Recommendations by the Committee on Efficient Distribution of Life Insurance - Supplementary Report, 05 Dec 2000

EXECUTIVE SUMMARY

The Committee on Efficient Distribution of Life Insurance (CEDLI) comprising senior practitioners from the life insurance industry was appointed by the Monetary Authority of Singapore (MAS) in March 2000 to propose recommendations to promote transparency, competitiveness and efficiency in the distribution of life insurance products.

CEDLI has submitted a report (the Main Report) to the MAS in August 2000 containing recommendations on the sales advisory process for life insurance, disclosure of distribution cost and total company charges and expenses, and training and competence requirements for advisors and supervisors. All the recommendations were accepted by the MAS for implementation in phases from 1 Jan 2001.

This Supplementary Report covers the remaining areas to be reviewed by CEDLI: the roles and responsibilities of advisors and supervisors, the agency structure, the limits on commissions, and the development of alternative distribution channels. This Report completes the work of CEDLI and its recommendations.

Recommendations

Agency Distribution Channel

• Prescribe a basic standard for roles and responsibilities of advisors and supervisors.
   
• Recommend a best practice standard for span of control for the agency model.
   
• Remove existing limits on agency unit size and on annual recruitment of agents.
   
• Allow referral arrangements to be made by life insurers with "centres of influence".
   
• Remove existing limits on commissions to agents.
   

Implementation

1 Apr 2001

• Prescribe basic standard for roles and responsibilities of advisors and supervisors.
   
• Remove limits on agency unit size and on annual recruitment of agents.
   
• Introduce best practice standard for span of control for the agency model.
   

1 Jan 2002

• Allow life insurers to make referral arrangements with "centres of influence".
   
• Remove limits on commission to agents.

Alternative Distribution Channels

Bancassurance Channel (including other financial institutions)

• Improve communications between LIA and the bancassurers, and set up a forum for bancassurers.
   
• Exempt ancillary and simple products (e.g. creditor life and creditor disability) from the life insurance sales advisory process and disclosure requirements.
   
• Define status of financial institutions (i.e. tied agent or independent broker) on the basis of their commercial relationship with the life insurers concerned.
   
• Financial institutions to be directly responsible for their life insurance sales process.
   
• Financial institutions should develop professional sales managers within their organisations to support and develop quality sales staff.
   
• The Training and Competency requirements as recommended by CEDLI for tied agents and brokers should apply in principle to sales staff and sales managers in financial institutions.
   
• Sales staff of financial institutions who are organised, managed and compensated akin to life insurance agency model should be treated in a manner consistent with agents, and LIA guidelines and CEDLI recommendations should apply as appropriate.
   
• Allow finance companies to sell life insurance.

Life Brokerage Channel

• Provide a structural and regulatory framework for viable models of brokerages to develop. 
• Look for available development programmes and funding for life brokerages.
   
• Allow life brokerages to develop referral agreements with "centres of influence".
   
• Allow sufficient flexibility in terms of staff recruitment and total staff size, to facilitate the growth of the channel.
   

Direct Marketing Channel

• As direct marketing falls under the "No advice" sale category, the CEDLI recommendations in relation to sales advisory process by intermediaries should not apply for this channel. 

E-commerce / Internet sales

• Internet companies, which provide some form of electronic advice or recommendation need to be regulated by MAS as an intermediary. 

Implementation

Consistent Implementation Dates

• Requirements for agents that are applicable to financial institutions and life brokerages to be implemented on the same dates as far as practicable.

1 Jan 2002

• Referral arrangements made by life brokerages with "centres of influence".

To be firmed up

• Implementation dates for the other recommendations to be firmed up in consideration of regulatory developments.

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