Reply to PQ on Critical Year Issues
Question No 397
Notice Paper No. 155 of 2003
For Oral Answer
Date: For Parliament Sitting on 16 October 2003
Name and Constituency of Member of Parliament
Q-397 Mr Yeo Guat Kwang, MP for Aljunied GRC
To ask the Deputy Prime Minister and Minister for Finance whether the Government will (i) help policyholders affected by the recent critical year issue with insurance companies; (ii) prevent insurers from using the policyholders' fund to pay compensation in such cases; (iii) reconsider its decision to exclude financial services from the proposed Fair Trading Act; and (iv) facilitate class action suits, so that large groups of aggrieved consumers can band together to sue for their rights in the court?
(i): Since this question was filed, there have been some significant developments on the critical year ("CY") issue. At the request of the Consumers Association of Singapore ("CASE'), AIA, the major insurer involved, has improved its support package and adjudication process for affected policyholders. Details of the revised package were released on Tuesday. The Monetary Authority of Singapore ("MAS") welcomes this development.
As the regulator of the insurance industry, MAS takes the supervisory approach of full disclosure and consumer self-reliance. While MAS is not in a position to settle disputes between financial institutions and their customers, it will ensure that institutions disclose information promptly, accurately, and adequately, and abide by high standards of professional and business conduct. MAS had earlier issued a Policyholders' Guide, to help consumers to understand better their policies, organise their documentation and be aware of the options available to them.
MAS has also encouraged companies that issued policies with a CY feature to deal fairly with these complaints and has been monitoring steps taken by these companies to address the concerns of affected policyholders. At the same time, MAS is working with industry bodies to make available to consumers the information and channels for them to ascertain and enforce their legal rights, conveniently and affordably.
MAS is also strongly committed to ensuring that a robust dispute resolution mechanism is in place to provide an affordable and convenient alternative for consumers to seek redress. The insurance companies have entered into a voluntary arrangement, known as the Insurance Dispute Resolution Organisation ("IDRO"). MAS is hopeful that IDRO will minimise the need for more formal regulatory or statutory arrangements.
(ii): MAS will not allow insurance companies to use the participating policyholders' fund to compensate policyholders who have been mis-sold insurance products. This is against the principles of fairness and equity to participating policyholders. Participating policyholders' interests should not be adversely affected by financial losses caused by inadequacies in a company's own practices or internal controls, or mis-selling by its agents.
For greater clarity, MAS will be amending section 17(5) of the Insurance Act, to give the Authority the power to set rules on what constitute receipts, income, expenses, and liabilities that are attributable to insurance funds, and the ways to derive each item. This would safeguard policyholders' interests from being compromised by unfair practices by insurers. An example of unfair treatment is to charge expenses and liabilities incurred as a result of mis-selling by an insurer or its intermediaries to insurance funds.
(iii): MAS had earlier decided not to include financial services in the proposed Consumer Protection (Fair Trading) Act ("CPFTA"). The Securities and Futures Act and the Financial Advisers Act have only recently been introduced, and financial institutions are still making the necessary adjustments. Also, industry mechanisms such as the Consumer Mediation Unit and the Insurance Disputes Resolution Organisation have only recently been launched. MAS therefore concluded that the industry should be given some time to develop and strengthen these and other initiatives to enhance business conduct standards so that they can be effective and credible.
In the light of the recent problems with the CY issue, MAS has reviewed its position, and confirmed that the reasons for excluding financial services from the proposed Act remain valid. However, MAS will continue to monitor the situation and will review the position in two years. An important consideration will be the effectiveness of industry initiatives to promote fair dealing with consumers.
(iv): For our disclosure-based regime and consumer self-reliance to work, there must not be an imbalance of power between the consumers and financial institutions. Consumers must be equipped with convenient and affordable means to enforce their legal rights and seek fair redress for their grievances. Introducing a class action regime in Singapore can be helpful, by making it easier and more affordable for large groups of aggrieved consumers to band together to seek redress in the courts. The Attorney-General's Chambers is currently studying the issue of representative and class actions in the context of the Singapore legal system as a whole.