Consumer Protection Given Large-scale Movement of Insurance Agents

50 Ms Foo Mee Har asked the Prime Minister what regulatory safeguards can MAS take to protect the interests of consumers when large-scale movements of insurance agents happen amidst aggressive poaching activities between rival financial institutions.

Mr Tharman Shanmugaratnam (for the Prime Minister): The Monetary Authority of Singapore (MAS) takes the issue raised by Ms Foo Mee Har seriously. When an insurer offers attractive financial incentives to attract agents from other insurers, the incentives usually depend on sales targets that these agents have to meet. This poses the risk that the agents may encourage their customers who bought policies from the previous insurer to surrender these policies and buy new ones from the new insurer. This is known in the industry as a "switch" and may not always be in the best interests of consumers. For example, they may forgo policy charges or fees they had already paid during the initial years of their existing policies or be subject to exclusions for health conditions which have developed since they purchased their existing policies.

MAS has, therefore, put in place a few safeguards to protect the interests of consumers. MAS requires the supervisor of the agents to validate that each and every recommended switch is appropriate, taking into account the customer's objectives, financial situation and needs. In the case of vulnerable customers, the supervisor is required to call these customers to check that they understand the policies they have purchased before the policies are issued. In the event that a customer changes his mind about buying a policy, there is a free-look period of 14 days where the sale can be cancelled and the insurer will refund all premiums paid (less medical and other expenses that had already been incurred). As an additional safeguard, MAS requires a party independent of the sales process to perform sample checks on sales transactions.

MAS' supervisory activities also cover insurers' compliance with these requirements. MAS will not hesitate to take regulatory action against insurers or agents who are found to have engaged in improper switching.

A second concern with insurers offering attractive financial incentives to attract agents is that consumers may, in effect, bear the cost of such financial incentives. MAS has, therefore, made it clear to the industry that financial incentives offered by an insurer to recruit agents from another firm cannot be charged to the insurance funds as an expense and must be borne by the insurer’s shareholders. MAS will also check that insurance premiums are not raised to recover costs incurred from such financial incentives, although we expect that competition in the market will reduce the risk of this happening.

But this should not be just about the powers that MAS has to supervise the industry. It is in the interests of insurance companies collectively to work together to uphold proper standards. As the industry association which promotes best practices among life insurers in Singapore, the Life Insurance Association of Singapore (LIA) has signalled its commitment to getting its members to adopt responsible recruitment practices to safeguard the interests of consumers. MAS is engaging LIA on the association's proposal to develop guidelines to govern recruitment practices within the industry as well as to address the risks of improper switching following mass movement of agents from one firm to another.

Finally, we have been working to educate and empower consumers, so they can make informed financial decisions. Through MoneySENSE, the national financial education programme, MAS works with industry and community partners to help consumers understand the factors they should consider when buying an insurance policy. Consumers should consider their protection needs, how much coverage they require, and whether they can afford the premiums in the long term.