Published Date: 10 November 2003

The Insurance (Amendment) Bill 2003 Second Reading Speech by Mr Lee Hsien Loong, Deputy Prime Minister, Minister for Finance and Chairman, Monetary Authority of Singapore

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

2   As part of an on-going effort to bring the regulatory framework for the insurance sector to international best practice standards, this Bill amends the Insurance Act (IA) to establish a risk-based capital framework for life and general insurance companies, and a regulatory framework to deal with accident and health insurance business. The Monetary Authority of Singapore (MAS) is also putting in place an authorisation framework to strengthen its supervision over the cross-border supply of reinsurance services in Singapore through this Bill.

3   MAS invited feedback from the industry and the public on the draft Bill in May 2003, and has posted its detailed responses to the comments received during this consultation on its website.

4   Mr Speaker Sir, I will now go through the main amendments in the Bill.

Risk-based Capital Framework

5   The existing statutory valuation and solvency framework uses prescribed valuation methods and bases. In an insurance market that is relatively homogeneous, this approach provides a simple and conservative way to determine the capital adequacy of insurers. This "one-size-fits all" approach is, however, not always reflective of an insurance company's true financial strength. Increasing volatility, diversity and competition in the financial services sector have resulted in the need for a more transparent and risk-focused capital framework that better reflects the true financial conditions of an insurance company. Banks operate under such a risk-based framework, which is being refined in the Basel II proposals. Insurance companies need something similar. Clause 19 amends section 18 of the IA to establish the new risk-focused capital regime for insurance companies.

6   The formula to calculate capital requirements that will be prescribed under the amended section 18 takes into account not only insurance risks undertaken by an insurer, but also risks arising from the way an insurer invests the premiums that it has collected. The amended section 18 will also empower MAS to further adjust capital requirements to capture risks that cannot be quantitatively determined, for example, operational risks.  

7   MAS has also reviewed the operation of insurance funds in developing the new capital regime. Clause 18 amends section 17 to empower MAS to issue rules to clarify what constitutes receipts, income, liabilities or expenses of an insurance fund. This will help protect policyholders' interest from being compromised by unfair practices, for example, charging costs of compensation resulting from the misconduct of an insurer or its intermediaries to insurance funds.

Accident and Health Insurance Regulatory Framework

8   There is currently no specific provision in the IA applicable to health insurance business, although there are provisions for general insurance business that apply to health insurance. These provisions are suitable for regulating short-term, yearly-renewable health insurance products. Recognising the needs of consumers for insurance products that provide long-term health insurance coverage, and the long-term obligations that such needs impose on insurers, we are amending the legislation to help ensure that insurers are better able to meet those obligations.

9   Clause 55 amends the Schedule to define "accident and health (A&H) benefits" and further differentiates such benefits into those that are long-term and short-term in nature. An insurance policy that contains long-term benefits is one that provides A&H insurance coverage in excess of 5 years, without the risk of such coverage being unilaterally cancelled by the insurer. Clause 3 amends section 2 to reclassify policies that contain long-term A&H benefits, such as those relating to the ElderShield scheme, as part of life insurance business. As funds relating to life insurance business are generally managed with a long-term focus, the reclassification will thus help the insurance industry to better manage premiums collected from long-term A&H products.  To provide the insurance market with more capacity to insure A&H risks, Clause 4 amends section 3 to allow that both life insurer and general insurers to underwrite short-term A&H insurance products.

10   When consumers purchase health insurance products, it is important to provide them with adequate and clear information disclosure so that they can make informed decisions. In addition, to help consumers obtain appropriate insurance coverage, insurance intermediaries need to be competent and provide advice on a sound basis. To help achieve these objectives, Clauses 28 and 31 amends section 35P and introduces a new section 35TA to empower MAS to specify market conduct requirements, such as those relating to disclosure and the advisory process for an insurance intermediary.

Authorisation Framework for the Cross-Border Supply of Reinsurance

11   Currently, reinsurance services can be provided on a cross-border basis to Singapore without the service provider establishing a physical presence here.

12   Clauses 9, 13 and 16 introduce new sections 8A, 12A and 14A to provide for the establishment of an authorisation framework to enhance the effectiveness of MAS' supervisory oversight over such cross-border reinsurers, and their transactions between registered insurers here in Singapore. Details of this framework, which include setting of the minimum financial and reporting requirements for cross-border reinsurers, will be set out in regulations.


13   Health insurance is gaining prominence as a key healthcare financing tool for Singaporeans. Worldwide, in recent years the financial strength of insurance industry and the lack of effective supervision over the reinsurance sector are coming under intense scrutiny. The amendments proposed in this Bill represent timely improvements to our current regulatory regime. To stay in step with this rapidly-changing market place, MAS will continue to review its regulatory regime so as to develop Singapore as a sound and progressive financial centre.

14   Mr Speaker, Sir, I beg to move.