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 [email protected] (email).
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.
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.
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: