INSURANCE BILL

Order for Second Reading read.

6.27 p.m.

Mr Lim Kim San: Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Mr Speaker, Sir, this Bill re-enacts the provisions of the Insurance Act, 1963, of Malaysia which was extended to Singapore in January 1965 and which after separation is still operative in Singapore until repealed. Hon. Members of the House may ask why it has been found necessary to re-enact the provisions of this Act. This is due to the following main reasons:

(a) Statutory deposits in respect of insurance companies operating in Singapore are kept by the Malaysian Accountant General and can no longer be called upon to cover liabilities of Singapore insurers.

(b) By virtue of the fact that Singapore is no longer a part of the Federation of Malaysia, Singapore securities are now automatically excluded from the schedule of approved assets.

(c) It is desirable that some amendments which have been made to the Malaysian Act since separation should also be incorporated in the Singapore legislation.

Briefly the Bill is a comprehensive piece of legislation designed to control and supervise the conduct of all types of insurance business. The basic objective of the Bill is to prevent the repetition of unscrupulous practices like those of mushroom insurance companies and to encourage the growth of healthy insurance business.

Turning now to the contents of the Bill, I would like to elaborate on the more salient clauses.

Clause 2 of the Bill classifies insurance business into two main categories, namely, life insurance and general insurance.

Clauses 3 and 4 lay down the minimum conditions of operations of insurance companies in Singapore. These are registration with the Insurance Commissioner and lodging a statutory deposit of $300,000 for each type of insurance business conducted. In addition, the Commissioner must be satisfied that an insurer applying for registration must have a surplus of assets over liabilities of not less than $1 million if he proposes to carry on one type of insurance business, or a surplus of assets over liabilities of at least $l½ million if he proposes to carry on both types of insurance business.

Clauses 7 and 8 of the Bill specify the type of assets that may be accepted as statutory deposits. These are cash, approved securities listed in the Second Schedule to this Bill, bank covenants, or a combination of any of these items. As the statutory deposit can be regarded as a final safeguard of the interests of policy holders, it logically follows that the securities deposited have to be of the soundest type, and it is for this reason that the Minister has been given discretionary powers to refuse acceptance of securities which are considered not satisfactory for the purposes of a statutory deposit. With this objective in mind, I shall be introducing an amendment to clause 8 during the Committee Stage of the House which will enable the Minister to limit the amount of statutory deposit lodged in the form of bank covenants.

Clause 10 of the Bill requires insurers to establish and maintain an insurance fund for each type of insurance business conducted for the purposes of meeting liabilities of Singapore policies.

Mr Speaker: Mr Lim, could I just interrupt you to ask for the co-operation of Members on this side to turn off the speakers that are close to them? There are some speakers that are on and they are rather distracting. As Mr Lim continues to speak, perhaps Members may be able to detect them. Yes, Mr Lim.

Mr Lim Kim San: Clause 11 stipulates that a minimum of 55 per cent of the assets of the fund must consist of approved securities which are listed in the Second Schedule to this Bill. As assets in the Second Schedule are local in character, this provision makes it necessary for insurers to keep in Singapore, local assets to match at least 55 per cent of the liabilities they have contracted. It has been found that, with regard to some general insurance companies, outstanding premiums and agents' balances comprise a disproportionately large percentage of the total assets of their insurance funds. This is clearly undesirable as the solvency of the fund is dependent on the extent to which such premiums and balances can be collected. Clause 11 (2) of the Bill therefore limits such balances and premiums to l2½ per cent of written premiums. To allow insurers to achieve this percentage smoothly and with minimum difficulty, a 2-year transitional period is allowed during which insurers are required gradually to reduce the amount of outstanding premiums and agents' balances held as part of their insurance funds until the target of 12½ per cent is achieved. Again I wish to state here, Sir, that during the Committee Stage of the House, I will be proposing an amendment to this clause which will allow the Minister to increase the minimum percentage of 55 per cent and to specify the minimum or maximum amount of this 55 per cent that may be invested in any one or more of the items listed in the Second Schedule.

Clauses 15 and 23 relate specifically to life insurance companies. Clause 15 provides that premium rates charged by life insurance companies must be approved by qualified actuaries, whilst clause 23 makes it necessary for regular actuarial investigations to be made into the financial condition of the life insurance companies.

Under the provisions of clause 22, all insurance companies are required to lodge annual returns with the Commissioner. The Commissioner can request insurers to furnish him with information related to their business if the information is required for the proper discharge of his functions under the Bill.

Clause 27 lays down the conditions under which the Commissioner may institute an investigation into the whole or part of the business of an insurer. Among these conditions are failure on the part of the insurer to comply with any provisions of this Bill relating to insurance funds, and if it appears to the Commissioner that the insurer is likely to become unable to meet his obligations.

Clause 29 relates to winding up of insurance companies.

Clause 32 provides for transfers of business.

Clause 35 provides for the appointment of an Insurance Commissioner by the Minister. The Commissioner would be responsible for administering the Bill and would exercise the functions conferred upon him by this Bill. The Commissioner is required to submit an annual report to the Minister, a copy of which is to be presented to Parliament.

Under the provisions of clause 45, the Minister may make regulations for carrying into effect the objects of this Bill.

The First Schedule to the Bill lists the definitions of insurance terms; the Second Schedule lists authorised Singapore assets for the purposes of statutory deposits and insurance funds; the Third Schedule relates to deposits required to be lodged by associations of underwriters; and the Fourth Schedule specifies documents to be lodged annually by insurers.

Mr Speaker, Sir, apart from the amendments to clauses 8 and 11 which I have mentioned earlier, I propose to suggest a few other minor amendments to the Bill during the Committee Stage.

Sir, I beg to move.

Question proposed.

6.37 p.m.

Mr Tang See Chim: Mr Speaker, Sir, I think this Bill is a good one. It is designed to control and regulate the insurance industry in Singapore. My only criticism of this Bill is that it is not comprehensive enough, especially in regard to motor insurance. The law with regard to motor insurance at present requires compulsory third-party insurance. But third-party insurance, unfortunately, does not include passenger liability. I would request the Government to consider including passenger liability possibly in an amendment to the Third Party Risks and Compensation Ordinance as third-party liability. Under the existing law, Mr Speaker, Sir, an insurance company can still avoid liability with regard to third-party risks in certain circumstances. This may be just in respect of the insured, but it definitely works an injustice towards the injured third party. To overcome this, possibly Government can consider setting up an insurance compensation fund. This could be contributed to by the insurance companies undertaking motor insurance business. The alternative is to require insurance companies to insure drivers with regard to third-party risks rather than insuring cars.

Let me give the House an example. Many of our Government Front-benchers are accomplished golfers. I understand the Minister concerned with this Bill is one of them. A golfer should insure himself against third-party liability, in case he hits the ball into somebody instead of into the hole. The present position of insuring cars instead of insuring drivers is as absurd as insuring the golfers' clubs rather than the golfers themselves against third-party liability. Yet we think nothing of that. May I recommend the Minister in charge of this Bill to spend a few thoughts on this point, possibly between golf shots?

Also clause 8 of the Bill enables an insurer to get out of the deposit by getting a bank covenant. No doubt the primary object of requiring the $300,000 deposit is that there should be enough money to pay any compensation when compensation is payable. But surely there should be a secondary object, that this amount of money should be invested in securities, especially securities of local industries. So this requirement of a $300,000 deposit would kill two birds with one stone. It would also oblige insurance companies to invest their money locally.

As I have said just now, Mr Speaker, Sir, this is a good Bill on the whole, and with the exception of these minor criticisms, I support it.

Mr Lim Kim San: Mr Speaker, Sir, I am most grateful to the hon. Member for giving me food for thought in between my golf shots! This is the initial step that we are taking to control insurance. I am sure, as we go on, we will do everything that is desirable to make this Bill as fitting as is possible for Singapore. The points that he has put up are of a technical nature, and I am sure much thought has been given to them by other countries. It would be the duty of the Commissioner so appointed to bring all the salient features of insurance business all over the world to our notice, and it would be our duty to keep on improving the Ordinance as time goes on. But for our purpose now, since we are repealing the Malaysia Insurance Act, as an initial step I would request that we allow this Bill to go through.

Question put, and agreed to.

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

The House immediately resolved itself into a Committee on the Bill. -[Mr Lim Kim San]

Bill considered in Committee.

[Mr Speaker in the Chair]

6.46 p.m.

Clause 1 ordered to stand part of the Bill.

Clause 2 -

Mr Lim Kim San: Mr Speaker, Sir, I beg to move,

In page 2, line 39, after "Ordinance", to insert "or organisation registered under the Mutual Benefit Organisations Ordinance, 1960,".

The reason for this amendment is to exclude the application of this Bill to mutual benefit organisations.

Amendment agreed to.

Mr Lim Kim San: Mr Speaker, Sir, I beg to move,

In page 2, line 40, after "society", to insert "or organisation".

This amendment is necessary as a result of the first amendment.

Amendment agreed to.

Mr Lim Kim San: Mr Speaker, Sir, I beg to move,

In page 2, line 44, after "society", to insert "or organisation".

As in the case of the previous amendment, this is also a consequential amendment.

Amendment agreed to.

The Chairman: There is a note,

In page 2, to insert marginal note "Ord. 42 of 1960." against "Mutual Benefit Organisations Ordinance, 1960.". This will be done.

Clause 2, as amended, ordered to stand part of the Bill.

Clauses 3 to 7 inclusive ordered to stand part of the Bill.

Clause 8 -

Mr Lim Kim San: Mr Speaker, Sir, I beg to move,

In page 8, after line 34, to add -

"Provided that the Minister may, in his discretion but subject to the provisions of subsection (1) of section 7 of this Act, specify in writing the sum to be covenanted for under the provisions of this subsection.".

As mentioned earlier, Mr Speaker, Sir, statutory deposits must be of the soundest and best securities, and with this objective in mind, this amendment is being introduced to clause 8 in order to enable the Minister, if necessary, to specify the amount of the statutory deposit that may be covenanted for.

Amendment agreed to.

The Chairman: A consequential amendment is necessary,

In page 8, line 34, to leave out the full-stop and insert a colon.

Clause 8, as amended, ordered to stand stand part of the Bill.

Clauses 9 and 10 ordered to stand part of the Bill. Clause 11 -

Mr Lim Kim San: Mr Speaker, Sir, I beg to move,

In page 12, after line 37, to add -

"Provided that the Minister may, in his discretion by order published in the Gazette -

(a) increase the percentage referred to in this subsection;

(b) specify the minimum or maximum percentage or both minimum and maximum percentages of the total value of the assets of the fund that insurers may hold of any one or more of the items set out in the Second Schedule to this Act.".

As has been explained, the provisions of clause 11 require insurance companies operating in Singapore to establish and maintain an insurance fund of which at least 55 per cent of the assets must be local assets listed in the Second Schedule. Paragraph (a) of this amendment enables the Minister to increase this 55 per cent if necessary. Whilst the provisions of clause 11 stipulate a minimum investment of 55 per cent in local assets, there is no provision to require insurers to hold a well-distributed portfolio of investments in their insurance fund. The amendment at paragraph (b) is therefore being introduced to take care of the situation when insurers invest a large proportion of their funds in one type of asset. This is clearly undesirable as the solvency and liquidity of the fund is dependent on only one type of asset.

Amendment agreed to.

The Chairman: There is a consequential amendment,

In page 12, line 37, to leave out the full-stop and insert a colon. This will be done.

Clause 11, as amended, ordered to stand part of the Bill.

Clauses 12 to 15 inclusive ordered to stand part of the Bill.

Clause 16 -

Mr Lim Kim San: Mr Speaker, Sir, I beg to move,

In page 16, lines 14 and 15, to leave out "After the end of six months from the date of the coming into operation of this Act,".

This amendment is being made as it is not necessary to provide for a period of grace for putting into operation sub-section (4) of section 16.

Amendment agreed to.

The Chairman: There is a consequential amendment,

In page 16, line 15, to spell "no" with a capital N. This will be done.

Clause 16, as amended, ordered to stand part of the Bill.

Clauses 17 to 42 inclusive ordered to stand part of the Bill.

Clause 43 -

Mr Lim Kim San: Mr Speaker, Sir, I beg to move,

In page 39, lines 34 and 35, to leave out "shall be deemed to have come into operation on the 1st day of July, 1966, and".

Mr Speaker, Sir, I wish to move the next amendment to this clause before giving the explanation as these two amendments are related.

The Chairman: Will the Minister make his speech on the first amendment before moving the second one, and then just move the second amendment without making a speech on it?

Mr Lim Kim San: This amendment is made as it is not necessary to back-date the coming into effect of Clause 43.

Amendment agreed to.

Amendment made: In page 39, line 36, to leave out "then in force.".-[Mr Lim Kim San].

Clause 43, as amended, ordered to stand part of the Bill.

Clauses 44 to 47 inclusive ordered to stand part of the Bill.

7.00 p.m.

Clause 48 -

Mr Lim Kim San: Mr Speaker, Sir, I beg to move,

In page 42, after line 35, to add -"(2) The provisions of subsection (1) of this section shall not affect the obligation under the Insurance Act, 1963, of Malaysia, with regard to the lodgement of returns for the accounting period immediately prior to the initial accounting period under this Act.

(3) The provisions of the Insurance Act, 1963, of Malaysia, shall continue to apply to any insurer carrying on business in Singapore until such insurer is registered under this Act."

These two sub-clauses are saving provisions which will cover the transitional period when the present Act is repealed and a period of grace is given to insurers to register under the new Act.

Amendment agreed to.

The Chairman: There is a consequential amendment,

In page 42, line 33, after "48.", to insert "-(1) ". This will be done.

Clause 48, as amended, ordered to stand part of the Bill.

First, Second, Third and Fourth Schedules ordered to stand part of the Bill.

Bill reported with amendments; read a Third time and passed.