The Monetary Authority of Singapore (“MAS”) has issued various new regulatory requirements on 30 March 2014 in relation to the offer and distribution of Direct Purchase Insurance Products (“DPIs”). These changes form part of MAS’ initiatives under the Financial Advisory Industry Review (“FAIR”).
FAIR was launched on 26 March 2012 and is aimed at raising the standards and professionalism of the financial advisory industry and enhancing market efficiency in the distribution of life insurance and investment products in Singapore. Progressive implementation of other FAIR initiatives is underway.
This present development concerns the FAIR initiative for making available a set of basic insurance products which can be sold with minimal fees via a direct channel without any accompanying advice.
New Requirements under the Insurance Act
A new MAS Notice 321 on DPIs has been issued. Subject to certain exceptions, MAS Notice 321 requires all direct life insurers to manufacture and offer DPIs. There are to be four groups of DPIs:
- term life insurance products;
- term life insurance products with a critical illness rider;
- whole life participating insurance products; and
- whole life participating insurance products with a critical illness rider.
In each case, the DPI must have the features set out in Appendix A to MAS Notice 321.
Reflecting the regulatory policy intent that insurers are not compelled to offer a direct version of a product which they do not already have, a direct life insurer is exempt from manufacturing and offering a DPI if it does not offer in Singapore insurance products of the categories within which the DPI falls.
In manufacturing and offering DPIs, direct life insurers must observe the following limitations:
- As DPIs are products envisaged to be priced without distribution expenses, they must not change pricing assumptions (including profit margins) so as to negate money savings arising from DPIs being priced without distribution expenses.
- The premium rates of a DPI must not be more than the premium rates of a non-DPI life policy with benefits comparable to those for the DPI as set out in Appendix A to MAS Notice 321.
- The benefits for a DPI with the same premium rates as a non-DPI life policy of the same type must be no less favourable than that for the non-DPI life policy of the same type.
- DPIs must be named with the prefix “DIRECT” and non-DPI life policies must not be named with such a prefix.
- The risk profile assumptions for a DPI must, as far as reasonably possible, be the same as that used for a non-DPI life policy with the closest corresponding features (as set out in Appendix A to MAS Notice 321), which the direct life insurer offers.
In relation to pricing, the direct life insurer is required to re-price the DPI on the occurrence of certain specified events. Written approval from the MAS must be obtained before a new or re-priced DPI is offered for sale to the public. When granting approval, MAS may specify to the direct life insurer a specific official launch date for the offer of the new or re-priced DPI.
i. Amendments to MAS Notice 302
In addition, consequential amendments have been made to MAS Notice 302 on Product Development and Pricing to take into account the approval and notification requirements which apply to DPIs.
MAS Notice 321 as well as the amendments to MAS Notice 302 take effect from 30 March 2015.
Corresponding revisions to the Financial Advisers Act (“FAA”)
Taking into account the fact that DPIs may also be distributed by financial advisers (“FAs”), MAS has simultaneously issued to financial advisers a new Notice on the Distribution of DPIs (Notice No.: FAA-N19) in parallel with the foregoing.
Subject to exemptions, the new Notice FAA-N19 applies to both licensed FAs and FAs exempt under section 23(1)(a) to (e) of the FAA (i.e. banks, merchant banks, insurers, capital market intermediaries, finance companies, exchanges and market operators), and their representatives, when providing financial advisory services which are solely incidental to the distribution of DPIs.
It is important to note that Notice FAA-N19 does not apply to non-retail FAs exempt from licensing under regulation 27(1)(d) of the Financial Advisers Regulations (“FAR”), nor certain other categories of FAs exempt from certain FAA requirements by the FAR.
Notice FAA-N19 sets out the requirements that will need to be observed when DPIs are being distributed:
- Unless the FA is itself a direct life insurer (and an exempt FA under section 23(1)(c) of the FAA), DPIs must be distributed only through its representatives or customer service officers. Recognising that no advice is given in the course of distributing a DPI, the FA is thus not constrained on using registered representatives for this.
- Where the FA is itself a direct life insurer (and an exempt FA under section 23(1)(c) of the FAA), DPIs must be distributed only through its representatives or customer service officers, or through an online direct channel.
- The FA must implement safeguards to ensure that the client has himself taken steps to check that he can afford the premiums for the DPI, that the DPI covers his needs and that he has not misunderstood its features or its terms and conditions.
- The FA must put in place procedures to ensure that the stipulated product information is provided by every representative, customer service officer or (where applicable) the online direct channel.
- The FA must put in place appropriate avenues for addressing general queries from clients concerning DPIs. This must include phone or email help-lines.
- As always, the FA must implement internal policies and processes in relation to distribution of DPIs, including adequate control systems and procedures setting out the roles and responsibilities of representatives and customer service officers.
i. Amendments to the Financial Advisers Regulations
In alignment with the above, amendments have also been made to the FAR via the Financial Advisers (Amendment) Regulations 2015. New regulations 38 to 40B have been inserted to exempt certain categories of FAs from certain conduct rules of the FAA when it comes to the distribution of DPIs.
A new Fourth Schedule to the FAR has also been inserted to set out the requirements for DPIs.
Notice FAA-N19 as well as the Financial Advisers (Amendment) Regulations 2015 take effect from 31 March 2015.