Martin Lee @ Sg
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Policy Owners Protection Fund Consultation Paper

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.

policy owners protection fund 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 [email protected] (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

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2 comments
Garrett says 9 years ago

Personally, I think that this proposed PPF scheme and the existing SDIC scheme is a wayang-only scheme and won’t work. I remember reading that the PPF scheme minimum premium is $2500. How on earth is that sufficient to cover the default of an insurance company?

If the PPF is going to managed by the same people as SDIC I predict it’s going to serve the same uselessness as SDIC. Why do I say that? Currently, based on the 2009 statements, the SDIC insurance fund stands at only $44 million. Sounds a lot right? But when you consider that the Deposit Insurance Scheme guarantees up to $20,000 per person, that fund can only support 2200 bank customers! Even if assuming the bank liquidated assets can cover 90% of that $20,000 sum, SDIC can only insure up to 22,000 bank customers. Tell me which bank has only 20k+ customers? What happen if multiple banks collapse in Singapore?

SDIC will go bust the moment a Singapore bank collapse, and I predict the same will be for PPF. While SDIC has claimed that it can borrow money from the government in the event the insurance fund is insufficient, there is NO LAW in place that guarantees this.

Reply
    lioninvestor says 9 years ago

    Hi Garrett,

    The premiums for PPF would definitely need to be higher than $2500 for more insurers. I agree that figure is a joke.

    What you described for SDIC can be seen unfolding in the US right now. The record number of bank failures has been draining the FDIC. One thing it has done is to impose additional special premiums on remaining banks.

    In Singapore, we do not really know the true liability. Not everyone will have $20k in the bank in the first place.

    The SDIC works better in US as it has many small banks. In Singapore, a collapse by any one bank will trigger a major loss in confidence and possible bank runs on the others. A truly grim scenario to have.

    Reply
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