INSIGHT
Embezzlement of Insurance Premiums
Background
In insurance transactions, there is a risk of embezzlement, particularly when payments under a policy are made through third parties, such as insurance brokers or agents. One of the payments is the insurance premium, which is typically collected and handled by a broker or agent. Once the premium is in their custody, the opportunity to embezzle the premiums arises. Therefore, it is important to gain an in-depth understanding of insurance premium embezzlement.
Embezzlement under Insurance Law
Embezzlement of insurance premiums is regulated under Article 76 of Law No. 40 of 2014 on Insurance, as amended by Law No. 4 of 2023 (“Insurance Law”), which states:
“Any Person who embezzles Premiums or Contributions as referred to in Article 28 paragraph (5) and Article 29 paragraph (4) is punished with imprisonment for up to 5 (five) years and a criminal fine amounting up to IDR 5,000,000,000.00 (five billion rupiah).”
Such sanction refers to the prohibition for insurance brokers, reinsurance brokers, or any other parties cooperating with an insurance company to embezzle an insurance premium. However, the Insurance Law does not specifically define the element of “embezzles”. Consequently, we must refer to the embezzlement provisions in the Indonesian Criminal Code (“Criminal Code”). The embezzlement crime is regulated under Article 372 of the Criminal Code, which states:
“Any person who with deliberate intent and unlawfully appropriates property which wholly or partially belongs to another and which he has in his possession otherwise than by a crime, shall, being guilty of embezzlement, be punished by a maximum imprisonment of four years or a maximum fine of sixty rupiahs.”
The main point of the above provision is that a someone’s belonging is under the possession of another party lawfully, but appropriated unlawfully. The term “appropriated” has a broad meaning, encompassing actions such as retaining, and transferring.
Given these provisions, it is essential to establish the status of insurance premiums. Article 1 point 29 of the Insurance Law defines an insurance premium as “the sum of money determined by the Insurance Company or a reinsurance company and agreed upon by the Policyholder to be paid under an insurance or reinsurance agreement, or the sum of money specified by the provisions of laws and regulations underpinning a compulsory insurance program to receive benefits”.
“The insurance premium plays a critical role in an insurance transaction. If misappropriated, it can result in financial losses for both the insured and the insurer”
This means, an insurance premium may qualify as “property” belonging to the policyholder. When the policyholder pays the premium through a broker or agent, the broker or agent is “entrusted” with forwarding the funds to the insurance company. Failure to do so may indicate embezzlement of the insurance premium.
Conclusion
Embezzlement of insurance premiums is specifically regulated under Article 76 of the Insurance Law. However, it should also refer to Article 372 of the Criminal Code (the general embezzlement provision). This type of crime is likely to occurred in insurance transactions involving third parties, e.g., agent or broker.
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NOTE
This article provides general information and does not constitute legal advice. Readers should seek specific legal counsel for their circumstances.
