"Deposit Insurance and Policy Owners' Protection Schemes (Amendment) Bill 2018" - Second Reading Speech by Mr Ong Ye Kung, Minister for Education, on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister-in-charge of the Monetary Authority of Singapore, on 9 July 2018
1 Mr Deputy Speaker Sir, on behalf of the Minister-in-charge of MAS, I beg to move, "That the Bill be now read a second time".
2 The Deposit Insurance and the Policy Owners’ Protection Schemes Act (“DI-PPF Act”) protects bank depositors and insurance policy owners in Singapore under the Deposit Insurance Scheme and the Policy Owners’ Protection Scheme respectively. Banks, finance companies and insurance companies that are covered under the two Schemes are called Scheme Members.
3 The Deposit Insurance Scheme was introduced in 2006 to provide a basic level of protection to small depositors. At that time, the Scheme insured Singapore dollar deposits up to S$20,000 per depositor per full bank or finance company. In 2011, the insured amount was raised to S$50,000.
4 The Policy Owners’ Protection Scheme was set up in 2011 to protect policy owners for commonly purchased insurance policies. The Scheme provides compensation for life, accident and health, compulsory and specified Singapore personal lines insurance policies, such as motor, personal property or travel insurances, in the event that a direct life or general insurer fails.
5 Both Schemes are supported by Funds established under the DI-PPF Act, which are in turn built up through contributions from Scheme Members and investment returns. The Singapore Deposit Insurance Corporation administers both Schemes and the respective Funds. The Singapore Deposit Insurance Corporation is SDIC.
6 MAS conducts regular review to ensure that the Schemes continue to provide adequate protection to depositors and policy owners, enhance operation of the Schemes and to take into consideration developments in the Singapore financial market and international practices, standards and guidance.
7 In MAS’ most recent review, it also consulted the industry and other stakeholders on its proposals to enhance the Schemes. This Bill proposes legislative amendments to give effect to the following changes:
(i) Strengthen the protection for depositors and policy owners;
(ii) Facilitate an efficient compensation payout process; and
(iii) Align the Schemes more closely with international standards and norms.
8 Mr Deputy Speaker Sir, I will now go through the main enhancements proposed in the Bill, starting with the Deposit Insurance Scheme.
Deposit Insurance Scheme
9 There are two main changes.
10 First, the maximum level of coverage under the Scheme will be increased from S$50,000 to S$75,000. While there is no international standard on the level of coverage, our objective is to ensure that vast majority of depositors should be fully covered.
11 A survey by the International Association of Deposit Insurers found that the international norm is to fully cover about 90% of all insured depositors. For example the US, UK, Hong Kong and Malaysia reported full coverage for over 90% of insured depositors.
12 When we raised the limit to S$50,000 in 2011, it fully covered over 90% of insured depositors. Since then, incomes have grown and savings have also increased. As a result, S$50,000 fully covers about 87% of insured depositors today. Increasing the limit to S$75,000 will restore the percentage of fully insured depositors to above 90%, ensuring that the Deposit Insurance Scheme continues to serve its objective.
13 The second change is to raise the annual premium contributions to the Deposit Insurance Fund. Currently, every Deposit Insurance Scheme Member makes annual premium contributions of 2 to 7 basis points of their insured deposit base to the Fund. The Bill will raise the contribution by up to 1 basis point per Scheme Member, to support the higher coverage limit of S$75,000. At the same time, we will extend the fund build-up period from 2020 to 2028.
14 The premium increase of 1 basis point strikes a balance between a reasonable fund build-up period and the financial costs to the industry.
Policy Owners’ Protection Scheme
15 Sir, I will now explain the changes to the Policy Owners’ Protection Scheme.
16 The Bill will introduce a definition for “personal” insurance policies, to be one that is owned by a natural person. The effect of this amendment is to extend protection to claims on damage to properties owned and used by individuals, even if these properties are sometimes used for commercial purposes. This change addresses a potential protection gap today, given that more individuals are using their personal properties for commercial purposes, such as using their cars to provide private-hire transport services.
17 The Bill will also give MAS the flexibility to prescribe, in regulations, caps on compensation payouts for specific classes or types of policy or claim event insured under the Scheme.
18 Currently, there are caps on compensation payout for life insurance, but not for specified Singapore personal lines insurance policies. This means that the fund could potentially be exposed to very large claims, which could translate into higher premium rates for all consumers. This amendment will allow MAS to mitigate the exposure of the Scheme to very large claims, and contain the potential of rising premium rates.
19 Sir, the Bill will also introduce new or revised provisions to improve the administration of the two Schemes. Let me highlight three key operational enhancements that will facilitate prompt payouts to insured depositors and policy owners.
20 First, the Bill will include voluntary winding up as a trigger for compensation payout under both Schemes. Currently, MAS may make a determination for compensation to be paid out when:
(i) a Scheme Member is wound up by a court in Singapore or elsewhere; or
(ii) MAS is of the opinion that a Scheme Member is insolvent, unable or likely to become unable to meet its obligations or about to suspend payments.
21 Hence, there is no trigger for payout in the event of a winding up of a Scheme Member that is voluntary and not ordered by a court. This could potentially result in uncertainty and undue delays in payments to depositors and policy owners. The amendment closes this gap and expedites the compensation process.
22 Second change, the Bill will enhance legal protection for directors, employees, officers and agents working for the SDIC, the administrator of the Schemes.
23 Currently, SDIC officers are provided legal immunity against liability if they carry out their duties in good faith,with reasonable care. One of SDIC’s primary objectives is to ensure that compensation is made out to depositors and policy owners as quickly as possible in the event a payout is triggered. While we expect SDIC to perform its duties with care, making it a strict legal standard could impair the ability of a deposit insurer to carry out their functions expeditiously in a crisis. The officers may become overly cautious to ensure that their actions are unquestionably reasonable.
24 The Bill proposes to remove this requirement of “reasonable care”, which may present a distraction to SDIC and undermine its effectiveness. The removal of the requirement for “reasonable care” will bring SDIC in line with deposit insurance agencies internationally. SDIC officers will still be subjected to the standard of “good faith”. Fraudulent and malicious acts will continue to be excluded from legal immunity.
25 The amended Act will also provide indemnification for reasonable legal costs and expenses incurred by SDIC officers in connection with actions or omissions in good faith.
26 These amendments are aligned with the recommendations in the Core Principles for Effective Deposit Insurance Systems, developed by the International Association of Deposit Insurers, and will provide greater assurance to SDIC and its officers in performing their duty to make compensation payments promptly, while maintaining accountability by retaining the requirement for the officers to act in good faith.
27 Third change, the Bill will accord SDIC increased budgetary autonomy. The current Act requires SDIC to present annual estimates of its income and expenditure and the Funds’ to the Minister for approval. The amended Act will allow SDIC to submit three-year block estimates instead. This will enable SDIC to make longer term plans to enhance its operations. SDIC will continue to submit to the Minister annual reports of its expenditures and revenues and be accountable for the management of its budget.
28 Sir, this Bill will strengthen protection for small depositors and policy owners in line with market developments and international norms, and improve the administration and compensation process of the two Schemes for the benefit of depositors and policy owners.
29 Mr Deputy Speaker Sir, I beg to move.