Consultation on Simplification of Simple and Cost-effective Insurance Products Regime

On 2 February 2024, MAS issued a consultation paper on proposals to simplify requirements and facilitate access to simple and cost-effective insurance products, by reducing information collection requirements for selected insurance products, and introducing accompanying safeguards for the collection of reduced information. 

Background

In 2023, MAS and MoneySense (in collaboration with CPF Board and industry associations) developed and issued the Basic Financial Planning Guide (Guide) to, among others, narrow consumers’ insurance protection gaps.

In accordance with the Guide, the simplified requirements will apply to the following insurance products (relevant insurance products):

• term life insurance policies;
• standard critical illness riders with term life insurance; and
• standard standalone critical insurance policies.

Who do the proposals apply to?

MAS is proposing to amend Notice FAA-N16 (on recommendations on investment products, including life insurance products), and Notice 120 (on disclosure and advisory process requirements for accident and health (A&H) insurance products).

Generally, Notice FAA-N16 and Notice 120 are applicable to, among others:

• financial advisers;
• insurers; and
• insurance brokers.

What are the proposals?

Financial advisers and A&H intermediaries are currently subject under FAA-N16 and Notice 120 to certain information collection requirements before making recommendations on life insurance and A&H insurance products respectively.

The proposals seek to reduce the information required to be collected to just:

1. the client’s objectives;
2. the client’s current death and total and permanent disability (TPD), and critical illness insurance policies;
3. the client’s annual income; and
4. for critical illness insurance products, any medical condition of the insured.

What are the proposals?

Financial advisers and A&H intermediaries are currently subject under FAA-N16 and Notice 120 to certain information collection requirements before making recommendations on life insurance and A&H insurance products respectively.

The proposals seek to reduce the information required to be collected to just:

1. the client’s objectives;
2. the client’s current death and total and permanent disability (TPD), and critical illness insurance policies;
3. the client’s annual income; and
4. for critical illness insurance products, any medical condition of the insured.

To accompany such reduction in the information collection requirements, such financial advisers and A&H intermediaries will be subject to the following additional safeguards:

1. to explain the rules of thumb in the Guide, and guide the client in budget allocation to meet key financial needs;
2. confine the recommendation made to only the relevant insurance products;
3. verify that the client’s total death and TPD coverage does not exceed 9 times of their annual income;
4. verify that the client’s total critical illness coverage does not exceed 4 times of their annual income; and
5. verify that the client’s total annual outlay on insurance policies that provide death, TPD and critical illness does not exceed 15% of take-home pay.

What is the impact on affected FIs?

The proposals provide for an alternative simpler framework to existing information collection requirements, and do not introduce additional burden. 

Affected FIs may wish to consider reviewing client information collection processes and policies to adopt the simpler framework proposed by MAS, especially if the relevant insurance products make up a significant portion of products recommended by such FIs.

The consultation will end on 15 March 2024, following which we will await MAS’ responses and, subject to MAS’ assessment, implementation of the proposals.