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Monday, May 11, 2020

Premium Payment in the Indonesian Fire Insurance Standard Policy

Premium Payment in the Indonesian Fire Insurance Standard Policy

Before the provision of insurance premium payments is specifically regulated in one of the articles in the wording of Polis Standard Asuransi Kebakaran Indonesia-Asosiasi Asuransi Umum Indonesia (PSAKI-AAUI) or Indonesian Fire Insurance Standard Policy-General Insurance Association of Indonesia, there is a long history before finding its current form.

Before 1982 there were at least 3 (three) types of fire insurance policies in Indonesia, namely: (1) Amsterdam Stock Fire Policy, (2) Fire Office Committee Policy, and (3) Indonesian Fire Policy. The first two are foreign policies while the latter is a domestic product policy.

Subsequently effective as of January 1, 1982, the Indonesian Fire Policy through the Decree of the Minister of Finance of the Republic of Indonesia No. 216/KMK.011/1981 was declared a standard fire insurance policy in Indonesia so that its name became the Indonesian Fire Standard Policy or PSKI (Polis Standard Kebakaran Indonesia). This policy has the same terms and conditions of risk coverage and applies uniformly to all general insurance companies operating in Indonesia as a result of the provision stipulated by Indonesian Insurance Board or DAI (Dewan Asuransi Indonesia).

Provisions for Premium Payments in the PSKI 1982

In the 1982 version of the PSKI there are 22 (twenty-two) articles governing the terms and conditions of the policy whereby the article on premium payment is placed first in the Article I Premium Payment.

Why was it placed in the first article in the PSKI? This seems understandable given that premium payment is a condition of the validity of the agreement between the insured party and the insurer as stated in the Preamble or Recital Clause section. The typical editorial contained in the Preamble section is as follows: "The undersigned bears on the basis of payment of premiums and written statements provided by the insured, which are an inseparable part of this policy - property and/or interests as outlined below, for losses caused by the perils specified and confirmed in the terms and conditions printed and/or attached to and/or stated in this policy."

In full, the premium payment provisions stated in Article I of the PSKI 1982 are as follows:

(1) Notwithstanding anything to the contrary in the provision of Article 257 of the Commercial Code (Kitab Undang-Undang Hukum Dagang), the coverage/extension of this coverage will only take effect as from the payment of the premium concerned, as stipulated in the schedule, if any, with a grace period of payment for 14 (fourteen) days, as of the date of commencement/renewal.

(2) If the premium is not paid within 14 (fourteen) days after the commencement date or renewal date, the insurance coverage for the Insured is suspended and the Insured is not entitled to compensation from the commencement/renewal date as stated in the policy/attachment. The insurance coverage is valid again 24 (twenty-four) hours after the day the premium is paid, without reducing the Insured's obligations to pay any premium owed by him under this policy.

Provisions for Premium Payments in the PSKI 1994

DAI through Decree No 2034/DAI/94 dated December 8, 1993, stipulates new provisions regarding premium payments which take effect as of January 1, 1994, which is to replace Article I of Premium Payments to Article I of the Premium Payment Obligation Clause which reads as follows:

(1) Notwithstanding the provisions of Article 257 of the Commercial Code (Kitab Undang-Undang Hukum Dagang) and without regard to any provisions in the policy, renewal certificates, policy endorsement or cover note that contradicts the provisions of this Warranty Clause and is only based on and without prejudice to the provisions of Article 2 set out below, hereby stated and agreed that is a prerequisite of the Insurance Company's responsibility for insurance under the policy, renewal certificate, policy endorsement or cover note that every premium owed must be paid in full and has actually been received in full by the Insurance Company:

(a) If the coverage period is 30 (thirty) days or more, then the payment of premium payment must be made within 30 (thirty) days calculated from the date of the start of the insurance coverage (inception-date) of the policy, renewal certificate, policy endorsement or cover note.

(b) If the coverage period is less than 30 (thirty) days, then the payment of premium payment must be made within the period of coverage referred to in the policy, renewal certificate, policy endorsement or cover note.

(2) If the premium amount referred to above is not paid in full to or actually received by the insurance company in the manner and within the period stipulated in the provisions of the aforementioned Premium Payment Obligation, then the insurance coverage of the policy, renewal certificate, policy endorsement or cover note is declared null and void starting from the expiry date of the above mentioned Premium Payment Liability provisions and the insurance company is exempt from all liability for insurance coverage from that date but without ignoring insurance coverage which has been the responsibility of insurance companies before that date, the insurance company is entitled to premium payments for that period on a prorated basis with a minimum amount of IDR 50,000.00.

Provisions for Premium Payments in PSAKI 2016

In its latest wording, PSAKI (Polis Standard Asuransi Kebakaran Indonesian) or Indonesia Fire Insurance Standard Policy 2016 as Attachment to AAUI Decree No. 14/SK.AAUI/2016, new provisions on premium payments are stipulated in Article 2 of Payment of Premium, namely:

2.1 Notwithstanding anything to the contrary in the provision of Article 257 of the Commercial Code (Kitab Undang-Undang Hukum Dagang) and subject to provisions as stipulated in item (2.3) below, it is a condition precedent to liability under this Policy, that any premium due must have been paid to and actually received in full by the Insurer:

2.1.1. if the period of insurance is 30 (thirty) calendar days or more, payment of premium must be made within the grace period of 30 (thirty) calendar days starting from the inception date of the policy;

2.1.2. if the period of insurance is less than 30 (thirty) calendar days, payment of premium must be made within the period of insurance specified in the Policy. 

2.2. Premium payment may be made by cash, cheque, giro, transfer or other means as agreed between the Insurer and the Insured. 

The Insurer shall be deemed as having received the premium payment at the time when: 

2.2.1. cash payment is received, or 

2.2.2. the said premium is credited into the bank account of the Insurer, or 

2.2.3. The Insurer has agreed in writing on the settlement of the said premium. 

2.3. In the event of the premium is not paid in the manner and within the time stipulated above, this Policy shall be automatically terminated without issuing cancellation endorsement starting from the expiry of the grace period and the Insurer shall be discharged from any liability therefrom. However, the Insured shall remain obliged to pay the time on risk premium for the insurance period already lapsed amounting to 20% (twenty per cent) of the annual premium. 

2.4. Should there be any loss covered by this Policy during the grace period as stated in item (2.1.1) and (2.1.2.) above, the Insurer shall only be liable for such loss if the Insured pays the premium within that grace period.

Conclusion

Provisions for premium payment in fire insurance in force in Indonesia have undergone several changes from 1982 to 2016. However, all of this comes down to the principle that the payment of premiums is a prerequisite for the responsibility of the insurer for claims that occur. This provision is included in the policy conditions which are categorized as "conditions precedent to liability" which are expressly stated in the policy and must be fulfilled before the liability of the insurer exists for a claim.

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