Knowledge Highlights 2 May 2024
MAS issues response to feedback on proposed amendments to Insurance Act 1966 and regulations on intermediaries
The Monetary Authority of Singapore (“MAS”) has published its response to feedback received on its consultation paper on proposed amendments to the Insurance Act 1966 (“IA”) and the Insurance (Intermediaries) Regulations (“IIR”) (“Response”).
MAS issued a consultation paper on 4 November 2022 seeking feedback on the proposed amendments to the IA to take into account regulatory and market developments, and to align where appropriate, the regulatory framework for insurance with that of other financial activities regulated by MAS. The consultation closed on 13 January 2023. The proposed IA amendments sought to achieve four main objectives: (1) enhance MAS’ powers to better achieve its supervisory objectives, (2) provide more clarity on MAS’ existing policy intent, (3) align with other provisions within the IA or other MAS-administered Acts, and (4) update provisions to reflect changes in policy intent. For more on the MAS consultation paper, please see our article “MAS consults on amendments to Insurance Act 1966 and Insurance (Intermediaries) Regulations to take into account regulatory and market developments”.
MAS also proposed amendments relating to insurance brokers in the IIR for alignment with other MAS-administered regulations.
In its Response, which was published on 20 March 2024, MAS stated that where appropriate it will incorporate the feedback into the Insurance (Amendment) Bill and proposed amendments to the IIR, which MAS will consult on.
This article highlights some of the clarification and guidance provided by MAS in its Response.
1. Enhance MAS’ powers to better achieve supervisory objectives
Proposed anti-commingling policy for insurers and insurance brokers
MAS proposed to introduce an anti-commingling policy to regulate the conduct of and investment in insurance and non-insurance businesses by insurers in Singapore. This would ensure that insurers remain focused on their core insurance business and competencies and avoid potential contagion from the conduct of non-insurance businesses. Under the policy, insurers would generally be prohibited from (1) directly undertaking businesses other than insurance business, business incidental to their insurance business, and businesses prescribed by MAS, (2) using or sharing their names, logos or trademarks on physical infrastructure or with any other entities, and (3) acquiring or holding a major stake in any corporation without MAS’ prior approval.
In its Response, MAS provided the following clarification and guidance:
i. Permissible businesses: The anti-commingling policy on permissible businesses will apply to all licensed insurers. For insurers incorporated in Singapore, the policy will apply to the insurer and not its parent company. For insurers incorporated outside Singapore, the policy will apply to the Singapore branch and not its head office. The policy will apply to all businesses carried on, whether in Singapore or elsewhere, by a licensed insurer and its overseas branches. When assessing an application by a licensed insurer to acquire or hold a major stake in any corporation, MAS will consider the business carried out by the proposed major stake corporation with reference to the anti-commingling policy on permissible businesses. MAS will consult on the anti-commingling framework where MAS will propose the types of non-insurance businesses to be included in the proposed list of prescribed businesses.
ii. Sharing of name, logo or trademark of locally-owned insurers: MAS’ approval will be required if the name, logo or trademark of an insurer incorporated and headquartered in Singapore (“locally-owned insurers”) is used in a way which indicates or represents that a person or the person’s trade or business is related to or associated with a locally-owned insurer (“name sharing arrangement”). Generally, the use of a locally-owned insurer’s name, logo or trademark on advertisements will not require MAS’ approval if they are used to refer to the business conducted by the insurer, e.g. the listing of an insurer’s name on a financial adviser’s website will not be considered name sharing if the use of the insurer’s name is to refer to the provision of its insurance products. MAS also provided guidance on the situations where approval is needed for the placement of a locally-owned insurer’s name, logo or trademark on a building, and in relation to sponsored events.
iii. Sharing of name, logo or trademark of foreign-owned insurers: The general restrictions on name sharing, including those relating to sponsored events, do not apply to licensed insurers incorporated in Singapore but headquartered outside of Singapore and foreign insurance branches (“foreign-owned insurers”) as MAS recognises that foreign-owned insurers can face challenges in complying with them. However, should a foreign-owned insurer enter into a partnership, joint venture, or other arrangement with any person, or acquire a major stake to undertake unregulated financial business or non-financial business, MAS’ approval would be required for such name sharing arrangements.
iv. Transitional arrangements: Insurers will be given a transition period of one year from the effective date of the IA amendments to seek MAS’ approval where required or make any other arrangements as necessary for existing non-permissible businesses or non-permissible name sharing arrangements.
v. Proposed anti-commingling policy for insurance brokers: Due to the differences in the activities conducted by registered insurance brokers, as compared to those by insurers, the matters discussed in (i) to (iv) above will not apply to registered insurance brokers. MAS does not seek to prohibit or restrict registered insurance brokers from conducting any specific activities. However, MAS will be empowered to issue written directions to registered insurance brokers if their risk management controls do not sufficiently address contagion risks of their unregulated activities.
Outsourcing arrangements
MAS proposed to strengthen its oversight of insurers’ outsourcing arrangements, including arrangements with a branch or head office of the insurer. MAS proposed to set out specific outsourcing requirements in a Notice on Outsourcing by Insurers (“Notice”).
MAS explained that the proposed Notice will define a set of minimum standards for outsourcing management and set out specific requirements in areas such as evaluation of service provider, provisions to be included in outsourcing agreement, and access to information. The requirements under the Notice will only apply to outsourcing arrangements assessed to be material by the insurer. For non-material outsourcing arrangements, insurers are to observe the Guidelines on Outsourcing. MAS will consult the industry on the proposed requirements in the Notice in due course.
MAS intends to require insurers, where the service provider is another separate legal entity, to enter into a written contract detailing the terms of an outsourcing arrangement. Where the service provider is the head office or a branch of the insurer in Singapore, and not a separate legal entity, the insurer in Singapore will be required to ensure there is a written document setting out the terms of the arrangement relevant to it, that complies with the requirements in the Notice.
Restitution of insurance funds
MAS had proposed to set out explicit powers to require insurers to restitute their insurance funds for participating (“Par”) and investment-linked (“IL”) policies.
In its Response, MAS stated that the proposed powers will be confined to circumstances where there is a breach of MAS’ requirements. MAS will (1) provide the insurer the opportunity to explain and present its facts before it establishes if there had indeed been a breach, and (2) assess the circumstances of the case before deciding on the appropriate supervisory actions, including whether to exercise the proposed powers. Before deciding on the restitution, an insurer will be given the opportunity to explain and justify its position.
2. Provide more clarity on MAS’ existing policy intent
Reinsurers to establish insurance funds for IL policies, Par policies, and non-Par policies
Currently, section 16(2) and (3) of the IA requires only direct insurers licensed to carry on life business to further establish and maintain separate funds for IL policies, Par policies, and non-Par policies. MAS proposed to amend these provisions to include reinsurers. Clarification was sought on whether the need for reinsurers to establish and maintain separate insurance funds will be assessed based on the nature of risk transferred under a reinsurance contract, or on the type of the underlying policies reinsured. MAS explained that, in assessing the type of insurance fund to be established by a reinsurer, the assessment would be based on the nature of risk transferred. This approach is similar to reinsurers’ current practice. The amendment is to make clear the expectation that a reinsurer needs to establish and maintain separate insurance funds for IL policies, Par policies, and non-Par policies, where appropriate.
Definition of “marine mutual insurance business”
MAS proposed to amend the definition of “marine mutual insurance business” in the IA to clarify that marine mutual insurers (“MMIs”) (1) are able to write non-mutual business as long as the majority of the gross premiums written (“GWP”) by them pertains to mutual business, and (2) must be able to make supplementary premium calls in order for a business to be considered a mutual business.
MAS states that it will require MMIs to meet the revised definition of “marine mutual insurance business”. This means an MMI’s GWP from business written from members who may be subjected to unbudgeted supplementary premium calls (“mutual members”) must be greater than its GWP from business written from members or policy owners who are not liable for such calls, for any given financial year. When considering whether the majority of a MMI’s GWP is from mutual members, MAS will make its assessment at the legal entity level, and not at the Singapore branch or insurance fund level.
3. Align with other provisions within IA or other MAS-administered Acts
MAS proposed amendments to align provisions in the IA with other provisions in the IA and other MAS-administered Acts, such as the Banking Act 1970 (“BA”). The following are some of the proposed amendments and MAS’ response to feedback received:
- Raise penalty for contravention of requirements relating to submission of returns under IA from S$100,000 to S$250,000 to align with the BA: Considering that the scale and size of registered insurance brokers’ operations and the risks posed are smaller relative to other MAS-regulated entities such as insurers and banks, MAS will not proceed with this proposal. The existing maximum penalty amount of S$100,000 will apply.
- Empower MAS to require insurers and registered insurance brokers to notify MAS if chairpersons, directors, and key executive persons no longer fit and proper: MAS emphasised that the insurer and registered insurance broker should notify MAS immediately after they become aware that the appointed individual, in accordance with existing expectations in the Guidelines on Fit and Proper Criteria, is no longer a fit and proper person to hold that office or appointment. MAS provided guidance on the information that the notification should minimally include, such as how and when the insurer or registered insurance broker was made aware that the individual is no longer a fit and proper person.
- Empower MAS to prescribe maximum term for key executive person’s appointment: MAS’ power to prescribe the maximum term for a key executive person’s appointment could be imposed on particular key executive person roles in the insurance industry. A maximum term would be set out in subsidiary legislation, which MAS will publicly consult on before implementation.
- Allow MAS to remove executive officers who are not fit and proper, with additional considerations for removal of chairpersons, directors, key executive persons, and executive officers: In assessing whether to direct an insurer or insurance broker to remove a chairperson, director, key executive person or executive officer, MAS will take into account the full range of facts and circumstances, including the severity of the incident impacting the individual’s fitness and propriety. While MAS may engage the insurer or registered insurance broker on the removal, the final decision will lie with MAS.
- Widen scope of circumstances under which statements by insurance intermediaries would be deemed false or misleading: MAS sought to do this by (1) removing the restriction that the false or misleading statements must be made with “intent to deceive”, and (2) including statements made in connection with the arrangement of contracts of insurance, and if the insurance intermediary has not taken care to ascertain if the statement is true or In its Response, MAS explained that its policy intent is to reinforce existing expectations that insurance intermediaries should exercise care when communicating and dealing with their customers. MAS does not seek to take action against insurance intermediaries for statements made in good faith, where the necessary due diligence has been carried out and there is a reasonable basis for making the statements. Where the false or misleading statement was a result of errors or omissions, MAS will take this into consideration when deciding the action to take against the insurance intermediary. MAS will consult on the draft legislative provisions.
4. Update provisions to reflect changes in policy intent
Reinsurance deposit requirement
MAS will proceed with its proposal to remove fixed deposits as a form of reinsurance deposit for authorised reinsurers. Consequently, only a bank covenant will be accepted as reinsurance deposit. The use of a bank covenant would reduce administrative work and streamline work processes for both authorised reinsurers and MAS. It would also enable authorised reinsurers to free up their resources to invest in other instruments.
Revision to nomination of beneficiaries framework
MAS proposed to update the nomination of beneficiaries (“NOB”) framework to allow owners of joint life insurance policies to effect trust or revocable nominations, while excluding short-term accident and health policies from the NOB framework.
MAS will review the Insurance (Nomination of Beneficiaries) Regulations to incorporate amendments, including the forms to be used for such nominations. The proposed review will not be made retrospective, i.e. nominations effected before the proposed revisions come into effect will not be affected for the remaining policy period. With regard to group policies, insurers are not prohibited from executing beneficiary nominations in accordance with the contractual terms of the group insurance policy.
5. Amendments to Insurance (Intermediaries) Regulations
Notification of material adverse developments
MAS proposed to amend the IIR to require registered insurance brokers to notify MAS of any adverse development that materially affects the registered insurance broker. Notification requirements were also proposed for matters affecting the fitness and propriety of the registered insurance broker’s substantial shareholders/controllers and key officers.
MAS explained that key officers refer to the chief executive officer and directors of a registered insurance broker, as defined in the IA. Material adverse developments, include, but are not limited to misconduct, lapses in risk management and controls, or other developments that may significantly impact the registered insurance broker or its customers. MAS referred to the guidance provided in the “Frequently Asked Questions on Guidelines on Individual Accountability and Conduct” for financial institutions (including registered insurance brokers) in assessing adverse developments requiring notification to MAS. For avoidance of doubt, any contravention of MAS’ requirements must be reported to MAS, as required under registration conditions.
Compliance, risk management, and internal controls
MAS expects that regulated financial institutions have in place compliance arrangements, risk management policies, and internal controls. These expectations are set out in legislation for banks, insurers, capital markets intermediaries and licensed financial advisers. MAS proposed to introduce a similar provision in the IIR for registered insurance brokers. MAS agrees with feedback received that registered insurance brokers’ compliance, risk management, and internal controls should be commensurate with the nature, scale, and complexity of their businesses. This will be provided for in the proposed legislation.
Reference materials
The MAS response is available on the relevant webpage of the MAS website www.mas.gov.sg.
