LIFE ASSURANCE COMPANIES (COMPULSORY LIQUIDATION) BILL

Order for Second Reading read.

4.12 p.m.

Dr Goh Keng Swee: Sir, I beg to move, "That the Bill be now read a Second time." I have His Excellency the Yang di-Pertuan Negara's recommendation that the Bill be proceeded with.

Members of the House may have read or heard a great deal about what is now termed "mushroom insurance companies" that have been carrying on life insurance business both in Singapore and the Federation. These companies are not doing the type of business normally associated with life insurance. One would normally associate a life insurance policy as being taken out by an insured person to set aside a small portion of his current income for the eventuality when there might be a danger to his life. The insurance cover that is provided will enable his dependants to have some protection should the worst happen to him. Subsequently life insurance has developed into a form of saving money, and many people buy life insurance policies as a form of savings for their old age.

The mushroom insurance companies do not deal in this type of insurance. Their business is more a form of gambling and swindling as their main objective. They promise a fixed capital sum at the end of a period of years to anybody who is prepared to pay a regular monthly premium. The attraction here is that anybody, irrespective of his age or physical condition, can be insured. The gambling instincts of many people are strong, and the foolish and the avaricious are thereby induced to insure the lives of their aged or decrepit relatives in the hope of getting this capital sum after a short time. This form of life insurance degenerates into little more than gambling - the fortunes of the gamblers to be determined by the early or late demise of their insured relatives or friends. There have been cases where more than 100 policies have been taken out on the life of one old man in the family. These policies may be taken out on his life either by his children or by other relatives or even by total strangers.

Mushroom insurance companies have exploited the situation and have duped thousands of people who possess strong gambling instincts and hope to make a quick penny. These people do not realise that they are playing into the hands of unscrupulous racketeers who have no intention whatsoever of remaining in the business for more than the initial few years. The mushroom companies begin their business by having runners working for them on a commission basis and selling as many policies as possible. Some of them do not even comply with the law by putting the required $200,000 deposit with the Accountant-General. One of the indications of the fact that they have no intention to remain in the business can be gleaned from the way the premium monies are collected. For a typical policy of $500 maturing at the end of ten years, a person who buys as insurance policy from a mushroom insurance company pays $5 entrance fee, $3 annual registration fee and $3 monthly premium. A policy can be taken out for anybody irrespective of age, sex and physical condition. No medical examination whatsoever of the insured person is necessary. The person who buys a policy needs to do very little except pay the necessary fee and monthly premiums. Often even the proposal forms are completed for him by the insurance company's agents. The first payment he has to make is a total of $11. This whole sum is not collected and paid into the insurance company, for in its effort to sell as many policies as possible, it has to offer attractive commission rates to its runners; and so $8 out of the first $11 is pocketed by the agents who sell the policy and the company gets only $3. Of the subsequent collections of $3 per month, the agents sometimes get as much as 30 to 40 per cent. By any actuarial assessment, the amount of premiums collected by the insurance company cannot provide the insured with a capital of $500 at the end of ten years. It is not likely that the mushroom insurance company can remain in business for long.

In the Federation of Malaya, many mushroom companies came to life towards the latter part of 1960 and continued until a stop was put to them by a Federation legislation introduced in October 1961. By this time, there had already been in existence more than 50 mushroom companies. There were certain companies which were not even registered, but were nevertheless issuing insurance policies until the law caught up with them. In Singapore, there are 17 registered companies of this type - l4 of them being branches of Federation companies and three being incorporated in Singapore - with $200,000 deposited with the Accountant-General. The Government is of the view that this type of insurance companies should be prevented from further cheating the people. An effort should be made to assist the poor people who have purchased insurance policies to seek some form of redress, and, if possible, to recover a portion of their payment. The problem is a very big one. Hundreds of thousands of policies have been issued by various mushroom companies. The Federation Government has brought in legislation to wind up these unsound companies. I have obtained agreement from the Federation Government that the claims of policy holders in Singapore against the Federation companies will be treated in the same manner as those held by Federal citizens. Although this generous attitude has been adopted by the Federation Government, I would not like to raise the hopes of Singapore policy holders or beneficiaries. They must realise that they have ventured into a most unprofitable form of investment. What little asset may be left by the mushroom insurance companies would constitute in most instances only a small fraction of the money that has been mulcted from the policy holders during the period of operation. The monies that have been paid by the insured or the beneficiaries have been divided between the agents, collectors and various directors and employees of the company. Nevertheless, it is necessary that action be taken to terminate the activities of the unsound insurance companies operating in the State and to ensure that these rackets are stopped once and for all. For this reason, the Life Assurance Companies (Compulsory Liquidation) Bill is now before the House.

Sir, I am moving this Bill on a Certificate of Urgency to enable the Government to deal with mushroom companies in the State effectively and to offer some redress to the poor policy holders from any assets that would be realised. Under the provisions of the Bill, the Minister may compel mushroom companies to furnish him within a period of seven days with the rates of premium they charge for policies issued. If the premium rates are found to be inadequate or determined without any actuarial basis, they, as well as those companies which have not complied with the Minister's notice, shall be considered unsound, and the Minister may petition the court to wind up these companies. This liquidation shall be carried out by the liquidators appointed by the court. They will be empowered to seize and realise the assets of the company under liquidation and distribute them on a pari passu basis with creditors who can establish proper claims. In doing so, priority payment shall be accorded to claims established by persons who have paid premiums to this company. In other words, policy holders of this company shall get first priority on the claims to the assets of this company.

The Bill will also ensure that in future only life insurance companies which can satisfy certain minimum standards of actuarial and business rationality will be allowed to continue to operate or to start business in the State. The Bill now presented contains parallel legislative provisions incorporated in two of the Federation of Malaya Insurance Acts which were introduced in October 1961 and February 1962 respectively.

Certain minor amendments, however, have been made in the light of experience in the Federation, both to facilitate the winding up and liquidation of the mushroom companies and to meet local conditions. The amended or additional provisions of the Bill are sub-clauses (4), (5) and (6) of clause 7. This would cater for the situation where mushroom companies are in the process of voluntary liquidation. The Government is aware that it could be possible, because of the terms laid down in insurance policy, that the policy holder would find difficulty in establishing his valid claim. It would, therefore, be to the interest of the policy holder for the company to be wound up in accordance with the provisions of the present Bill.

Sub-clauses (4) and (5) of clause 8 will provide that the claims of the policy holders are given priority. We are aware that the assets of the insurance companies are not likely to be sufficient to meet all claims, and that very probably only a small proportion of the claims are likely to be met. Hence it is decided that policy holders should have first priority.

Clause 13 enables the Minister to make rules for carrying out the provisions of the Bill.

Clause 14 amends the existing Life Assurance Companies Ordinance (Chapter 178) to provide for an increase of penalty for persons who fail to comply with the provisions of the Bill.

The effect of this Bill will be threefold. First, it will enable a stricter control to be exercised over insurance companies. Second, it will enable the Minister to declare certain insurance firms which cannot comply with the requirements of clause 7 as being unsound and to order their winding up. Lastly, it will enable the liquidator to realise the assets of these companies and to distribute them in accordance with the claims received, but with priority being given to those of the policy holders.

Sir, I beg to move,

Question proposed.

Mr Rajah: Mr Speaker, Sir, we welcome the provisions of this Bill, particularly that aspect of it which concerns itself with the compulsory liquidation of certain mushroom life assurance companies.

Mr Speaker, Sir, the Bill seems to deal with two aspects of the problem. The first aspect is that it seeks to amend certain provisions of the Life Assurance Companies Ordinance (Chapter 178) which, as I see it, is a permanent statute intended to deal with all bona fide life assurance companies, whereas the main impetus given to the Bill before the House, I take it, was by these mushroom companies coming into operation; as a result of which it is necessary to compulsorily liquidate these companies.

Mr Speaker, Sir, I would have welcomed two Bills on this - one dealing with permanent amendments to, if I may say so, a permanent Ordinance and a Liquidation Ordinance dealing specifically and particularly with the mushroom companies in respect of which this Bill really seeks to proceed against. On the aspect of the companies which this Bill seeks to liquidate, I find myself in sympathy with the Finance Minister in rushing this Bill through because the problem is one of urgency, and we ourselves from this side of the House have been pressing the Government to take immediate action against such companies. But there is this position where the Bill was presented to the Opposition, I understand, at about 3 o'clock: I was not in the House when it was presented. But may I suggest to the Minister - I do appreciate the urgency for this Bill - that if this Bill had been given to us say on Sunday (or Saturday afternoon, if that was possible), it might have served the purpose? But I derive some solace because this Bill follows to a very large extent the Federation Liquidation Ordinance which, I take it, was also promulgated to meet a similar difficulty in the Federation. So probably from that point of view, the objections of presenting this Bill in the manner in which it has been presented are not very substantial. But I do suggest to the Government that the major problems arising from these mushroom companies probably stem from the fact that the provisions of the present Life Assurance Companies Ordinance have not been utilised to the fullest possible extent.

Mr Speaker, I was surprised to hear the Finance Minister say that in some cases not even the $200,000 deposit required by the Assurance Companies Ordinance had been extracted from these companies before they started business. If I heard the Minister correctly -

An hon. Member: Branches.

Mr Rajah: Branches - I beg your pardon. Even then, Mr Speaker, Sir, if that was so, probably there is a hiatus in the law. Any foreign company - and it is a foreign company which establishes its branch here - seeking to carry on an insurance business here, having registered itself probably under section 301 of the Companies Ordinance or probably registered itself under the Life Assurance Companies Ordinance, -should, by that law, have been made to pay the $200,000 here rather than rely on the $200,000 paid in the Federation. Possibly there is a hiatus in the law. I have not looked into the Ordinance, but I would have done so if I had notice of this earlier. It did surprise me to hear from the Minister that it was possible for a life insurance company which .was possibly incorporated in the Federation of Malaya to start business in this commercial city of ours and extract a lot of premiums without paying the minimum deposit which the Government thought was necessary before it was let loose on the unsuspecting public.

Other than that, I have no comments. I have hurriedly looked through this Bill and the clauses that are new seem to be matters which I think are improvements on the Federation Bill. On that score, I have nothing to say. But I do hope that the provisions of this Bill will be carried out to their fullest possible extent, that the culprits will be brought to book and that the severest punishment possible under the law be `meted out to them because they have been making use of the gullibility of the poor citizens of Singapore to enrich themselves. Such people are not deserving of sympathy or mercy and the Government should proceed against them to the fullest possible extent under the law.

4.37 p.m.

Mr Ong Eng Guan (Hong Lim): Mr Speaker, Sir, I understand that many years ago we had a similar mushroom growth of bogus life insurance companies. Therefore, I fail to understand why when we had this mushroom growth in 1960 the Government had failed to take immediate action and warn the public against investing their whole life savings in these bogus life insurance companies. We understand that there is a Commercial Crimes Branch of the Police Department. I do not know whether it has brought to the attention of the Government the activities of these bogus life insurance companies. If it has, then it is a crime and a failing of the Government in not having taken action one or two years back. After the citizens of Singapore have lost their life savings in the policies issued by these bogus life insurance companies, the Government is now forced to take appropriate action. Mr Speaker, Sir, in my view, most of the directors or managers of the life insurance companies who formed these companies were conscious that they were perpetrating a fraud and swindling the poor gullible public. The Bill, as it stands, is going to treat these bogus insurance companies in the same way as the Government is treating persons who run into bankruptcy. I do not agree that such companies should be treated in the same way as bankrupts are treated by the law. The Government should go one step further. They should take criminal action against the directors and managers of these bogus insurance companies and, if necessary, impound their personal assets.

Mr Speaker, Sir, I do not envisage these policy holders getting back anything substantial from their investments in these companies because the Minister for Finance has said just now that much of the funds were wasted or were spent on agents' commission, collection fees, and so on. In addition to this expenditure, the directors and managers who were prepared to perpetrate a fraud must have also written off large sums of money in the form of salaries, travelling allowances and, perhaps, transferred a big portion of their assets elsewhere. Mr Speaker, Sir, I strongly advocate that the Government should take action not only under the proposed insurance law but that it should also take criminal action against the directors and managers of these life insurance companies.

Sir, I would like the Minister to inform the House how many of these companies registered in Singapore, and how many branches of companies registered in the Federation, do not pay the $200,000 deposit which is required of a life insurance company, and whether the Government would consider introducing legislation to make sure that in future a percentage of the premiums collected in Singapore by all life insurance companies are invested in Singapore.

4.42 p.m.

Mr Ong Chang Sam (Choa Chu Kang): (In Mandarin): Mr Speaker, Sir, this Bill which has been introduced today is just like trying to prepare the net for the fish that has already escaped. But we welcome this Bill which the Government has introduced today because it will prevent any future occurrence of illegal insurance agents and directors mulcting our local people. We did not have much time to study this Bill in detail because we only received it this afternoon in this Chamber. According to the explanation given by the Minister for Finance, there are at present 17 life insurance companies of this sort in Singapore. I understand that these insurance companies have already wound up their business and that many policy holders have not been able to contact the insurance agents after the Government announced its intention of introducing legislation. Many policy holders are now worried and they are at a loss as to how they can get back all or part of the premiums they paid.

The Minister for Finance explained that the liquidator appointed by the court will have the power to order the liquidation of these life insurance companies - whether they are incorporated locally or in the Federation - and that a certain amount will be paid back to the policy holders after the assets of these companies have been assessed on liquidation. But we understand that such life insurance companies have very limited assets in Singapore. At the most, they have a few rooms in an office and a few vans. It is also doubtful whether these really belong to them. The Minister has said that when these insurance companies are liquidated the-local citizens will get priority on their claims for compensation. But I say that what they will get will be very limited. The Minister for Finance has said that he had already discussed the matter of companies which are registered in the Federation of Malaya with the Federation Minister of Finance and that Singapore citizens, just like Federal citizens, will be able to get compensation from such companies. He has also very clearly intimated that the policy holders will be able to get a very limited amount of payment out of the premiums paid to these companies which are registered in the Federation. Therefore, I am of the opinion that the Government should try to take all possible steps to recover what the policy holders have paid in the way of premiums to these companies.

Mr Speaker, Sir, there is a great number of such insurance companies. It may be that there are only 17 in Singapore because of the Mutual Benefit Organisations Bill which was passed in this Assembly sometime ago. Many people who were members of these mutual aid associations then took out policies with such life insurance companies. I understand the Social Welfare Department has helped to transfer membership lists of certain mutual aid societies to the Kinta Life Assurance Company. At that time, I discussed with the then Minister for Labour and the Member for Bukit Timah about organising a committee on this question. The names of members of the mutual aid societies were transferred to the membership list of this life insurance company. But now this life insurance company has already stopped functioning. Many of the policy holders have told me that it was the Government which helped them to transfer their names to this life insurance company. Therefore, the Government should be responsible for getting back their payments on their behalf. I have already informed the Director of Social Welfare of this matter and have urged that the Government should contact this life insurance company so that a solution to this problem can be arrived at. I hope the Minister for Finance can give us a reply on this point.

Sir, after the Bill is passed, we hone that the poor people of Singapore will not be exploited any more by agents and operators of these illegal life insurance companies. We also hope that from now on the Minister for Finance will pay more attention to such illegal companies in order that the people of Singapore will not suffer any more losses.

Mr Byrne: Mr Speaker, Sir, I just want to clear up one point which the Member for Choa Chu Kang has referred to just now. He tried to give the House the impression that the Social Welfare Department got contributors to a mutual aid organisation to transfer to the Kinta Insurance Company.

Mr Speaker, Sir, there was an old lady who was operating some sort of a family benefit society in the Bukit Panjang area. As soon as the Government introduced the Mutual Benefit Organisations Bill, she ceased to do business and there was a danger of those who had contributed to her little organisation losing all their money. At that time, the Kinta Insurance Company of the Federation were seeking to do business in Singapore and they had a number of discussions and meetings with all the interested parties together with the officials of the Social Welfare Department. They undertook to take over all the liabilities of the organisation that was run by the old lady in Bukit Panjang. A meeting was held. All the contributors to this organisation met at the Community Centre in Bukit Timah Road. The position was explained to them and they agreed to transfer to the Kinta Insurance Company. Before the Company took over the liabilities of the old lady, they paid a deposit of $200,000 to the Ministry of Finance. So that the position as far as those contributors are concerned is that because they sought the assistance of the Social Welfare Department they would now be able to have access to the money that has been deposited with the Ministry of Finance.

Mr Speaker: Dr Goh, in reply.

Dr Goh Keng Swee: Sir, the Member for Farrer Park made the important point that the purpose of this amending Bill is a temporary one, to deal with certain mushroom companies, and that it is not really something that is suitable to remain as a permanent statute. I entirely agree with him.

The programme that is before the Governments of Singapore and the Federation is to introduce a comprehensive Ordinance to regulate all the various forms of insurance - not only life insurance but fire insurance, marine insurance, and so on. We have worked on this for nearly two years with the assistance of experts sent by the Australian Government under the Colombo Plan. So we hope eventually to have a tidy and permanent Ordinance on the statute book regulating the proper conduct of insurance companies.

The second point the Member for Farrer Park made was this. He asked whether it was true that foreign branch companies could operate in Singapore without paying a deposit of $200,000. The answer is that any company that has made a deposit with the Federation Accountant-General can carry on business in Singapore without making a deposit here; and vice versa anybody who makes a deposit in Singapore can carry on operation in the Federation. However, when we get the final legislation on this, I think all these weaknesses in our present law will be remedied.

I now come to the Member for Hong Lim who implied that these bogus insurance companies were known to have started many years ago and he asked why no action was taken earlier. The answer of course is that the Member has got his facts wrong. So far as Singapore is concerned, mushroom companies began to sprout round about the middle of last year and they were really active from September or October onwards last year. Therefore, they have not had all the time in the world to carry out their nefarious activities. Therefore, it is quite untrue for the Member for Hong Lim to allege that most of the poor have lost all their life savings. I would say that a person who took out an average policy of $500 might have paid out - I do not know - $20 or $25 from, say, last September till now, and I think the life savings of the poor are considerably more than this.

I think there is one point to which some attention must be drawn. In the policies of most of these companies, it is stated that unless you pay your monthly premiums regularly your policy will lapse. I think they give a period of grace of two months or so. Now under this Bill whatever is paid will be considered as a claim on the assets of the company when it is wound up and if the condition of the policy say the policy lapses, that condition will be set aside.

Now both the Member for Farrer Park and the Member for Hong Lim urged that the strongest action be taken against the offending parties. I am completely in agreement with the sentiment behind this request, but I can see certain difficulties. First, the directors of all these companies are Federation citizens and therefore, this being a civil suit, it is not possible for the Singapore Government to request the extradition of the culprits. No doubt the Federation Government will take suitable action should criminal offences be revealed in the course of their investigations into the activities of these companies. In fairness to some of these directors or some of the persons connected with these companies, I think it is wrong to say that all of them are equally criminal and evil-minded. Some may have been led into this business and induced to put some capital into it by the major culprits, and there may be innocent people among the directors who have been misled by the promoters into putting money into this venture. Therefore, although we can say with confidence that the persons who run this mushroom insurance business run it as a racket, nevertheless we cannot condemn everyone connected with this enterprise.

I think my colleague the Minister for Health and Law has answered the main point raised by the Member for Choa Chu Kang and I need not say more on this subject.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole Assembly.

Assembly immediately resolved itself into a Committee on the Bill -[Dr Goh Keng Swee].

Bill considered in Committee.

[Mr SPEAKER in the Chair]

4.57 p.m.

Clauses 1 and 2 ordered to stand part of the Bill.

Clause 3 -

Question proposed, "That clause 3 stand part of the Bill."

Mr Rajah: I realise that clause 2 has enlarged the scope of an actuary as defined in the Life Assurance Companies Ordinance to "include a Fellow of the Society of Actuaries in America and any person possessing such other qualifications as the Minister may, by order, prescribe."

The Chairman: We are on clause 3.

Mr Rajah: I know. At the moment, I am told that the qualifications under the Ordinance are very difficult to obtain and that there are very, very few actuaries in this work. Of that, I am told there are about two or three persons in Singapore. I have met two of them but there may be a third. Now under clause 3, a present insurance company or a future insurance company - it seems to me reading this clause hurriedly - will not be able to carry out their operations "unless there is in force a certificate by an actuary .... establishing the minimum rates of premium which are proper to be charged". As I do not know how many insurance companies there are - perhaps 12, 15 or 20; I do not know the exact number; certainly over 12 - I would take it that the actuaries in Singapore would be employed by these insurance companies. Assuming that an insurance company employs one of the actuaries and another insurance company employs the other, then it seems to me that the rest of the insurance companies are left without an actuary. Now is the suggestion by the Government under this clause that these two or three actuaries in Singapore are going to act for the ether companies and provide them with certificates which will enable them to carry on their business? While I agree with the principle behind the Bill, I do not know whether it is possible, from a practical point of view, to fix an appointed day in the near future and then bring into play the provisions of this Bill.

Dr Goh Keng Swee: I do not really expect much trouble on the administration of this clause. I think we can allow the insurance companies some time and obviously we must give them an interval of time to get the certificates from an actuary. I agree with the Member for Farrer Park that the number of qualified actuaries is small.

5.00 p.m.

I think that is largely because they have formed themselves into possibly the tightest professional trade union in the world. Quite impossible terms and conditions are laid down, but the work itself is not at all difficult. So far as reputable life insurance companies go, they have more or less the same premium rates and the same conditions of calculations. And quite frankly, I do not see any difficulty about this. Certainly it is not the intention of the Government to say, `Well, you are late with your certificate and you should close clown." That is the last thing we want to do.

Mr Rajah: The point that exercises my mind is this: there are no actuaries to my knowledge - I may be wrong, Mr Speaker, Sir, and I am subject to correction here by the Minister - in Singapore actually practising on their own as actuaries. They are no consultants. That is the difficulty I envisage.

Now, if each of the actuaries here is attached to a particular insurance company, the company would bind him to exclusive service. If, therefore, these actuaries cannot certify for the other companies, then these companies will experience difficulty. Now, if the Minister proposes to appoint persons in Singapore to do that, possibly that would ease the situation. If the Minister also permits actuaries living in other countries to certify for particular companies registered in Singapore, I think that also would further ease the situation.

Question put, and agreed to.

Clause 3 ordered to stand part of the Bill.

Clauses 4 to 14 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.