Background

The Indonesian macroeconomic condition is sound. The insurance industry, particularly life insurance, is expected to play an important role under this policy. One of its key developmental needs is to improve the overall strength and soundness of the industry. On this matter, the Insurance Bureau of Bapepam & LK is determined to protect policyholders by allowing only those insurance companies that are financially sound to operate.

The Insurance Bureau of Bapepam & LK approached the World Bank to seek financial and technical assistance to conduct a review with the objective of generating options and recommendations to undertake interventions or enforcement actions that may by required toward the two companies. Discussions resulted in the design of this project and a request for FIRST funding. This request was delayed due to the transition of the FIRST management unit to the World Bank. As such, the earlier stages of the project were funded directly by the World Bank budget. Given the scope of work and size of this project, FIRST funding seems to be appropriate source of funding support for Phase 3 of the project.

Project

The GOAL of this three-phase project is to assist Indonesia’s Insurance Bureau of Bapepam & LK in conducting financial condition reviews and preparing corrective action programs for two life insurance companies and developing the necessary supporting regulatory and supervisory infrastructure.

The PURPOSE of this project, under Phase 3 (the subject of this application), is to submit options and recommendations to the Authority to undertake any necessary interventions or enforcement actions and to build relevant modalities and capabilities, to develop operating procedures, improve their, skills and enrich their experience in the subject matter and to improve thecapacity of the Authority to deal with financially weak or insolvent life insurance companies in the future.

OUTPUTS:  The key outputs of the project are: (i) report and technical advice on options for intervention and/or enforcement for the Insurance Bureau of Bapepam & LK to consider; and (ii) development of required modalities, documentation and staff capabilities within the Insurance Bureau of Bapepam & LK.

ACTIVITIES: Phase 3 will be implemented by the same team of consultants who carried out Phase 2. Senior staff of the Insurance Bureau of Bapepam & LK will be assigned to work on the strategy development and implementation planning process. Representatives of the companies’ shareholders and management will also be involved in the implementation planning of this project as and when needed. Training sessions will be provided to the Bureau by the consultants in the course of the work, and it is expected that staff will also learn by working day to day with the consultants and with the project technical supervisor.

Project LIFETIME is 13 calendar months from February 2008 to February 2009.

Project BUDGET is $358,000.

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