Explanatory Brief for Deposit Insurance and Policy Owners' Protection Schemes (Amendment) Bill 2018 on 17 May 2018
1 The Minister for Education, Mr Ong Ye Kung, on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister-in-charge of the Monetary Authority of Singapore (“MAS”), today moved the Deposit Insurance and Policy Owners’ Protection Schemes (Amendment) Bill 2018 (“the Bill”) for First Reading in Parliament.
2 The Deposit Insurance and Policy Owners’ Protection Schemes Act (“DI-PPF Act”) governs the operation of the Deposit Insurance (“DI”) Scheme1 and the Policy Owners’ Protection (“PPF”) Scheme2. The DI Scheme and PPF Scheme (the “Schemes”) were implemented in 2006 and 2011 respectively to protect small depositors and owners of commonly purchased insurance policies should a member bank or insurer fail. Under the Schemes, member financial institutions make regular premium contributions to the Deposit Insurance Fund (“DI Fund”) and Policy Owners’ Protection Funds (“PPF Funds”), which will be drawn upon to facilitate prompt compensation to insured depositors and policy owners if a Scheme Member fails. The Singapore Deposit Insurance Corporation (“SDIC”) administers the Schemes and manages the Funds.
3 The MAS is introducing legislative amendments to the DI-PPF Act to ensure that depositors and policy owners continue to have an adequate level of protection and to enhance the operational processes of the Schemes.
4 MAS consulted publicly on the proposed amendments3 between 2014 and 2017. There was broad support for the proposals, and the feedback received has been taken into account in the finalisation of the Bill.
KEY PROVISIONS IN THE BILL
Raise DI coverage limit to $75,000
5 The Bill will raise the DI coverage limit from $50,000 to $75,000 per depositor per Scheme Member. The increased coverage will raise the proportion of depositors that are fully insured from 87% to 91%, in line with international norms.
6 With the increase in coverage limit to $75,000, the DI Fund will need to be augmented to adequately cover the larger pool of insured deposits. Consequently, annual premium contributions by Scheme Members to the DI Fund will increase marginally, by no more than 1 basis point per year. This premium increase strikes a balance between a reasonable fund build-up period and managing the financial costs to the industry.
Extend PPF coverage to certain types of properties
7 The Bill will introduce a definition for “personal” insurance policy as one that is owned by a natural person4. This will extend protection under the PPF Scheme to claims arising from damage to properties owned and used by individuals, even if these properties are sometimes used for commercial purposes. This change recognises the growing trend of individuals using their personal properties for commercial purposes, who nonetheless deserve protection under the PPF Scheme. Examples of such properties include privately owned cars used for hire and reward and home offices.
8 The Bill will also introduce caps on compensation payouts for certain types of insurance policies5. The proposed caps aim to mitigate the exposure of the PPF General Fund to very high property damage claims, which could otherwise translate into higher levies for PPF Scheme members, and potentially higher premium rates for consumers. The introduction of these caps is in line with other jurisdictions which have in place similar schemes. The caps have been calibrated for the PPF Scheme to cover more than 99% of such claims.
Facilitate compensation process
9 The Bill will set out voluntary winding up as a trigger for compensation payout under the Schemes, as it is envisaged that this can expedite the compensation process. Presently, if there is a voluntary winding up, MAS must first separately determine that the DI or PPF Scheme member is insolvent, unable to or likely to become unable to meet its obligations or about to suspend payments, before any compensation can be paid out.
10 The Bill will expand legal protection for officers of the SDIC and provide legal indemnification for reasonable legal costs and expenses incurred in connection with any legal proceedings involving actions or omissions by the officer in good faith. This will support SDIC in performing its role in making prompt compensation payments.
11 The Bill will also require the liquidator to cooperate with the SDIC to facilitate prompt compensation payouts.1 The DI Scheme insures Singapore dollar deposits with full banks and finance companies (DI Scheme Members) in Singapore up to the coverage limit.
2 The PPF Scheme provides compensation to policy owners for all life insurance policies and certain general insurance policies in the event a PPF Scheme Member fails.
3 Consultation papers on the amendments were published on , (153.3 KB), and (954.2 KB). MAS’ response to feedback received was published on (958.1 KB). (1.2 MB)
4 This excludes any company or association or body of persons, corporate or incorporate.
5 Examples of policies where caps will be introduced are own property damage motor claims for personal motor insurance policies and property damage claims for personal property (structure and contents) insurance policies. Under the Bill, MAS will be able to prescribe in Regulations caps on compensation payouts.