and / or special features of the insurance product for the

business model. Distribution Cooperation related to unit link products, the partner insurance

company The Bank shall record and manage specifically the assets and liabilities of the

insurance company Sourced from unit link investment products.

In the case of marketed insurance products related to unit link, the Bank is required to

ensure that the Bank's partner insurance company meets the requirements as, having fulfilled

the requirements related to unit link as stipulated in the Regulation of the Minister of Finance

which regulates the operation of the insurance company and the reinsurance company records

and manages Assets and liabilities of partner insurance companies Banks sourced from unit

link product investment; And carrying out other matters necessary for investment funds

entrusted by customers to be managed optimally, professionally and independently.

The clause also notifies the clarity of the respective responsibilities of the Bank or the

partner insurance company of the Bank in executing the obligation of customer due diligence

(CDD) or know your customer (KYC), i.e. what the customer needs and to what degree of

ability to use the products offered.

Each bancassurance agreement may only specify 1 (one) business model for 1 (one)

insurance product or 1 (one) bundled product marketed, such as if the customer uses the

product from Bank X in the form of self insurance plan sharia prosperous then the product

model The insurance is a unit link.


The clause also includes the conditions leading to the termination of the agreement,

including a clause that allows the Bank to terminate the cooperation before the expiration of

the term of the agreement. The clause also includes clarity on the settlement of rights and

obligations of each party (Bank or partner insurance company Bank), including liability to

the insured and / or the beneficiary (client), if the cooperation agreement expires, either due

to the termination of the agreement Due to termination and clause also explains the limit of

responsibility of the Bank and the partner insurance company of the Bank on any products

marketed in the event of a dispute with the customer, and is the obligation of the parties

(bank and partner insurance company) to maintain the confidentiality of customer data.

VIII. Conclusion and Suggestions

a. Conclusion

1. Risk management system in accordance with Circular Letter of the Financial Services

Authority No. 33/SEOJK.03/2016 regulates banks in any cooperation agreement with

insurance companies. Banks are required to conduct an assessment of insurance

companies that become its partners in bancassurance to ensure that the insurance

company meets the requirements given. Insurance companies that can be a bank

partner is an insurance company that has solvency level at least in accordance with

the provisions that regulate the financial health of insurance companies and sharia

insurance companies. Banks shall monitor, analyze and evaluate the performance

and/or reputation of the insurance company periodically at least once every 1 (one)

year or at any time in the event of any change in performance condition and/or

reputation of the insurance company known through various sources of information.

Implementation and procedures of bancassurance in Sharia banks do not have a

difference that is so significant with conventional banks. The arrangement is almost

the same and the only difference is from its intention and agreement that should

comply with the Sharia principles. The management of its risk should be in

accordance with the guidelines and policies of Sharia banks that is applicable in

Indonesia.

2. Bank is a special institution that strives in finance, bank as a functioning institution is

very important as a mediator between those who have funds and those who need funds,

Law No. 7 Year 1992 as amended by Law No. 10 Year 1998 concerning Banking itself

has mentioned various businesses that can be run by banks in general based on Article 6

letter n. Banks by law can also engage in equity participation in other companies in the


field of finance, such as leases, venture capital, securities companies, insurance and

clearing and settlement agencies. In connection with the increasingly widespread practice

of bancassurance cooperation conducted by banks in Indonesia, the Financial Services

Authority issued SEOJK Number 33/SEOJK.03/2016 on the Implementation of Risk

Management in Banks Conducting Marketing Cooperation Activities with Insurance

Companies (Bancassurance). In the SEOJK regulates the forms of cooperation that are

closely related to the limitation of authority and responsibility of the banks, the

establishment of insurance companies that become partners of banks that are closely

related to the guarantee for the prospect of cooperation bancassurance itself, the

provisions concerning bank secrets and the protection of the interests of bank customers.

This is an attempt to ensure that risk management is well implemented and thus minimize

legal risk and reputation risk faced by the bank in relation to the customers. Risk

management in banking business is to ensure that every banking business is carried out,

as much as possible not to experience significant risks and losses. Whereby, the meaning

of risk management itself is a system that is done to reduce, divert, minimize or eliminate

the risk that may or will happen. The application of risk management to banks in relation

to bancassurance has stages such as planning, organizing, assessing, risk analysis to

occur, handling in case of risk and monitoring and evaluation of outcomes for better risk

handling in the future. This risk management should be done by banks to minimize the

losses and risks that will occur.

b. Suggestions

1. Although bancassurance activities in Bank Sharia X is still new, risk management

system and enforcement of the principle of customer protection in Bank Sharia X has

a strict system. Until now there has been no complaints or reports from customers

who feel their interests disadvantaged because of bancassurance cooperation. Though

there are still many doubts from the community towards Sharia banks in which people

still feel unfamiliar with the existence of Sharia banks despite the fact that many

people are interested to use sharia banking. Therefore in the sense of need for Sharia

banks should do more socialization about understanding of bancassurance itself in

Sharia banks.

2. Bank Sharia X must promote insurance to public. It is because public only

understands that insurance is used in case of an event experienced by a retiree then the

insurance company will directly pay or compensate. And in fact, the insurance


company will compensate if the customer reports and presents evidence, then the

insurance company is willing to indemnify the insured. The process of complaints that

are considered complicated is what makes people feel disadvantage. Therefore,

people who want to use insurance products should understand better and know the ins

and outs before using insurance.

IX. Bibliography

Books

Ali, Zainuddin. HukumPerbankanSyariah. Jakarta: SinarGrafika. 2008.

Fuady, Munir. HukumPerbankan Modern BerdasarkanUndang-UndangTahun 1998

(BukuKesatu).Jakarta : PT. Citra AdityaBakti. 1999.

Nitisusastro, Mulyadi. Asuransidan Perusahaan Asuransi di Indonesia.Bandung: CV

Alvabeta. 2003.

Rivai, VethzaldanRifki Ismail.Islamic Risk Management For Islamic Bank.Jakarta: PT.

GramediaPustakaUtama. 2003.

Surya, Indradan Ivan Yustiavandana.Penerapan Good Corporate Governance:

MengesampingkanHak-hak Istimewa demi Kelangsungan Usaha. Jakarta:Kencana.

2006

Van Greuning, Henniedan Sonja BrajovicBratanovic. Analyzing Banking Risk :A

Framework for Assessing Corporate Governance and Financial Risk

Management. Washington DC: The World Bank. 2000.

Journals

Buletin AAMAI (AsosiasiAhliManajemenAsuransi Indonesia) Volume 5 Nomer 3, Juli 2003

Legislation

Indonesia. Bank Indonesia Regulation (a) Number: 7/52/PBI 2005 Concerning Operations

of Card-Based Payment Instruments Activities (APMK), State Gazette TLN No.

4583.

Indonesia. Circular Letter of the Financial Services Authority Number.18/POJK.03 /2016

concerning Application of Risk Management for Commercial Banks.

Indonesia. Circular Letter of the Financial Services Authority Number.

32/SEOJK.05/2016 on Marketing Channels of Insurance Products Through


Cooperation With Bank (Bancassurance).

Indonesia. Circular Letter of the Financial Services Authority Number.

33/SEOJK.03/2016 on the Implementation of Risk Management at Banks

Conducting Marketing Cooperation with Insurance Company (Bancassurance).

Internet

http://keuangan.kontan.co.id/news/bancassurance-mengalahkan-peranan-agen-asuransi.

Accessed on 20th August 2016 time 22.55 WIB.

http://www.hukumonline.com/berita/baca/ho19446/tinjauan-hukum-ibancassurancei-di-

indonesia, Accessed on 15th March 2017 time 22.40 WIB


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