INSURANCE (AMENDMENT) BILL

Order for Second Reading read.

6.48 pm

The Minister for Finance (Dr Hu Tsu Tau): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

Since the Insurance Act was last amended in 1973, significant changes have taken place in the insurance industry both here and abroad which necessitate a review and updating of the Insurance Act to ensure its relevance and effectiveness.

The Singapore insurance market has grown in size and capacity. Larger and more complex risks are being written, reflecting the growth and development of our economy. The character of business has also changed substantially with offshore insurance business becoming increasingly important for the industry.

Internationally, the general insurance and reinsurance market has been experiencing a prolonged period of difficult market conditions. Over-capacity and high interest rates had resulted in very keen competition at uneconomic rates. Many insurers and reinsurers in Europe and the United States had suffered substantial underwriting losses. Some had even incurred net operating losses after investment income. In addition, London, the world's leading insurance centre, was troubled by scandals of fraudulent practices at the Lloyd's of London. In view of such developments, insurance supervisory authorities have become increasingly concerned with the security of insurers and reinsurers.

The nature of the insurance business is such that no market can isolate itself from other markets. This is especially true of general insurance risks which can run into hundreds of millions of dollars in sums insured. For prudent reasons, each market has to reinsure with other markets to spread its risks. The supervisory authority has therefore, to watch developments in other major insurance markets which could impact on the security of reinsurers.

Before I proceed to describe the main provisions of the Bill, I would like to briefly describe the present market structure and size of the Singapore insurance industry and how it has grown over the years. There are presently 84 insurers registered to carry on insurance business in Singapore. Of these, 63 are direct insurers which sell insurance to the general public, 16 are termed "professional" reinsurers and five are captive insurers. The "professional" reinsurers represent a new breed of insurers established over the last 12 years to promote Singapore as a reinsurance centre. Professional reinsurers provide insurance cover to other insurance companies. They operate principally on a regional or international basis. The captive insurers are of an even more recent development in Singapore. They are set up by foreign multinationals to provide in-house insurance services for their group of companies. It is our intention to promote Singapore as an attractive home for captive insurers.

In addition to the registered insurers, insurance agents and insurance brokers are part and parcel of the insurance industry. These insurance intermediaries are not formally regulated under the present Insurance Act, except for 11 brokers and agents who are registered to deal with the Lloyd's market.

In 1984, the total gross premiums written by the industry amounted to $964 million for general business and $333 million for life business. This compares with a premium income of $232 million for general business and $73 million for life business in 1975. In terms of growth, general business premium income grew at an average of 17% per annum over the last decade, while life business grew at 18%. Significantly, in 1984, 35% of premium income of general insurers was derived from outside Singapore. Offshore insurance business written by the industry in 1975 was negligible. The professional reinsurers contributed to more than half of the total offshore business.

It is against such a background of developments in the insurance scene that the proposed amendments to the Insurance Act should be viewed.

The Insurance (Amendment) Bill seeks to: (1) strengthen the financial position of insurers and their ability to meet their liabilities to policy owners and claimants; (2) improve the system of insurance supervision and control with the necessary flexibility for promoting insurance industry development; (3) protect policy owners' interests in cases of insolvencies; and, (4) reflect the transfer of the administration of the Insurance Act to the Authority.

Sir, I beg to move.

Question proposed.

Dr Augustine Tan: Mr Deputy Speaker, Sir, first of all, we can all agree that the objective of this Bill is a very good one in providing greater protection, especially for policyholders. I particularly like clause 37 which makes provision for perhaps a greater release of insurance monies to dependants of those who die.

But there are some problems that I encounter with some of the clauses, particularly clause 5, if I may make reference to it. Clause 5 begins on page 3. On page 4, subsection 6 (2)(e) says that the licence can be withdrawn if:

'the insurer proposes to make, or has made, any composition or arrangement with its creditors or has gone into liquidation or has been wound up or otherwise dissolved.'

I have no difficulty with the latter part of this provision. It is only with the first part where the insurer proposes to make any composition with creditors. Sir, I fear that there may be economic circumstances where certain investments go bad temporarily or there are liquidity problems, in which case any company would be forced to make some kind of arrangement with its creditors. If this provision is stringently enforced, that will lead to the closure of the company in question. Then if we go further down on page 4 to subsection (j). It says:

'that any of the officers of the insurer holding a managerial or executive position has been convicted of any offence under this Act;'.

Again, this seems to be unduly stringent and not fair to the shareholders or the owner of the company in question. To be fair, Sir, nobody who runs a company can really guarantee that his employers will not contravene some law at some stage or other, particularly relating to the business in question. So I do not see why the licence should be withdrawn in such a case. Criminal proceedings can be taken against the officer in question.

If we go further down to subsection (k) on page 4, it says that the licence can be withdrawn if:

'the insurer has furnished false, misleading or inaccurate information, or has concealed or failed to disclose material facts in its application for registration.'

If this again were to be stringently imposed, then I think there would be circumstances where owners of insurance companies will be forced to fold up if some oversight has been done in its initial reporting of material facts or information.

Subsection (l) on page 4 says:

'that it is in the public interest to cancel the registration.'

But "public interest" is nowhere spelt out. So presumably the Authority in question has the right to state any particular case as coming within the ambit of "public interest."

On page 5, subsection (6) of clause 5 says:

'An order of cancellation made by the Authority shall not take effect until the expiration of a period of 14 days after the Authority has informed the insurer of the order.'

I do not see here any provision for appeal or a procedure for appeal against the Authority whatsoever. Sir, if you take this particular clause as a whole, then I am troubled by this question that there is no distinction made between a corporate entity as such and the owner or the shareholders of the entity. One could get a firm which is viable economically or it is profitable and it has a large number of employees and a large number of policyholders. If there were to be some violation of any or all of these provisions, the company could be closed down, just because some officer or some owner had violated some provision of this section . We had cases in the past where companies in Singapore had been closed down because the Authority wanted to penalize the owner and therefore the licence was withdrawn. I would have thought that the proper thing to do would be to institute criminal proceedings against the person in question and to allow the entity to be transferred to somebody else. Appropriate fines could be levied so that the person who committed a criminal act would not benefit from the arrangement. I think one has to look at the interest of Singapore in the construction of this Act and,more important, in the administration of this Act.

Clause 19 on page 22, new section 19(A) sub-section (1).

Again, the insurance agent or broker must not have beenconvicted of an offence "involving fraud, dishonesty, or moral turpitude." I do not know what "moral turpitude" is in the context of this Bill, but clearly the attitude here is very unforgiving towards those who have at some stage in the past run afoul of the law. I want to make this point here, Sir, that if Singapore really wants to create an environment for business, it has got to be forgiving towards entrepreneurs who fail at some time in the past. By all means let us take those to court who have committed criminal acts but those who have erred unwittingly and who have been made bankrupt because of bad judgment should have a chance to start all over again. It is the environment which is important, and if we are going to introduce clauses like this then nobody would dare to come to Singapore to set up anything. If at some stage the record is dug up that so-and -so had some criminal record or some complaint of a moral nature, then theoretically the whole company could be closed down. I do not like it at all. I think it will stifle entrepreneurship.

I would like to make a few other points, Sir. First is the question of local versus foreign participation in the insurance business in Singapore. If one were to look at the statistics as presented in the Annual Report of the Insurance Commissioner 1984, one finds that whatever one uses as the criterion that only slightly more than half, or about half, the business is conducted by so-called local firms. I would like to ask the Minister in question what is the intention of Government. Is there the intention to promote local insurance companies just as we have had a conscious policy to promote local banking? Of course, there could be offshore activities going on at the same time.

Another question that we ought to be concerned with is the extent of Govern- ment participation in the insurance companies. Again, I am told there are about three companies owned by Government. I do not know whether that includes the NTUC Income as well. But just counting two of them that I know, for individual life, group life and general insurance, the amount of premiums commanded by these Government companies are not inconsequential - 80% in the case of group life, 23% for individual life and 26% for general insurance. I myself feel that Government should phase itself out of various commercial activities and perhaps the insurance area is one that they ought to get out of.

Another question concerns the capitalization of the insurance industry - whether or not our firms are big enough to take on the kind of risks and to have the kind of sophisticated expertise or personnel to compete against very large insurance companies overseas. Then there is the question of whether we have enough personnel in Singapore to run the industry well. We have had very ambitious plans to develop Singapore into a sophisticated financial centre, but are we producing the requisite personnel in order to make this a reality? If we want to be a world-class economy, we must have world-class inputs. 7.04 pm

Mr Jeyaretnam: Mr Deputy Speaker, Sir, I have reservations on two or three clauses in this Bill and my reservations spring from the fears expressed by the Member for Whampoa. My reservations relate to the power now given to the Monetary Authority of Singapore to register any person who wishes to carry on insurance business in Singapore. Previously it was the Commissioner for Insurance. Now the power will be transferred to the Monetary Authority of Singapore.

The law as it stands now, where the Commissioner refuses registration, anyone may appeal to the Minister and that is to be found in section 4(5)(a) of the present Act. But in the proposed amendment of section 4 contained in clause 3, paragraph (b), there is no provision for any appeal to the Minister where the Authority refuses to register a person who wishes to carry on insurance business in Singapore. I wonder what the reason for this is. Is it because it is intended that the person who is refused registration should have recourse to other remedies and of course I mean to the courts? I hope that is the intention, that anyone who is refused registration by the Authority can ask the courts to look at it, not on the merits, but to see whether the Authority has applied the Act strictly in accordance in refusing the registration and whether its judgment on the question on whether a person had misled the Authority is right or wrong. If that is their intention, then there should be a provision in this Bill providing for an appeal to the courts. But I cannot see it. So will the Minister be good enough to explain why the present appeal to the Minister is to be removed without any remedy being given to a person who is aggrieved by the refusal of the Authority to register his insurance business in Singapore?

Then if you move on to the proposed section 6 in clause 5 of this Bill, one finds that the Authority is given powers to cancel the registration. The Member for Whampoa has gone through the proposed section and I do not propose to repeat it. The powers are very wide. Again, there is nothing in the proposed section which allows an appeal against the Authority's decision. If one looks at the explanatory note, there is specific mention that the power of appeal to the Minister is being removed. It does, of course, require the Authority to give notice to the insurer of its intention to cancel and to hear him. But that is not good enough. Why have we removed the remedy of an appeal, albeit to the Minister, however inadequate? I have said many times that the appeals to the Minister are inadequate on a number of things. But why have we removed even that appeal? Is it also the intention here that the person who is aggrieved by the cancellation should be allowed to have recourse to the courts? I hope it is. If it is, then I would suggest that there should be another section allowing the person aggrieved to appeal to the court. And you find this, Mr Deputy Speaker, Sir, in clause 19 of the Bill. Clause 19 enacts a new section 19A after section 19, which says:

'The Authority may by order prohibit any person from carrying on business as insurance agent or insurance broker in Singapore or from taking part directly or indirectly in the management of any insurance agent or broker in Singapore where the person has been convicted of an offence involving fraud, dishonesty, or moral turpitude or the Authority is satisfied that the person has been involved in any activity prejudicial to the public interest.'

In subsection (2), it says:

'Any person aggrieved by any order of the Authority under subsection (1) may appeal to the High Court.'

So that is provided for in the case where the Authority prohibits persons from carrying on business as insurance agent or insurance broker in Singapore. Why is there not a similar protection given under clause 4 and clause 5 of the Bill?

If one turns to clause 20 (Amendment of section 20) where the Authority is given power to cancel the licence of an insurance agent or broker issued under the Act, one again finds that there is no remedy provided for the insurance agent or broker whose licence is cancelled under the power of the Authority. Is there not some inconsistency in all this? In one particular case, the proposed amendment allows an appeal to the High Court. In all the other cases, it removes even an appeal to the Minister and does not go on to provide any appeal to the High Court.

I share the views expressed by the Member for Whampoa about the need not to unduly and harshly penalize people who perhaps unwittingly lapse into committing an error. But more important than that, it is vital, as I see it, that any decision of the Authority should be subject to a review, otherwise it erodes confidence among the business community and that is not something that we want in Singapore.

Dr Hu Tsu Tau: Mr Deputy Speaker, Sir, to the questions by the Member for Whampoa on how the law will be applied, I can give him the assurance that the intention is not to apply it arbitrarily because that clearly would not be in the interest of the Singapore industry and that it will be applied with discretion because the intention is not to kill the industry but rather to develop it. That is an assurance I can give categorically.

As to the right of appeal to the Minister which appears to have been withdrawn, I just would like to mention that the Minister also happens to be the Chairman of the Authority. So the appeal is almost automatic in this case. I am both Minister for Finance and Chairman of the Monetary Authority of Singapore. In fact, the Monetary Authority of Singapore is part of the portfolio of the Minister for Finance. As to the right of appeal generally, this is not a constitutional provision for any Ministry or authority to give automatic appeal in cases where a licence to operate a business is not granted. It is much like saying that there should be a right of appeal if request for a banking licence should be refused. There is no such provision currently under the Banking Act. The decision is made by the MAS using its best judgment on the qualifications of the applicant and the same applies to the insurance industry.

I would like to mention in general terms that the provisions under these amendments have been thoroughly discussed with the members of the insurance industry as part of our consultative process, and it has taken many months to achieve the present result. And in this connection, I would like to respond to the insinuations of the Member for Anson during the debate on the Betting (Amendment) Bill. He suggested that the MAS had shown bias in giving special conditions or allowances to the Committee of the Stock Exchange to take considerable time for consideration of the proposed SI amendments. It is normal practice for the MAS to conduct extended consultations with people affected by proposed changes in law. It is essential in our view that such consultation should take place because it is clearly impractical to impose legislation which is unworkable or would destroy the industry it is designed to promote.

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. - [Dr Hu Tsu Tau].

Bill considered in Committee. 7.16 pm

[Mr Deputy Speaker in the Chair]

Clause 1 -

The Chairman: The citation year will be altered from "1985" to "1986".

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 8 inclusive ordered to stand part of the Bill.

Clause 9 -

The Chairman: The citation year appearing in page 8, line 6, will be altered from "1985" to "1986".

Clause 9 ordered to stand part of the Bill.

Clause 10 -

The Chairman: The citation year appearing in page 10, line 29, will be altered from "1985" to "1986". Clause 10 ordered to stand part of the Bill.

Clauses 11 to 16 inclusive ordered to stand part of the Bill.

Clause 17 -

The Chairman: The citation year appearing in page 15, line 27; page 18, line 21; and page 19, line 20,will be altered from "1985" to "1986".

Clause 17 ordered to stand part of the Bill.

Clauses 18 to 30 inclusive ordered to stand part of the Bill.

Clause 31 -

The Chairman: The citation year appearing in page 33, line 32; page 34, lines 4 and 12; and page 35, line 13, will be altered from "1985" to "1986".

Clause 31 ordered to stand part of the Bill.

Clauses 32 to 35 inclusive ordered to stand part of the Bill.

Clause 36 -

The Chairman: The citation year appearing in page 36, line 5, will be altered from "1985" to "1986".

Clause 36 ordered to stand part of the Bill.

Clauses 37 to 44 inclusive ordered to stand part of the Bill.

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