30 March 2015 Notices on the Distribution of Direct Purchase Insurance Products
MAS has recently issued Notices under the Insurance Act and the Financial Advisers Act on 30 March 2015, covering the Distribution of Direct Purchase Insurance Products [“DPI”] (MAS Notice 321 / FAA-Notice 19). This set of Notices is a follow-up to 1 of the 5 key thrusts of the Financial Advisory Industry Review (FAIR) detailed within the Oct 2014 Consultation Paper on the ‘Lowering distribution costs by enhancing market efficiency’. The Notices will impact all direct life insurers (except those with defined market segments) catering to the retail consumer market which will be required to offer life insurance products (now termed ‘Direct Purchase Insurance Product’ or ‘DPI’) that are to be priced without distribution expenses (i.e. no commissions).
In line with the Oct 2014 proposal, all DPI products (which include term life insurance products (with and without critical illness rider) and whole life participating insurance product (with and without critical illness rider)) will have standardised features (detailed in MAS Notice 321). These include benefits, premium, payment term, policy term, renewability, (minimum and maximum) entry age, (minimum and maximum) sum assured etc., and can only be purchased by a policyholder who is also the insured person. From a consumer standpoint, these standardised features are intended to make it easier to understand and allow for purchases of such DPI products (which will be identified by the prefix ‘Direct’ within its name) without financial advice.
FAA-Notice 19 sets out the requirements for the distribution of the DPI products – they include:
- the types of distribution channels allowed – limited to customer service officer or a representative with the online direct channel also available to an exempt Financial Adviser
- the safeguards to be implemented – this will be in the form of tools and calculators for calculation of coverage and premiums and providing information relating to the product as well as highlighting of specific information such as disclaimers or exclusions and generally ensure that the features or terms and conditions of the DPI product are not misunderstood by the retail consumer
- the provision of product information such as the Product Summary, Benefit Illustration, and Product Highlights Sheet as well as fact-sheet and checklist that accord with the Life Insurance Association of Singapore (LIA) standards
- the implementation of internal policies and processes covering the responsibilities regarding such distribution, the required training and continuing controls and procedures to ensure proper conduct of those distributing DPI products
- the roles and responsibilities of those distributing the DPI products meeting the general standards relating to product information disclosures and information in relation to DPI products
A list of all life insurance companies offering DPI products is available in LIA’s website (www.lia.gov.sg). It is unlikely that there will be significant changes to the current approach that life insurance companies already adopt insofar as the requirements for the distribution of DPI products (e.g. product disclosures and provision of product information) are concerned. The focus of direct life insurance companies offering DPI products will likely be on the pricing assumptions for such products given that MAS approvals will be required if there is any re-pricing and/or deviated pricing assumptions compared to their other existing products having the closest corresponding features as a DPI product.