Parliamentary Replies
Published Date: 23 November 1999

Parliamentary Question: Tie-ups Between Banks and Insurance Companies

Issues Raised in Parliament

Tie-ups Between Banks and Insurance Companies

For Parliamentary Sitting on 23 Nov 1999

To ask the Deputy Prime Minister whether insurance companies should be encouraged to compete with each other in terms of lower premiums and better service instead of allowing banks and finance companies to force their mortgagors to take insurance coverage from their own related insurance companies.

1. To protect their interests as lenders, banks and finance companies require that properties financed by their loans be properly insured. Some banks and finance companies which have related insurance companies package their mortgage loans with a built-in fire insurance component provided by these related insurers. As a marketing incentive, these packages often include free insurance coverage for the first one or two years of the loan period. The banks find that using the same related insurance company is a convenient way for them to monitor the adequacy and continuity of the insurance coverage.

2. The market for mortgage loans is a competitive one, with many participants. Consumers can choose which bank or finance company to borrow from, based on the overall terms of the mortgage loans on offer, and the quality of the service. If they are not satisfied with the insurance coverage bundled with the loan, they can instead borrow from other lenders, including those with no related insurance companies.

3. It is desirable for consumers to have the flexibility to choose an alternative insurer when they contract a loan, and forego the benefits offered had they chosen a bank's related insurer. They should also be able to switch insurers for subsequent renewals of their policies. Most banks require customers to seek their approval for this, to ensure that the terms and standing of the alternative insurer are satisfactory. However, approvals are not always granted readily, and the terms and conditions under which consumers can switch insurers are often not clear.

4. MAS will ask the relevant industry bodies (i.e. the Association of Banks in Singapore, the Finance Houses Association of Singapore, and the General Insurance Association of Singapore) to review the present arrangements, and if necessary, develop practice guidelines. The aim should be to preserve consumers' freedom to choose insurers, and set out fair and transparent terms under which consumers can switch to alternative insurers. At the same time, the guidelines should enable banks to cross-sell insurance products efficiently, and ensure that their mortgage loans have adequate insurance coverage.