Published Date: 05 October 2001

Speech by Second Minister for Finance, Mr Lim Hng Kiang, for the Second Reading of the Insurance (Amendment) Bill 2001 in Parliament on 5th October 2001

"Mr. Speaker Sir, I beg to move that the Bill be now read a second time."

2   The amendments introduced in this Bill are necessary because of the following reasons:

a    The repeal of the Insurance Intermediaries Act (hereinafter referred to as "Intermediaries Act") consequent to the introduction of the Financial Advisers Act (or "FAA" for short), which DPM has just moved in this House, necessitates amendments to migrate 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.

b    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.

c    To update the Insurance Act in line with the provisions in other financial legislations.

3   I shall deal first 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 FAA. 

4   The changes are:-

a   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. 

b   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 FAA and to ensure a level playing field.

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

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

e   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 persons prohibited under the Act from becoming intermediaries.

f   MAS's 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.  I will elaborate on these rights later.

5   Let me now move on to the other amendments which are not consequential to the FAA.  For prudential and industry development reasons, we have introduced the following amendments.

6   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 the exemption, all credit insurers will be required to be registered under the Insurance Act, and be subject to MAS's supervision.  These insurers will have to comply with all prudential regulations, such as minimum paid up capital and solvency margin requirements.

7   Second, facilitating players like Lloyds to operate here.  Clause 19 of the Bill inserts a new part to 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 - an insurance marketplace with insurance capacity provided by Members who are organised annually into syndicates - will be permitted to set up such a scheme.

8   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. 

9   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 center. 

10   Third, appointment of actuaries.  This is covered in Clause 22 of the Bill.  The appointed Actuary of life insurers currently certify the financial condition of the life insurer annually.  Non-life insurers and reinsurers are not subject to similar requirements at the moment.  The 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 being made after consultation with the non-life insurance industry, and MAS is working closely with industry representatives on the detailed requirements.

11   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, co-operation 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 effect, while ensuring that in the process, persons affected are given the due process of law.

12   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.

13   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:-

a. cancellation of registration,

b. the removal of key personnel, and

c. 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.

14   Moving on to Clause 33 at page 53, section 55 of the Act will be amended to allow the MAS to compound offences that 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.

15   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.

16   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. 

17   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.

Mr. Speaker Sir, I beg to move."