KPPU Finds "Bancassurance" Tying Arrangement Unlawful

In a recent decision (the “Decision”),i the Indonesia Competition Commission (“KPPU”) found that a tying arrangement between one of the country’s best-known mortgage lenders and two insurance companies violated Indonesia’s fair competition regime. The KPPU accordingly annulled the agreements and imposed fines totaling Rp 57 billion (USD 4,397,983) on the three companies involved.


Under the terms of its housing loan / mortgage packages for intending home purchasers, PT Bank Rakyat Indonesia (Persero) Tbk (“BRI”) required them to purchase life insurance policies from one of either two designated insurance companies – PT Asuransi Jiwa Bringin Jiwa Sejahtera and PT Heksa Eka Life Insurance (the “Insurance Companies”).  

The Insurance Companies had been appointed by BRI as their sole approved life insurance providers in 2002 following a tender competition that had been participated in by a total of six insurers. A second competition was held between 2013 and 2014, which drew offers from some of Indonesia’s best known insurers, including PT Asuransi Jiwa Recapital, PT Sun Life Financial Indonesia, Cigna, PT Avrist Insurance, and PT Asuransi Sequislife. However, none were successful as, according to BRI, they failed to satisfy its criteria.

Legal Considerations

The KPPU took the view that the arrangement between BRI and the Insurance Companies constituted an unlawful “tying arrangement”, that is, an arrangement that is prohibited under Article 15 (2) of the Competition Law,ii  which reads as follows:

“An undertaking is prohibited from entering into agreement with another undertaking that requires a party receiving particular goods and/or services to be willing to purchase other goods and/or services from the supplying undertaking.”

The main concern of Article 15 (2) is whether or not there is a tying product and a tied product that must also be purchased by the consumer of the tying product. The KPPU found that such an arrangement existed because under BRI’s standard housing loan/mortgage agreement, the borrower is required to purchase a life insurance product from one of the Insurance Companies.

The KPPU also found that the arrangement violated Article 19(a) of the Competition Law, which reads as follows:

“An undertaking is prohibited from engaging in one or a number of activities, either separately or jointly with another undertaking, that could result in a monopolistic practice and/or unfair competition by:

a.   preventing and/or hampering a particular undertaking or undertakings from conducting the same type of business in the relevant market”

The primary focus of Article 19(a) is the prevention of trading practices that are intended to impede or prevent the entrance of new players to the market, and identifying whether or not strategic entry barriers have been erected by an undertaking to prevent another undertaking from participating in the same business in the relevant market.

In its decision, the KPPU found that BRI’s tying arrangement with the Insurance Companies amounted to the erection of a barrier to the entry of other insurers into the relevant market. The said entry barrier was created by the “unreasonable” terms and conditions imposed by BRI on insurers who wished to partner with it. These terms and conditions included requirements concerning premiums, free-cover limits and claim-payment mechanisms that were aligned with the policies applied by the Insurance Companies, but which were not feasible for their competitors.

Accordingly, the KPPU found that BRI’s tying arrangement restricted/prevented fair competition in the relevant market, and harmed the interests of consumers as its housing loan/mortgage customers were not offered an adequate choice of life insurance products and/or insurers.

Generally speaking, In determining whether unfair competition / discriminatory practices exist, the KPPU applies a dual approach that is based on (i) a study of the relevant statutory provisions and regulations (not just those concerning competition law), and (ii) a consideration of economic factors or justifications. Normally, if the relevant statutory provisions have been violated, this will be considered as constituting prima facie evidence of unfair competition / discriminatory practices, although this presumption may be rebutted by economic justifications, such as a good relationship built up over many years, product compatibility, etc. In addition, the possession of substantial market power or dominance is taken into account by the KPPU when assessing the potential anti-competitive effects of restrictions imposed by a company. The greater the market share, the greater the likelihood that the KPPU will find a competition restriction to be anti-competitive. A presumption of anti-competitive harms occurs when a company has a more than 50% market share.

In this case, it is important to note that the KPPU placed considerable reliance on Bank Indonesia Circular No. 12/35/DPNP, which requires that in any arrangements entered into by a bank and an insurer in relation to the purchase of mandatory insurance in connection with a banking product, the borrower must be allowed the right to choose between at least 3 different insurance providers, only one of which may be an affiliate of the bank.


As a result of the Decision, mortgage lenders in Indonesia, and those involved in tying arrangements in general, will need to ensure that their practices comply with the requirements of the competition law regime. If an undertaking enjoys a dominant position in a concentrated market with high entry barriers and poor inter-brand competition, it will need to provide a level playing field in selecting suppliers, and provide its customers with sufficient freedom of choice. This would, for example, mean taking care to ensure that their arrangements with appointed suppliers are based on reasonable economic justifications and that all potential suppliers are treated even handedly. At the same time, they will need to ensure that their customers are afforded sufficient choice as to avoid infringing competition law.


 [i] KPPU Decision No. 05/KPPU-I/2014, dated 11 November 2014
[ii] Undang-undang No. 5/1999 tentang Larangan Praktek Monopoli dan Persaingan Usaha tidak Sehat (Law No. 5/1999 on the Prohibition of Monopolies and Unfair Trading Practices.)


AHP Client Alert is a publication of Assegaf Hamzah & Partners. It brings an overview of selected Indonesian laws and regulations to the attention of clients but is not intended to be viewed or relied upon as legal advice. Clients should seek advice of qualified Indonesian legal practitioners with respect to the precise effect of the laws and regulations referred to in AHP Client Alert. Whilst care has been taken in the preparation of  AHP  Client Alert, no warranty is given as to the accuracy of the information it contains and no liability is accepted for any statement, opinion, error or omission.