Deposit Insurance and Policy Owners' Protection Schemes (Amendment) Bill

Order for Second Reading read.

The Minister for Education (Mr Ong Ye Kung) (for the Prime Minister): Mr Deputy Speaker, on behalf of the Minister in-charge of the Monetary Authority of Singapore, I beg to move, "That the Bill be now read a Second time."

The Deposit Insurance and Policy Owners’ Protection Schemes Act (DI-PPF Act) protects bank depositors and insurance policy owners in Singapore under the Deposit Insurance (DI) 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.

The DI 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.

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.

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 (SDIC) administers both Schemes and the respective Funds.

The Monetary Authority of Singapore (MAS) conducts regular reviews 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.

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: one, strengthen the protection for depositors and policy owners; two, facilitate an efficient compensation payout process; and three, align the Schemes more closely with international standards and norms.

Mr Deputy Speaker, Sir, I will now go through the main enhancements proposed in the Bill, starting with the DI Scheme.

There are two main changes to the DI Scheme.

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 the vast majority of depositors should be fully covered.

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.

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 covered 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 DI Scheme continues to serve its objective.

The second change is to raise the annual premium contributions to the DI Fund. Currently, every DI Scheme member makes annual premium contributions of two to seven basis points of their insured deposit base to the Fund. The Bill will raise the contribution by up to one 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.

The premium increase of one basis point strikes a balance between a reasonable fund build-up period and the financial costs to the industry.

Sir, I will now explain the changes to the Policy Owners’ Protection Scheme.

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.

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.

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.

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.

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: one, a Scheme member is wound up by a Court in Singapore or elsewhere; or two, 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.

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.

Second change. The Bill will enhance legal protection for directors, employees, officers and agents working for SDIC, the administrator of the Schemes.

Currently, SDIC officers are provided legal immunity against liability if they carry out their duties in good faith and 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.

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 DI 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.

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.

These amendments are aligned with the recommendations in the Core Principles for Effective DI 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.

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.

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. Mr Deputy Speaker, Sir, I beg to move.

Question proposed.

4.09 pm

Mr Yee Chia Hsing (Chua Chu Kang): Mr Deputy Speaker, Sir, I rise in support of the Bill. This Bill has laid out several key amendments to ensure the level of protection for depositors and policy owners remains adequate. Today, I have a few points to highlight as well as offer some suggestions.

Mr Deputy Speaker, Sir, many people buy life insurance without informing their family members of the insurance they have bought and from which insurance companies.

In such situations, family members of the policy holder who has passed on have to see if there are any notices of premium payments or insurance statements to have an idea of which insurance companies to contact. This is getting more difficult with paperless e-statements. Sometimes, we have also had a situation where the policy holder may not stay with the other family members and statements are sent to the address of the policy holder only. As such, family members and beneficiaries may not even know of the existence of such insurance policies.

Right now, there is an online register launched by Life Insurance Association Singapore for members of the public to check on unclaimed insurance payouts. But this is only where the insurance companies already knew that the insured has passed away and the amount has become claimable. I would like to ask whether insurance companies check their databases against the register of deaths at regular intervals so that they will know that the insured policy holder has passed on.

Insurance companies are also not the best party to contact the next-of-kin of the policy holder as, very often, such contact information is not collected or, if collected, is not updated regularly.

Mr Deputy Speaker, Sir, I would like to suggest that the Registrar-General of Births and Deaths take on the role of managing a central registry of life insurance policies. All insurance companies offering life insurance policies must submit the policy details to the Registrar. When the Registrar becomes aware of the death of a policy holder, the insurance companies will be notified. The Registrar will also assist to contact the next of kin or beneficiary to inform them of the existence of the policy.

I believe there is a similar situation for cash in bank accounts where the account holder has passed on but the family members do not know of the existence of the bank account and so do not approach the bank to submit a claim on the money in the account. As such, it would be good if a central registry can also keep track of what bank accounts each individual has.

Mr Deputy Speaker, Sir, my suggestion of having a Central Registry of Life Insurance Policies and Bank Deposits will reduce the hassle that family members have to go through as it will become a one-stop central registry which family members can check what insurance policies and bank accounts their deceased family members have.

The cost of operating this Central Registry can be recovered by legislating that all monies which are unclaimed despite the best efforts of the Registrar to contact the next of kin will go to the state. I hope the relevant authorities can take into account my suggestions that I have made today.

Mr Deputy Speaker: Mr Leon Perera.

4.13 pm

Mr Leon Perera (Non-Constituency Member): Mr Deputy Speaker, Sir, SDIC is the administrator and manager of the DI Fund and Policy Owners Protection Fund that aim to ensure prompt compensation to depositors and policy owners in the event of a member bank or insurer failing.

The aim of this Bill is largely to clarify technical issues and enhance the operational efficiency of the two schemes administered by SDIC. It also raises the DI coverage from $50,000 to $75,000 which would achieve 91% coverage of fully insured depositors.

Mr Deputy Speaker, Sir, I do not oppose these changes, which are a step in the right direction. However, I will pose some questions relating to the Bill’s provisions and the nature of these two schemes.

At this point, I declare my interest as the Chief Executive Officer (CEO) of a market research and business consulting firm that works with various commercial and governmental entities in the financial services sector locally and globally. Firstly, the winding-up process should a member bank or insurer become insolvent can be time-consuming. How prompt would be the compensation to depositors and policy owners?

Of course, this would vary on a case-by-case basis, depending on the complexity of each case. But does SDIC aim for a specific timeframe within which the compensation should be paid, such as, for example, one month, three months or six months? The longer the process takes, of course, the higher the potential loss of interest income and, hence, the opportunity cost to depositors and policy owners.

Secondly, how does SDIC manage the DI Fund and PPF Fund monies? For the DI Fund, it is stated on the SDIC’s website that “the DI Fund will be invested in safe and liquid assets, such as securities issued by the Singapore Government or MAS, deposits with MAS, any debenture or debt security issued by Singapore Sukuk Pte Ltd, and other assets approved by the Minister.”

For the PPF Fund, it is stated that, “The PPF Life Fund and PPF General Fund will be invested in safe and liquid assets, such as securities issued by the Singapore Government or MAS, deposits with MAS, any debenture or debt security issued by Singapore Sukuk Pte Ltd and other assets approved by the Minister.”

Does SDIC outsource the management of the Funds to asset management institutions to manage? And, if so, what is the mandate for these asset management institutions, given that the Minister can approve investment in assets other than Singapore Government instruments?

Are there prescribed limits to the kinds of asset classes and asset characteristics that investments can be extended to, for example, weighted fixed income products with a specific high rating from independent credit rating agencies?

Thirdly, is the ability of the DI and PPF Funds to meet their obligations in respect of the coverage limits regularly reviewed and stress-tested by MAS, or required to be self-reviewed and stress-tested? In an insolvency case involving a large bank or insurer or a number of these, this ability could be put to the test.

Fourthly, on the change whereby the accounts of SDIC need not be audited by the Auditor-General's Office (AGO) or an agency appointed in consultation with the AGO, I would like to ask why the AGO need no longer play a role with respect to the external audit for these Funds?

And Mr Deputy Speaker, Sir, lastly, on the website of SDIC, it is stated that MAS may exempt life or general insurers from being members of the PPF scheme. May we know how many insurers are so exempted and what measures are in place to protect policy holders in these cases?

Mr Deputy Speaker: Mr Saktiandi Supaat.

4.17 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Speaker, Sir, the amendments to the Bill come at a timely moment when global financial markets are prone to disruptive forces. As a regional financial hub, this also makes us more susceptible to fallouts from any global financial crisis. With the changes in US trade policies and its demand to renegotiate pacts signed by the previous government, which have created bouts of insecurity, anything can happen if the talks do not turn out well. So, it is prudent for us to shore up the levees before the storm.

Increasing the DI coverage limit from $50,000 to $75,000 per depositor per Scheme member is good news for all Singaporean depositors.

We are known to have a strong culture to save our money, and I am aware of people who would open several bank accounts with different banks in order to get their deposits fully covered under the existing scheme. This enhanced policy will give better protection to those depositors. Also, in an ageing community, some of the savers are retired seniors and the protection would certainly give them much comfort.

On this note, I would like to also emphasise the importance of communicating the coverage of DI to the elderly so that they understand the span of coverage. This way, they will not be lulled into a sense of complacency and, in a crunch, find themselves put in a dilemma.

But following the increase of the DI coverage, MAS will also raise the premium rates which are charged to banks. My concern is that this additional premium will eventually be passed down to customers down the road. This may take the form of decreased returns to customers, or higher costs and premiums for financial products and so forth. So, I would like to ask the Minister if MAS takes an oversight of how the banks impose charges on their products and services as a result of this latest move.

Next, Mr Deputy Speaker, in a gig economy, many freelancers and self-employed people are using their personal properties for commercial purposes. By extending the coverage of the Policy Owners' Protection Scheme to such properties, these freelancers can have assurance that they are adequately protected against life’s uncertainties. However, in doing so, who bears the additional cost of coverage? And, once again, I will ask: will this result in a rise in premiums?

Mr Deputy Speaker, Sir, this Bill is a clear indication of MAS' resolve to give Singaporeans better financial protection in an era of constant disruptions. And with the expansion of the legal protection for SDIC officers to perform their role in making prompt compensation payments, along with voluntary winding up as a new trigger for compensation payouts, consumers protected under these schemes will experience a shorter waiting time for their money.

With these amendments, there is a need to step up on educating the public on these various schemes so consumers can make wise choices and benefit from the available policies. Community centres are a good choice for the elderly to be informed about these latest changes as well, in terms of DI, for example. And as schools start recognising the importance of imparting financial literacy to students, such Government schemes should be shared with students at secondary or tertiary levels. Agents and providers of financial products should also be more proactive in keeping consumers informed of their rights, in particular, the latest changes in the DI Scheme and their limits. Sir, I support the Bill.

Mr Deputy Speaker: Minister Ong Ye Kung.

4.20 pm

Mr Ong Ye Kung: Mr Deputy Speaker, Sir, I thank all the Members who have spoken on the Bill and voiced their support for the Bill. On behalf of the Deputy Prime Minister and Minister-in-charge of the Monetary Authority of Singapore, let me now address their questions.

Mr Saktiandi Supaat is concerned that costs of higher premium contributions may be passed on to customers. MAS had considered the potential cost implications on Scheme Members when proposing these changes. The premium increase of one basis point to the banks as Scheme Members is not material relative to a bank's overall operating costs. To illustrate, the increases in costs for the three local banks, which are the largest Scheme Members, will be less than 0.1% of their operating costs on average. We do not expect the Scheme Members to pass these costs to customers.

Mr Saktiandi Supaat asked who would bear the additional cost for extending the coverage of the Policy Owners’ Protection Scheme to cover the personal properties used for commercial purposes, and if this would result in a rise of premiums.

The current annual contributions paid by the Scheme Members make up less than 0.2% of the total gross premiums written by the general insurance industry for insurance policies covered under the Scheme. The extension of coverage of the Scheme accounts for a small fraction of the 0.2%. Hence, the increase in contributions paid by the Scheme Members will also not be material. We do not expect Scheme Members to pass the cost to policy owners.

Mr Saktiandi Supaat also highlighted the importance of educating the public on the coverage of the Schemes. I agree with Mr Saktiandi. Proper awareness of the coverage of the Schemes will help depositors and policy owners to make informed financial decisions. SDIC has in place a public education programme already and we will take in Mr Saktiandi Supaat's suggestions in future efforts. SDIC and MAS will continue to work together to raise awareness of the changes to the Schemes.

Mr Leon Perera asked several questions. First, he asked how promptly can we expect compensatory payments to be made. SDIC aims to make payouts to most insured depositors within seven working days, in line with international standards and has relevant mechanisms and procedures in place to facilitate this.

Mr Leon Perera also asked how the DI-PPF Fund monies are managed. The Fund's monies are managed by SDIC, the administrator of the Schemes and Funds. The management of the Fund is circumscribed by the DI-PPF Act. And under the Act, the Fund may only be invested in safe assets, such as securities issued by the Government or MAS, deposits with MAS or such other investments, with the objects of capital preservation and maintenance of liquidity. The management of the Funds are not outsourced.

The SDIC Board, therefore, oversee the management of the Funds directly. It has established an investment policy for the Funds, covering investment philosophy and objective, permitted investments and markets, authority limits and asset allocation guidelines.

The procedures, internal controls and disclosure and reporting on the investment holdings are audited by a public accounting firm annually and this is in accordance with the requirements of the DI-PPF Act and the Singapore Financial Reporting Standards.

Mr Leon Perera also asked what kind of insurers are exempted from being PPF members. Actually, all licensed direct life and general insurers are, by default, PPF Scheme Members except for captive insurers and certain insurers that write very specialised risks. So, licensed direct insurers that do not write any of the insurance policies that are covered by the PPF Fund can seek exemption from being PPF Scheme Members.

Mr Yee Chia Hsing suggested that a central repository be set up to assist a deceased's next-of-kin and beneficiaries to find out what life insurance policies and bank accounts the deceased had.

The question is not related to the Bill. Notwithstanding, there is currently a process in place for the next-of-kin to find and claim the assets of a family member who has passed on. Depending on whether the deceased had made a will, the next-of-kin may apply to the Court for a Grant of Probate or Letters of Administration. Once the Grant or Letter is issued, the next-of-kin may bring the Grant or Letter to the banks and life insurance companies to find out if there are monies or assets belonging to the deceased.

A central repository could offer the prospect of a convenient one-stop shop. However, a central repository works best if it is provided with up-to-date information and there is universal participation by the financial institutions, depositors and policy owners. There could be privacy concerns if participation in the repository is made mandatory. A central repository also does not eliminate the need for the next-of-kin to gather supporting documents to prove their claim to the estate.

Nonetheless, Mr Yee Chia Hsing’s proposal highlights the importance of Singaporeans keeping their family and loved ones informed of their financial arrangements.

Mr Deputy Speaker, Sir, this Bill introduces important enhancements to the DI and Policy Owners’ Protection Schemes in Singapore, which will strengthen protection for depositors and policy owners. Mr Deputy Speaker, Sir, I beg to move.

4.26 pm

Mr Deputy Speaker: Mr Leon Perera.

Mr Leon Perera: I thank the Minister for his responses. I just have two questions which I believe had not been addressed yet, unless I missed it.

Firstly, is the ability of the DI and Policy Owners' Protection Fund to meet the obligations in respect of the coverage limits regularly reviewed or stress-tested either by MAS or required of MAS to be stress-tested by SDIC? Secondly, there was a change made in terms of the accounts of SDIC, it need not be audited by the AGO or any agency appointed in consultation with the AGO. I just want to know why that change was made.

Mr Ong Ye Kung: On stress-testing, because the investment policy is a conservative one, targeted at preservation of principal, therefore, no stress-testing is actually required because we actually require a capital preservation.

Second, on AGO, because SDIC is a company and, therefore, under the Companies Act and in accordance with the Act, it is a public accounting firm that audits it, rather than AGO, which audits Government agencies.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Ong Ye Kung.]

Bill considered in Committee; reported without amendment; read a Third time and passed.