Question
To ask the Deputy Prime Minister and Minister for Finance
(a) what is the rationale or objective behind the reversal of the policy on rebates in the life insurance industry; and
(b) in view of the Financial Advisers Act, how will this affect the development of a professional group of people such as financial advisers.
Answer
1 The prohibition on rebates under MAS Notice 304 was introduced in the 1990s to prevent life insurance agents or brokers from rebating, or offering to rebate, any part of their commissions as an "inducement" to clients to purchase life insurance policies, without assessing whether the policies were appropriate for the clients.
2 The MAS discourages the use of rebates by any life insurance adviser as the basis for his recommendation to any policyholder. It still discourages this with the Financial Advisers Act, which requires financial advisers and their representatives to have a reasonable basis for their recommendation. Recommendations are expected to be reasonable and appropriate, having considered the investment objectives, financial situation and financial needs of the clients. Financial advisers and their representatives should focus on the value of their services to their clients and should not resort to the offering of rebates as a basis for their recommendation.
3 The life insurance companies have effectively implemented the best practice recommendations of the Committee on Efficient Distribution of Life Insurance (CEDLI), including a Needs-based sales process, a comprehensive Training and Competency regime for its advisers and Enhanced Disclosure of life insurance products.
4 MAS has therefore lifted the outright prohibition on rebates contained in MAS Notice 304. This is in line with the Authority's shift from a regulatory to a supervisory approach. We are progressively replacing prescriptive regulations with principle-based regulations, as the market demonstrates the maturity to follow best practices.
5 Insurance companies can decide for themselves how to package and market their products without the ban. This relaxation should not lower professional standards of the life insurance advisers, because unprofessional conduct will not be viewed any less seriously under the Financial Advisers Act.
6 However, I should clarify that the CPF Board has decided that where rebates are given for products purchased using CPF savings, the rebates should be refunded to the CPF accounts so that members' savings can be safeguarded.
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