INSURANCE (AMENDMENT) BILL

Order for Second Reading read. 2.32 pm

The Second Minister for Finance (Mr Lim Hng Kiang): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The amendments introduced in the Insurance (Amendment) Bill are necessary because of the following reasons:

Firstly, with the introduction of the Financial Advisers Bill, which DPM has just moved the Second Reading in this House, this will result in the repeal of the Insurance Intermediaries Act. As a result, we need to migrate some of the provisions of the Intermediaries Act to the Insurance Act. These provisions are those that relate to all insurance agents, non-life insurance brokers and all reinsurance brokers, which will henceforth be regulated under the Insurance Act.

Secondly, it is to ensure that prudential standards are kept current and appropriate while, at the same time, providing a conducive environment for growth and competition in the insurance industry.

Thirdly, it is to update the Insurance Act in line with the provisions in the other financial regulations.

Let me first deal with the migration of the Intermediaries Act provisions, in clause 20 of the Bill. The provisions, inserted as Part IIB of the Act, will generally remain the same. However, MAS has taken the opportunity to make some changes for alignment with the Financial Advisers Bill.

These changes are:-

1. Financial institutions acting as insurance agents will be required to have written agreements with the insurers, to set out clearly the rights and responsibilities between these parties.

2. Financial institutions acting as insurance agents or insurance brokers will be subject to the same market conduct rules and standards applicable to all insurance intermediaries. This is to align with the Financial Advisers Act and to ensure a level playing field.

3. Insurance agents will no longer be allowed to retain the interest earned from the moneys held in the insurance brokers' premium accounts.

4. Insurance brokers will no longer be allowed to grant unsecured loans or advances to their directors, and such unsecured loans to their employees will be capped at $3,000.

5. MAS will be empowered to direct the removal of the CEOs or directors of an insurance broker, if these persons fail to perform their duties and functions. MAS will be permitted to create a register of these key personnel removed from office, as well as of other persons prohibited under the Act from becoming intermediaries.

6. MAS' powers to prohibit or to direct any removal of key personnel, will be subject to a right of hearing as well as to a right of appeal to the Minister.

Let me now turn to the other amendments which are not consequential to the Financial Advisers Bill. For prudential and industry development reasons, we have introduced the following amendments.

First, removing the exemption for credit insurers. Clause 2 of the Bill removes the current statutory exemption from registration granted to an insurer that is primarily engaged in export credit business. With the removal of this exemption, all credit insurers will be required to be registered under the Insurance Act, and be subject to MAS' supervision. These insurers will have to comply with all prudential regulations, such as minimum paid-up capital and solvency margin requirements.

Second, facilitating players like Lloyds to operate here. Clause 19 of the Bill inserts a new part of the Act, Part IIA, to provide for the creation of schemes that will allow a defined group, class or association of foreign insurers to be established in Singapore under the Scheme, to underwrite insurance business. Players such as Lloyds of London, which is essentially an insurance marketplace with insurance capacity provided by members who are organised annually into syndicates, will then be permitted to set up such a scheme here.

With the insertion of Part IIA, section 34 will be repealed and the current arrangements for Lloyds will be re-created as a Scheme under Part IIA, to be called the Lloyds' Scheme.

MAS would like Lloyds to go beyond the current arrangements and, in fact, establish a physical presence in Singapore. To permit this physical establishment, a second Scheme, called the Lloyds Asia Scheme, will be set up and Service Companies representing the underwriting syndicates of Lloyds will operate under this Scheme. The added insurance capacity from these syndicates in Singapore, and the expertise to be brought in with the Service Companies will enhance our market as a regional insurance centre.

Third, appointment of actuaries. This is covered in clause 22 of the Bill. The appointed Actuary of life insurers currently certifies the financial condition of the life insurer annually. Non-life insurers and reinsurers are not subject to similar requirements at the moment. This amendment will require non-life insurers and reinsurers to obtain actuarial certification of their insurance liabilities annually, to ensure that the reserves maintained are sufficient to meet all ultimate liabilities. These changes are made after consultation with the non-life insurance industry, and MAS is working closely with industry representatives on the detailed requirements.

Fourth, improving regulatory supervision. Clause 27 inserts a new Part IIIA to provide for the mutual exchange of assistance between regulators of different countries. With the growing internationalization of insurers and cross-border financial services, cooperation and information exchange between regulators of different jurisdictions is an added advantage to achieve efficient supervision. The amendments will provide a framework for such agreements or understandings to be given due effect, while ensuring that, in the process, persons affected are given the due process of law.

Let me now turn to the final set of amendments which updates the Insurance Act and brings the provisions in line with the other financial regulations.

Clause 28 of the Bill inserts new Part IIIB, providing for the procedures to handle appeals to the Minister. A right of hearing is currently provided, in both the Insurance Act and the Intermediaries Act, when the Authority intends to cancel an insurer's or a broker's registration. At the same time, an appeal to the High Court is provided against a decision of the Authority in relation to approval of key personnel. To streamline existing provisions, it has been decided that a right of hearing, plus an appeal process, should be made available in relation to the exercise of a discretionary power by MAS, in respect of:-

1. Cancellation of registration;

2. The removal of key personnel; and

3. Prohibition from carrying on business.

To make the appeal process more efficient, the amendment will provide for the appeals to be made to the Minister, who shall convene an appropriate Advisory Committee of relevant but independent appointees, to hear the appeal, and advise the Minister accordingly.

Moving on to clause 33, section 55 of the Act will be amended to allow the MAS to compound offences to carry a fine only as a penalty. The power to compound will be limited to situations where the offender has admitted the offence, and has agreed, in writing, to have the fine compounded. The amendment will reduce the administrative cost of enforcing the Act in circumstances where the offender has admitted the offence and agreed to pay the fine.

The penalties imposed under the Act will also be increased to achieve a more appropriate level of deterrence today. At the same time, the maximum fine for corporations will be set at twice that for individuals, as corporations have more financial resources.

Finally, I refer to clause 35 of the Bill, which gives our Courts jurisdiction to adjudicate on acts that take place extra-territorially. The increased use of the Internet for sale and distribution of financial products, including insurance, has resulted in a situation where it is possible for a person outside Singapore to target sales at consumers in Singapore. These acts, carried on externally, may have an effect in Singapore and could harm consumers.

Other clauses of the Bill that I have not elaborated on are minor technical amendments to clarify or expand the existing provisions, or to remove obsolete provisions.

Sir, I beg to move.

Question proposed.

Mr Leong Horn Kee: Mr Speaker, Sir, this Insurance (Amendment) Bill is introduced mainly because of changes to the other Bills, ie, the SF Bill and the FA Bill, which have just been passed by this House. There are also other measures on improving and updating the regulation of the insurance industry, and these new rules are also welcome.

Sir, I would like to express my support for the Bill. However, I would like to ask the Minister the following questions.

First, cost impact on the insurance industry. I would like to ask the Minister whether the Bill will have an impact on the operating and training costs to the insurance industry arising from the several new requirements to upgrade this industry. For example, the Bill requires non-life insurance companies to obtain actuarial certification of their insurance liabilities. This is to ensure that insurance companies have appropriate reserves to meet all ultimate liabilities. Would this requirement add to their costs? As the intention is to continuously upgrade the knowledge and expertise of insurance agents and brokers, would the higher operating costs also add to the companies' operating burden?

Sir, secondly, under the division of the various functions between the new legislation where direct life insurance brokers will be governed under the new FA Bill, could insurance companies also participate in the financial advisory and planning business? If they could, would they be governed by the Financial Advisers Act as well? And how does MAS ensure that insurance companies and their agents have the necessary competency to give financial planning advice to their clients?

Sir, on interest income from insurance broking premium account, under the new Bill, the MAS will prescribe that interest earned from insurance broking premium account should be distributed to insurers. Previously, the interest can be retained by the insurance brokers. This has enabled insurance brokers to quote lower and more competitive insurance premiums. I wonder why the MAS has decided unilaterally to dictate that interest earned should now be distributed to the insurers, instead of being retained by the insurance brokers.

On the register of prohibited persons, I understand that the MAS will keep a register of prohibited persons who would be debarred from participation in the insurance business. I am concerned about easy accessibility of the public to this register, as that could be subject to abuse or undesirable usage, since it is available for public inspection. Could the Minister allay the public's fear on how the handling of the register would not be subject to abuse?

Finally, on the impact on the insurance industry of risk exposure caused by terrorist attacks. Sir, on a general issue relating to the insurance industry which could be of public interest, I would like to ask the Minister whether the recent terrorist attacks on the World Trade Centre in New York have affected our insurance industry. Are our local insurance companies affected and exposed to the huge potential insurance claims arising from this incident? I wonder whether risks against terrorist attacks are insurable and, if so, how would our local insurance industry deal with this matter and could it give rise to higher insurance premiums payable in the event of potential claims for damages caused by acts of terrorists. Of course, Sir, we do not hope that there will be a terrorist attack in Singapore, but it is an area which we should look into.

Sir, I support this Bill.

Mr Lim Hng Kiang: Mr Speaker, Sir, I would like to thank Mr Leong Horn Kee for supporting the Bill. I would like to respond to his questions. First, on the cost impact on the insurance industry, let me assure the House that one of the objectives of putting this amendment in place is to make the insurance industry more competitive and cost implication is one of the considerations high in our minds. At the same time, we do need to enhance prudential regulations. So the example that Mr Leong posed, ie, the requirement to have actuarial certification of the liabilities, we consider this to be a very important prudential requirement. It should not add to the cost significantly.

Secondly, on the operation of the Financial Advisers Act and the Insurance Act, the whole idea is to align the two Acts together so that the requirements for the different intermediaries operating under these two Acts would be the same, and the requirements would not be onerous. A life insurance broker, who has a permit under the Financial Advisers Act, would not face the additional requirements because both Acts have been aligned.

Thirdly, the question on interest income from premium accounts. If you look at it logically, when somebody buys an insurance policy and pays a premium, that premium is actually due to the insurer and should not be kept by the broker. But the current rules allow the broker to hold the premium during the transition period, and in fact, keep the interest income from the premium during this transition period. This is not desirable because then it incentivises the broker to hold on to the premium for a much longer time and enjoy the interest. I think the changes that we put into this Bill are to regularise this, so that when somebody pays a premium for a policy, that premium should go to the insurer and the interest that comes from the premium should go to the insurer as well.

Mr Leong also raised the point about the register of prohibited persons. I would like to assure the House that although we allow access to this register, this would be restricted. It would not be open to public scrutiny. The way we would operate it is that anybody who intends to employ somebody, whether as a director, an employee or as a broker, can come to MAS and query whether such a person is a prohibited person. Therefore, the register is not intended for public scrutiny, but it is for somebody to check whether that person has been under prohibition.

Mr Leong also asked about the impact on the insurance industry arising from the terrorist attacks on the World Trade Centre. MAS is monitoring the impact. Our initial assessment is that Singapore-based insurers do not have any known direct exposure to the losses arising from the terrorist attacks. Singapore-based reinsurers have minimal exposure to US risks as their major markets are in the Asia Pacific region. So, our direct impact is minimal. The main impact would be indirect. First of all, weaknesses experienced by parent offices and foreign reinsurers may give rise to negative spill-over effects on local operations. Secondly, as Singapore insurers rely heavily on reinsurance support, they may be affected by a reduction or even cancellation of reinsurance cover, restricted coverages and higher premium charges. Mr Leong pointed out that because of the risk from such terrorist attacks, the premium for reinsurance is likely to go up. And this is one of the indirect consequences that Singapore would have to face.

MAS is also paying close attention to the claim situation and solvency position of local insurance companies. While there has been no immediate concern about their liability risk, we are closely monitoring the asset position of insurance companies, including life insurance, given the decline of the equities markets and the other assets markets.

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 Hng Kiang].

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

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.15 pm.

Sitting accordingly suspended at 2.52 pm until 3.15 pm. Sitting resumed at 3.15 pm