At the Life Insurance Association of Singapore (LIA) AGM held a few days ago, Mr Low Kwok Mun, Executive Director (Insurance Supervision) of MAS addressed a few things affecting the insurance industry in his speech.

Some of his points include:

• Reminding the industry not to neglect the important social role which only insurers can play, which is to ensure that the protection needs of Singaporeans are met. By and large, most Singaporeans are still under-insured.
• Urging the industry to step up on consumer eduction with a focus on what consumers do not understand. This includes:
  • Understanding on how bonuses of participating policies are determined.
  • Charges for investment-linked products (ILP).
  • Claims for medical insurance being invalidated due to pre-existing conditions and confusion over whether certain medical procedures are admissible for claims.
• Clearer transparency and disclosure between the savings and protection charges in an insurance policy.

While the points mentioned are very relevant, I am not so sure whether they will lead to much changes in the absence of regulatory changes. Urging is hardly a strong enough incentive.

Actually, a lot of complaints and misunderstandings can be avoided if insurance policies are carefully explained at the point of sale. In this aspect, the industry still have a lot of room for improvement.

Monetary Authority of Singapore (MAS) is consulting the public on recommendations to amend and enhance various features of the Deposit Insurance (DI) Scheme in Singapore.

Two key changes being proposed include raising the coverage limit from S$20,000 to S$50,000 and also to provide coverage beyond the deposits of individuals and charities, to other non-bank depositors such as sole proprietorships, partnerships, companies and unincorporated entities.

The consultation paper can be found here:

Review of Deposit Insurance Scheme in Singapore

MAS invites interested parties to give their views and comments on the proposals contained in the Consultation Paper. Comments should be submitted to policy@mas.gov.sg by 26 March 2010.

Back in March 2009, MAS issued a consultation paper on the sale and marketing of unlisted investment products.

MAS has carefully reviewed and considered feedback received on the consultation paper and published their responses to the feedback in two parts.

MAS Review Part One

MAS Review Part Two

After careful consideration, MAS has decided to issue revised proposals aimed at enhancing the safeguards for retail customers covering a wider range of investment products that applies to both listed and unlisted investment products.

Under the revised proposals, financial advisers and brokers will be required to formally assess a retail customer’s investment knowledge or experience before selling investment products to them. Customers who do not have the relevant knowledge or experience in specific unlisted investment products must be given financial advice before being able to purchase the product.

In the case of listed investment products, additional safeguards will be required when brokers approve trading accounts for customers who are assessed not to possess the relevant knowledge or experience in derivatives. These new obligations will apply for all investment products other than a list of products which are already established in the market and generally understandable by retail investors.

The excluded products are:

• Shares
• Depositary receipts
• Subscription rights pursuant to rights issues
• Company warrants
• Units in business trusts
• Units in real estate investment trusts
• Plain vanilla bonds (including convertible bonds)
• Money market instruments
• Life insurance policies (other than investment-linked policies)
• Structured deposits (including dual-currency investments)

MAS invites interested parties to give their views and comments on the proposals contained in the Consultation Paper. The consultation period will end on 12 March 2010.

The paper can be found here:
MAS Consultation Paper on Regulatory Regime for Listed and Unlisted Investment Products

Other than the insurance resolution, the other set of measure proposed by MAS to strengthen the protection of insurance policy owner is an enhancement of the Policy Owners’ Protection Fund (PPF) scheme.

Just to recap, the PPF schemes for life and general insurance will compensate policy owners of life policies and compulsory insurance policies respectively, in the event of the default of their insurer.

The enhancement of the PPF is governed by two principles: the need to provide adequate protection to policy owners while keeping the cost of PPF affordable, and achieving an equitable allocation of cost amongst insurers participating in the scheme. This enhancement will be positive to the confidence of consumers towards buying insurance in Singapore.

Some of the proposed changes are summarized below and interested parties are encouraged to submit electronic feedback to MAS on the changes by 29 January 2010 to 6220 3973 (fax) or policy@mas.gov.sg (email).

PPF Life Insurance Scheme

The current PPF life insurance scheme provides compensation for 90% of the amount of protected liabilities of all life, and accident and health (“A&H”) policies.

- With the exception of disability income, long-term care and medical expense insurance policies, all other policies will be subject to an
aggregate cap of S$500,000 for sum assured and S$100,000 for surrender value.

- The caps will apply on the aggregate sum assured and aggregate surrender value of all life policies owned by the policy owner and
issued by the same insurer.

- A simple ratio approach will be used to derive the protection ratio of the affected policy owner.

Proposal 1: The PPF life insurance scheme will provide 100% (from 90%) coverage of protected liabilities of all life and A&H policies.

Proposal 2: The caps on aggregate sum assured and surrender value will apply on all life insurance policies (with the exception of disability income, long-term care and medical expense policies) issued on the same life assured (previously policy owner) and by the same insurer.

Proposal 3: All term riders will be included in the aggregation process to calculate the protection ratio to determine PPF payout.

Proposal 4: Group insurance policies will be excluded in the aggregation process to calculate the protection ratio to determine PPF payout.

Proposal 5: The protection ratio will be applied separately to the aggregate sum assured and surrender value when calculating PPF payout.

Proposal 6: The PPF life insurance scheme will cover accumulated values of coupon deposits, advance premium payments and unclaimed monies, without any aggregate caps imposed.

PPF General Insurance Scheme

Under the previous consultation paper, all registered direct general insurers, except professional reinsurers, captive insurers and specialist insurers, be members of the PPF general insurance scheme, which would provide coverage for the following classes of business:

(i) Motor third party liability injury insurance;
(ii) Work Injury Compensation Act liability insurance;
(iii) Personal motor insurance;
(iv) Individual and group A&H insurance;
(v) Personal property (structure and contents) insurance;
(vi) Foreign domestic maid insurance; and
(vii) Personal travel insurance.

Proposal 7: Subject to MAS’ approval, exemption from membership of the PPF general insurance scheme can be made for direct general insurers that do not write any of the protected business covered under the PPF general insurance scheme.

Proposal 8: The PPF general insurance scheme will provide 100% coverage of all protected liabilities of covered lines of business.

PPF Agency

Proposal 9: The PPF schemes will be administered by Singapore Deposit Insurance Corporation (SDIC).

Proposal 10: Directors of SDIC cannot currently be directors of, employed by or otherwise connected to member institutions of the PPF schemes. The Board of Directors of SDIC will be accountable to the Minister for its acts and decisions on the PPF schemes.

Proposal 11: SDIC will establish a PPF fund for life insurance and a PPF fund for general insurance. The two PPF funds and the DI fund will be maintained separately and no inter-lending is allowed among the three funds.

Proposal 12: The principal functions of SDIC with respect to the PPF schemes will be levy collection, management of the PPF funds, making payouts and consumer education. In the event that policies are to be placed on run-off, SDIC will set up a company to hold the policies and outsource the administration of the policies to a third party.

Proposal 13: MAS will make the decision on whether to trigger payouts using PPF funds. SDIC will verify that MAS has adhered to established procedures in triggering payouts.

Proposal 14: PPF funds should be invested in any security issued by the Singapore Government, Singapore dollar deposits with MAS and such other investments as may be approved by the Minister.

Proposal 15: SDIC will be empowered to borrow to finance the shortfall, in the event that payouts exceed the size of the PPF funds.

I have not included the proposed changes relating to the levy and PPF payouts but looking at the overall scheme, I think the computation and payment of levy can really become an administrative nightmare.

The entire consultation paper with the proposed changes can be found below:

Policy Owners’ Protection Fund Schemes Consultation Paper

The Monetary Authority of Singapore (MAS) announced a few days ago that it is reviewing two sets of measures in order to further strengthen the protection of insurance policy owners.

One set of measures seeks to enhance MAS’ powers relating to the resolution of insurers in Singapore. This governs the power of MAS to act in the event that an insurer is insolvent or is in danger of being insolvent or liquidated.

This is important as policies particularly for life insurers as policies written by them tend to be long-term in nature, and early termination of the policies could cause a substantial loss to the policy owner due to a low surrender value or inability to take up new insurance cover.

Policies written by general insurers are less critical as they are always on an annual renewable basis anyway.

The proposed changes are summarized below and interested parties are encouraged to submit electronic feedback to MAS on the changes by 29 January 2010 to 6229 9694 (fax) or resolution_ins09@mas.gov.sg (email).

Pre-Liquidation Stage

1. MAS is to be given the powers to:

(a) take control of an insurer;

(b) make a determination for the sale or transfer of the assets and liabilities of a failing insurer without the prior consent of the insurer’s policy owners and creditors, subject to the Minister’s approval;

(c) make a determination for the transfer of ownership of the insurer either via a compulsory restructure of share capital for Singapore incorporated insurers or the forced sale of shares of a failed insurer, subject to the Minister’s approval; and

(d) apply to the High Court to impose a moratorium such that no resolution shall be passed and no order shall be made for the winding up of the insurer, and no legal proceedings shall be commenced.

2. Voluntary schemes of transfer for life insurance portfolios are to be approved by MAS before submission to the High Court for confirmation.

3. There will be a provision in the Insurance Act to exclude the application of any claw-back mechanism in the Companies Act to transfers of assets to another insurer that have been directed or approved by MAS, to prevent the unwinding of any prior transfers undertaken.

Insurer in Liquidation

4. MAS is to be given the powers to approve the appointment of a liquidator (whether local or foreign), and to add, revoke or vary conditions on the liquidator.

5. There will be provisions in the Insurance Act to:

(i) require the liquidator to seek to sell/transfer portfolios of the failed insurer to other insurers (including a run-off entity) as far as
reasonably practicable;

(ii) continue with the business of the insurer until the portfolios are transferred, unless otherwise decided by the Court; and

(iii) grant powers to the liquidator to carry out its duties in (i) and (ii).

6. MAS is to be given the power to appoint an independent actuary to assess the value of the liabilities to be transferred.

The entire consultation paper with rationale for the changes can be found here:

Insurance Resolution Consultation Paper

If these changes are adopted, it will give MAS sufficient powers to protect the interest of life insurance policy holders should an insurer becomes insolvent. And great powers, of course comes with great responsibilities.