Training - Insurance

Insurance
The whats, the whys, & the hows
of the business & regulation
Liyana Mahirah
20 Sept 2018

Roadmap
1. Introduction to Insurance
2. Insurance Lines & Products
3. Roles of Insurers & Intermediaries, Organisational Forms & Distribution Systems
4. Regulation of Insurance
5. Role of Compliance

What is insurance?
A contract where an insurer promises to pay the insured
party a sum of money if one or more specified events
occurs in the future, in return for regular small
payments (“premiums”).

What is insurance?
• The business of insurance is risk
• A social device for spreading the chance of financial loss among a large group of people
• When a company/individual buys insurance, they transfer the cost of a potential loss to
the insurance company in exchange for a fee (premium)
• Insurance companies then invest the funds to grow them, and pay out when there’s a claim

Why do we need insurance?
Reduce exposure to the effects of particular risks.
• For example, insurance for individuals can do the following.
o Health insurance helps pay your bills should you develop certain illnesses or suffer from injury or
disability.
o Income protection safeguards your salary by replacing it should you become unable to work.
o Life insurance provides financially for your loved ones should you become unable to work. Having
this type of insurance enables them to continue enjoying a comfortable lifestyle with minimum
worry.
o Education and retirement plans allow you to achieve what is important to you – be it an overseas
education for your children or a comfortable standard of living during your retirement years.
o Endowment plans do more than help you build up savings to pass on to your spouse or children.
They can also be used to cover medium- to long-term goals, such as a property upgrade, higher
education, and perhaps fund a break from work.

Vocabulary of an insurance plan
1. Policies - Legal contract setting out the rights and obligations of the policyholder & the
insurance company
2. Coverage - Protection provided by an insurance policy
3. Limits – Maximum amount an insurance company will pay for a covered loss
4. Deductibles – The amount a policyholder agrees to pay out-of-pocket in case of a loss;
Insurance company pays the remaining amount, up to the limit

(Ancient) History of Insurance
• 3000 BC - Chinese merchants who wanted to manage the risk of dividing cargo
amongst several vessels to reduce the losses should a vessel with cargo fail to
complete its voyage
o A type of “bottomry” – a pledge of the boat (part of entire) against a particular debt
o No evidence of a contract, indemnification or third party involvement
• 1750 BC – Hammurabi’s Code & the establishment of the law governing loss
• 476 AD (Middle Ages) - A form of insurance developed to bury the dead &
provide for remaining family members formed into Benefit Societies and then
developed into Guilds.
• ~1100 – 1200 AD – many regions established common rules specific to maritime
trade, which was the predominant form of commerce
(pre 17th century, insurance mainly confined to maritime trade)

(Modern) History of Insurance
• 1688 - Lloyd’s Coffee House & the birth of modern
insurance/underwriters
o London was the centre of trade, increasing the demand for insurance of
ships and cargoes
o Ship merchants would request brokers to take policy from 1 merchant to
another until the risk was fully covered
o Broker ensured that policies were underwritten only by people of sufficient
financial integrity
• 18th century – Lloyd’s became more formalized
o Rival companies were formed
• Lloyd’s Act 1871
o Corporate body
o Unique from other competitors
o Multiple financial backers (individuals and corporates) grouped as
syndicates who come to pool & spread risks

Concepts in Insurance
1. Risk and uncertainty
2. Pooling and diversification of risk through insurance
3. Efficiency and equity
4. Conditions for insurability
5. Asymmetric information problem
6. Principles of indemnity and insurable interest

1. Risk & Uncertainty
• Risk – a condition in which more that one outcome is possible
o Pure risk – no chance of economic gain and uncertainty about whether a financial loss will occur or
how much the loss will be
o Speculative risk – involves the chance of gain or loss, is not insurable in theory (e.g. gambling)
o For the purposes of insurance, is defined as the possibility of financial loss
• Uncertainty – the perception of risk, which may or may not correspond to reality
• Peril – an event which causes a loss (e.g. fires, earthquakes, premature death)
• Risk is endemic to life & business
• Risk-averse individuals/companies want to manage risk

• Main ways to manage risk
o Avoidance – choosing not to participate in an activity because of the risk involved (e.g. not getting a
driver’s license)
o Retention – saving money in case of future losses (e.g. putting $1000 in a savings account in case of a
car accident)
o Transfer – passing the risk on to a company (e.g. paying a monthly fee for an insurance policy and
expecting the insurance company to protect your assets)

Type of risk
Can a person
control?
Can insurers
discriminate?
1 Personal traits √
2 Personal fault √ √
3 Fault of another
4 Acts of God √
Basic types of risk

2. Pooling & diversification of risk through
insurance
• Pooling of loss - How people/companies can reduce the pure
risk they face through insurance mechanisms designed to
transfer & diversify risk across a wider base of exposures
and/or over time
• Members of the group share all losses that are incurred by the
members
• i.e. they exchange a smaller, more certain financial contribution
for protection against a larger, more uncertain loss

2. Pooling & diversification of risk through
insurance
• Uncertainty & the law of large numbers – makes insurance
valuable.
o Risk & uncertainty is reduced through loss sharing
o There is greater predictability of losses by increasing the number of
members
• Pooling losses =/= equal contribution to the ‘pool’
o In practice, the risk of the members in the pool will vary

3. Efficiency & equity
• Efficiency – the highest level of efficiency is achieved when resources are used in the best
way possible to maximize social welfare
• Equity – “fairness”. Different interpretations to different people
o E.g.. 1: all insureds should pay the same premiums/receive the same benefits from insurance
contracts, regardless of the relative risk
o E.g. 2: ability to pay. Those with greater resources would be expected to pay more than those with
fewer resources
o E.g. 3: individuals should pay costs according to the benefits they receive

4. Conditions for insurability
• Risk exposures should meet conditions to be insurable (in a private market)
• The further they diverge from the conditions, the less insurable they become
• 4 conditions for insurability
o Many independent and identically distributed exposure units
o Premium should be economically feasible
o Losses should be unintentional and accidental
o Losses should be easily determinable

Concepts in insurance
• Adverse selection
o When high risk individuals are more likely
to buy insurance than low risk insurance
o Avoided through accurate risk
classification & commensurate premiums
 Accurate information
 Pricing measures
 Underwriting measures
 Policy design measures
• Moral hazard
o Occurs when having insurance causes
insureds to change their behavior
o Solutions
 Cost sharing with insureds
(deductibles, policy limits, co-
insurance)
 Premiums discounts/credits for
safety measures
 Setting policy terms and
conditions
 Declining to provide coverage in
situations where moral hazard is a
serious concern
5. Asymmetric information problem

• Indemnity – insureds should not profit from a covered loss, but should be restored to no
better than their financial position prior to the loss
o Found in most property and liability contracts
o Losses in these contracts are settled on the basis of actual cash value/fair market value
o Exceptions
 Valued policy – pays face amount of insurance regardless of actual cash value. For difficult to
value items e.g. rare antiques
 Replacement cost contracts – cost of replacing the insured property is paid with no deduction
for depreciation. Minimum ratio of market value to replacement cost needs to be met
 Life insurance – valued policies to pay a stated benefit in the event of the insured’s death.
Exempted from principle of indemnity due to the embedded savings element.

• Insurable interest – insured must suffer some form of loss/harm is the insured event
occurs
o Reduces gambling
o Reduces moral hazard
o Measures insured loss

Insurance within the financial services sector
Monetary financial
institutions
Central banks
Deposit-taking
corporations (except the
central bank)
Insurance corporations
and pension funds
Insurance companies
Pension funds
Other financial
corporations
Non-money market funds
Financial intermediaries
(other than insurance
companies & pension funds)
Captive financial
institutions and
moneylenders
Public financial institutions
* The Financial Corporations Sector and its Subsectors, United Nations Statistics Division

The insurance market
• Gross premiums of
SGD$3.97 billion
• Total asset worth of
SGD$11.14 billion

Insurance Lines & Products
Life insurance
• Term life
• Whole life
• Interest-sensitive life
insurance
• Endowment policies
• Annuities
Property-liability
• Fire and homeowners
multi-peril insurance
• Marine
• Casualty
• Surety, financial
guaranty and title
insurance
Disability & Health
• Disability
• Medical expense
• Medicare

Life Insurance & Annuities
Type Description
1 Term Protection for a finite number of years. Renewable.
2 Whole life Pays for face value of contract when insured dies regardless of when it occurs
3 Universal life
Interest sensitive. Combines elements of term and whole life insurance
After paying initial set premium, policyowners can vary the premiums they pay
Others: variable life, adjustable life, variable premium
Is uncertain in any given year, but certain in the long run

Life Insurance & Annuities
Is uncertain in any given year, but certain in the long run
Type Description
4 Endowment
Pay a death benefit only upon death of insured during a fixed period of time or at the end of the policy period,
whoever is sooner
Accumulates specific cash value that can be used by the policyowner with the savings element protected
5 Annuities
Designed to systematically liquidate a principal sum
Insurer agrees to pay the insured a certain sum for a specified period of time that could be a # of years or the
lifespan
Objective: to protect the insurer against that contingency that they will outlive other types of income

Property-Liability Insurance
Type Coverage
1 Fire Losses to buildings and personal property from fire
2 Homeowners
Protection for persons’ home and belongings against a specified number of perils:
1. Property damage to dwelling
2. Additional living expenses
3. Personal liability
4. Medical payments
3 Marine
Losses /damage to property due to perils associated with transportation
Some types:
1. Cargo
2. Hull
3. Marine liability
4. Freight
Protects insureds against losses due to damage or loss of property and legal liability

Type Coverage
1 Fire Losses to buildings and personal property from fire
2 Homeowners
Protection for persons’ home and belongings against a specified number of perils:
1. Property damage to dwelling
2. Additional living expenses
3. Personal liability
4. Medical payments
3 Marine Losses /damage to property due to perils associated with transportation

Type Coverage
4 Casualty
Protection against damages to property & losses from legal liability
1. Auto
2. Commercial multi-peril
3. Medical malpractice
4. Worker’s compensation
5. General liability
6. Mortgage and financial
guaranty
7. Aircraft
8. Class
9. Burglary & theft
10. Boiler and machinery
5
Surety, financial
guaranty and title
insurance
To secure interests of lenders and other creditors

Disability & Health Insurance
Type Description
1 Disability income
Periodic payments when the insured is unable to work because of illness, disease or injury
Meant to replace a portion of the income lost
2
Medical expense
insurance
Benefits for medical services
To protect against wage loss and medical costs

Roles of Insurers &
Intermediaries,
Organisational Forms &
Distribution Systems
3

Functions performed by insurers & intermediaries
1. Product design
2. Pricing
3. Production & Distribution
4. Underwriting
5. Loss Settlement
6. Investment
7. Reinsurance

1. Product Design
• Products – policies or contracts that specify the obligations between insurers &
insureds
• Insurers determine consumers’ risk-management and transfer needs and
develop insurance contracts that will meet the needs consistent with basic
insurance principles

1. Product Design
• Provisions
o Perils
o Coverage amounts and limits
o Deductibles/retentions
o Co-insurance provisions
o Coverage exclusions
o Basis of loss settlement
o Additional coverages
• Bundle of services
o Risk transfer
o Risk assessment
o Loss prevention
o Claims management
o Investment management

2. Pricing
• Determining the amount the insured must pay to
o Finance the loss prevention/potential insurance benefits the insured will receive
o Administrative expenses
o Cost of capital
• Usually prospective, determined in advance

2. Pricing
• 3 components to gross premiums
o Pure premium
o Expenses
o Benefits
• Depends on type of insurance
o Property-liability & Accident-Health
o Life insurance & annuities
Profits
USD$29.2 B (4.6%)
Expenses
USD$292.2 B (34.4%)
Benefits
USD$515.1 B (61%)
Property/liability data
for 1996

• Marketing & sale of insurance contracts, usually through intermediaries (agents/brokers)
• Agents
• Brokers

• Agents
o Act on behalf of insurers, do not represent interests of consumers per se
o Submits policy applications and premiums
o Receive commissions or a salary
o Types
 Independent agents – can represent more than 1 insurer (not allowed in Singapore – agents
must be ‘bound’ to a principal’)
 Exclusive/captive agents – represent 1 insurer, either as employees or independent
contractors

• Brokers
o Represent and advise buyers
o More common
o Sometimes provide a range of services (e.g. risk management advise)
o Compensated on a commission/fee-for-service basis

4. Underwriting
• Also provided by non-insurance financial institutions
o Banks
o Investment houses
• Guarantee payment in case of damage/financial loss and accept the financial risk for
liability arising from the guarantee
• Derives from the Lloyd’s of London insurance market

4. Underwriting
• Types of underwriting
o Securities underwriting
o Bank underwriting
o Insurance underwriting

4. Underwriting
o Securities underwriting – investment banks that raise capital for investors on behalf of corporations
and governments that issue securities. Used during a public offering in a primary market
o Bank underwriting – detailed credit analysis preceding the granting of a loan, based on credit
information given by the borrowers
 Commercial loan
 Commercial/business underwriting

4. Underwriting
o Insurance underwriting – evaluate the risk and exposures of potential clients
 Decide how much coverage client should receive + how much to be paid or whether to even accept the
risk and insure
 Need to measure risk exposure + determine the premium
 The underwriter protects the company’s book of business from risks they feel will make a loss and issue
insurance policies at a premium commensurate with the risk
 Categories of exclusion
 Moral hazard – consequences of the customer’s actions are insured, making customer more
likely to take costly actions
 Correlated causes – can affect a large number of customers at the same time, potentially
bankrupting the insurance industry

4. Underwriting
• Risk assessment
• Classification
• Selection }
Risk
Appropriate
policy/premium

5. Loss settlement
• To pay claims/benefit obligations arising out of insurance contract according to the
provisions of the contract
• Must be consistent with insurance contract provisions and assumptions underlying the
insurer’s pricing and financial structure
• Steps
o Determine if covered loss has occurred
o Fair and prompt payment of valid claims
 Otherwise, insured can file a compliant/sue
• Alternatives
o Advice and assistance (e.g. temp housing)
o Case management service (e.g. workers compensation)
o Claims management

6. Investment
• Reserves that insurers hold for unearned premiums, unpaid losses and other contingencies
must be invested along with surplus
• Need to recover the time-cost of money and promote efficiency
• Income earned allows insurers to discount premiums and/or improve benefits

7. Reinsurers
• Reinsurance – purchase of insurance by an insurer to cover all/a portion of
its loss payments on its insurance contracts
• Insurer cedes premiums and losses from its book to a reinsurer
• Reinsurer assumes the premiums/losses and pays a commission to the
insurer to cover transaction costs
• Why?
o Risk diversification
o Economies of scale
o Protect surplus from higher than anticipated underwriting losses

7. Reinsurers
• Cessision
o The transfer of liability from the primary insurer (the person that issued the insurance
contract) to another insurer (the re-insurance company)
o This Business placed with a re-insurer is called cessision
• Retrocession
o When the re-insurer cedes part of the assumed liability to another re-insurance
company
• Why?
o No single insurer has the financial capacity to extend an unlimited amount of
insurance coverage (contracts) in any line of business
o If a risk is too large for a single insurance company, can be spread over several
companies (“coinsurance”)

Types of intermediaries/entities (International)
Type Description
1 Stock insurers
Owned by owners/stockholders, who make initial capital investment
Profit-making company
Prices charged are final, no contingent liability
2 Mutual insurers
Owned by policyholders instead of stockholders
Not profit-making per se, earnings are returned to policyholders as dividends
Funded through
1. Pure/retroactive assessment
2. Advance premiums
3 Reciprocal insurers
Unincorporated group of individuals/subscribers who exchange risk
Each member is both insurer and insured
Attorney-in-fact is granted power of attorney
Primarily for auto insurance

Types of intermediaries/entities (International)
Type Description
4 Lloyd’s associations
For-profit proprietary organisations
Underwriter-member is always an individual insurer
Individual insurers (“names”) write risks on a cooperative basis
Each member assumes risks personally, organization bears no obligation
Usually for larger, unique, and higher-risk insurance policies (high potential returns + flexibility)
e.g. Lloyd’s of London
5
Health expense
associations
Membership group organised by hospitals in a geographic area to provide hospital expense
prepayment coverage

Framework in Singapore
Regulatory Body
MAS
(licensing,
authorization,
supervision)
Governing Laws
1. Insurance Act
2. General Insurance
Agents’ Regulations
3. Financial Advisors Act
4. Deposit Insurance Act
5. Policies of Assurance Act
6. Marine Insurance Act
7. Motor Vehicles (Third
Party Risks and
Compensation) Act
8. The Work Injury
Compensation Act
Scope
1. All insurers
2. Life insurers
3. General insurance
4. Insurance Brokers
Associations
1. Life Insurance Association
2. General Insurance Association and
its Agents Registration Board
3. Singapore Reinsurance
Association
4. Singapore Insurance Brokers
Association
5. Association of Financial Advisers

Overview of insurance regulation
• Correct market failures that would otherwise cause insurers to:
o Incur an excessive risk of insolvency
o Engage in market abuses that hurt consumers
• Other goals:
o Protect public interest, promote competitive markets and facilitate the fair equitable treatment of
insurance consumers
o Promote the reliability, solvency and financial solidity of insurance

General Principles of Insurance Regulation
1. Licensing
2. Financial standards
a) Capital standards
i. Fixed minimum capital and surplus
requirements
ii. Risk based capital
b) Reserve requirements
c) Investment restrictions
3. Solvency monitoring
a) Financial reporting
b) Financial analysis & early-warning
systems
c) Assessments
4. Intervention & Guaranty Funds
a) Intervention & Receivership
b) Guaranty associations
5. Other regulatory standards
6. Insolvency

1. Licensing
• Insurance & reinsurance-type activities are regulated by the MAS
o Assuming risk or liability under policies.
o Receiving proposals for policies.
o Issuing policies.
o Collecting premiums.
• Insurance and reinsurance intermediaries (i.e. “agents”) can operate without written
authorization if he is a:
o Licensed financial adviser.
o Person exempt from holding a financial adviser's licence (other than a licensed insurer) in respect of
any financial advisory service under specific provisions of the Financial Advisers Act (Cap. 110).
o Representative of a person as specified in the Insurance Act.

1. Licensing
• Insurance and reinsurance intermediaries who are brokers can operate without
registration if they are one of the following entities:
o Banks under the Banking Act (Cap 19).
o Merchant banks approved as financial institutions and approved to carry on business as insurance
brokers under the Monetary Authority of Singapore Act (Cap. 186).
o Licensed financial advisers under the Financial Advisers Act (Cap. 110).
o Holders of a capital markets services licence under the Securities and Futures Act (Cap. 289).
o Finance companies that have been granted an exemption to carry on business as insurance broker
under the Finance Companies Act (Cap. 108).
o Direct insurers licensed to carry on life business.
o Other persons or classes of persons as may be specified, and subject to any conditions imposed by
MAS.

1. Licensing
1. Insurers and reinsurers with an
establishment in Singapore must be ‘licensed’
1. Singapore incorporated entities (including
subsidiaries of foreign insurers)
2. Branches of foreign insurers
2. Reinsurers without an operating presence in
Singapore ‘authorised’ to solicit business and
collect premiums in Singapore
3. Foreign insurer scheme allows members of
the scheme to:
1. write business
2. establish and maintain insurance funds
3. generally carry on business
4. Representative offices must be ‘registered’
5. Approved Marine, Aviation and Transit
("MAT") insurers can operate in Singapore if
they are approved
• No physical presence needed
• Do not carry on insurance business other than
the collection/receipt of premiums in relation
to MAT

1. Licensing
• Insurers are limited to the type of insurance they can carry on under the terms of their
license
o Licenses for life insurance business – life policies, long term accident and health policies
o Licenses for general insurance business – all types of insurance business except life policies
• Reinsurers are not subject to restrictions

1. Licensing
Insurance Brokers
1. Limited products
2. Duty for pre-contractual disclosure
3. Duty to not misrepresent
4. Need to be qualified and fulfil the
requirements under the Insurance Act
Financial Advisors
1. Entire range of financial products
2. Additional licensing requirements
3. Additional checks on the conduct of
business

• Capital standards
o Fixed minimum capital and surplus requirements
o Risk based capital

o Fixed minimum capital and surplus requirements
SGD$ 5 million
• Only ILP
or
• Short-term
accident & health
policies
SGD$10 million
• Businesses other
than ILP and
accident & health
policies
SGD$25 million
• Reinsurers

 A realistic assessment of the capital requirements for the risks being run
 Risk-focused
 Greater Transparency
 Consistency in valuation of assets and liabilities
 Clear information on financial strength
 In line with international framework – Solvency II
 Insurance companies are to hold capital as calculated against its Total Risk Requirement (insurance risk + asset
portfolio risks + asset concentration risks)

 creates a more conducive environment for insurers to invest
 policyholders will benefit from better product pricing and asset allocation decisions made by insurers.
 encourages better asset-liability management among insurers
 avoids insolvency
 insurers can better offer long-term retirement solutions to policyholders
 minimise the impact of short-term market volatility

• Financial reporting
o Insurance (Accounts and Statements) Regulations 2004
• Financial analysis & early-warning systems
o Insurance (Valuation and Capital) Regulations 2004
• Potential right of inspection

• Financial reporting
• Financial analysis & early-warning systems
• Potential right of inspection

4. Intervention & Guaranty Funds
• Intervention & Receivership – Singapore’s “Insurance Fund”
o Guidelines on the Implementation of Insurance Fund Concept (2009)
o Sets out operational safeguards necessary for:
 Establishment of the insurance funds
 Segregation of assets of registered insurers
 Secures a minimum level of asset protection
 Ensures all assets + liabilities + expenses are property attributed to the fund
• Guaranty associations

• Insurers & reinsurers:
o Establishing and maintaining a register of Singapore and offshore policies, if the insurer carries on
business relating to Singapore and offshore policies.
o Establishing and maintaining a separate insurance fund for each class of insurance business carried
on by the insurer in respect of its Singapore and offshore policies.
o Complying with fund solvency and capital adequacy requirements under relevant legislation and MAS
directions.
o Investing and maintaining the assets of any insurance fund in accordance with MAS directions, and
ensure the maintenance of assets in a way deemed appropriate by MAS.
o Investigating the financial condition of each class of business carried on for every accounting period,
and ensuring that such investigation is duly carried out by an actuary appointed with the approval of
MAS.

• Brokers
o Preparation and maintenance of statements of accounts, books and other documents that can
explain the transactions and financial position of the broker
o Lodgement of these documents with the MAS
o Annual audit of account

6. Insolvency
• Where an insurer is unable to meet its obligations or becomes insolvent, its liabilities must
be distributed in the following order of priority (Insurance Act):
o Any levy due and payable under the Deposit Insurance and Policy Owners' Protection Schemes Act
2011
o Protected liabilities under the Deposit Insurance and Policy Owners' Protection Schemes Act 2011, up
to the amount paid or payable out of the Policy Owners' Protection Life Fund or Policy Owners'
Protection General Fund by the deposit insurance and policy owners' protection fund agency
o Liabilities incurred in respect of direct policies that are not protected under the Deposit Insurance
and Policy Owners' Protection Schemes Act 2011
o Liabilities incurred in respect of reinsurance policies

Notices – All Insurers
1. MAS 101: Maintenance of insurance funds
2. MAS 102: Margins of Solvency
3. MAS 103: Statutory Deposits and Bank Covenants
4. MAS 105: Appointment of custodians and fund
manager
5. MAS 106: Appointment of Director, Chairman and
Key Executive Person
6. MAS 108: Staff agency business
7. MAS 109:Lending of Singapore Dollar to non-
resident Financial Institutions
8. MAS 110: Comprehensive co-payment insurance
scheme
9. MAS113: Notice on Securities Borrowing and
Leading Activities
10. MAS 114: Reinsurance management
11. MAS 115: Residential property loans
12. MAS 116: Bridging loans for the purchase of
immovable properties
13. MAS 117: Training and competency requirement–
health insurance module
14. MAS 118: Unsecured Credit Facilities to Individuals
15. MAS 119: Electronic Submission of Annual Returns

Notices – All Insurers
16. MAS 120: Disclosure and advisory process
requirements for accident and health
17. MAS 121: Captive Insurance – Writing of
In-House and Non In-House Risks
18. MAS 122: Asset & Liability Exposures for
Insurers
19. MAS 123: Reporting of Suspicious
Activities and Incidents of Fraud
20. MAS 124: Public Disclosure Requirements
21. MAS 125: Investments of Insurers
22. MAS 126: Enterprise Risk Management for
Insurers
23. MAS 127: Technology Risk Management
24. MAS 128: Computation of Total Debt
Servicing Ratio for Property Loans

Notices – General Insurers
1. MAS 201: Quarterly and Other returns
2. MAS 210: Actuarial Investigation of
General Insurance Policy Liabilities
3. MAS 211: Minimum and Best Practice
Training and Competency Standards for
Direct General Insurers

Notices – Life Insurers
1. MAS 301: Quarterly and Other Returns
2. MAS 302: Product Development and
Pricing
3. MAS 303: Mortality Studies of Assured
Lives
4. MAS 306: Market Conduct Standards for
life insurers providing financial advisory
services (as defined under FAA)
5. MAS 307:Investment-linked life insurance
policies
6. MAS 309: Mortality Tables for Minimum
Reserves Calculation
7. MAS 314: Prevention of money laundering
and countering the financing of terrorism
8. MAS 318: Market Conduct Standards for
Direct Life Insurer as a Product Provider
9. MAS 319: Valuation of policy liabilities of
life business
10. MAS 320: Management of participating
life insurance business
11. MAS 321: Direct Purchase Insurance
Products
12. MAS 322: Information to be Submitted
Relating to the Web-Aggregator

Notices – Insurance Brokers
1. MAS 501: Quarterly Statement on Ageing
of Premiums Owing to Insurers
2. MAS 502: Minimum Standards and
Continuing Professional Development for
Insurance Brokers and their Broking staff
3. MAS 504: Reporting of Misconduct of
Broking Staff by Insurance Brokers
4. MAS 505: Notice on Reporting of
Suspicious Activities & Incidents of Fraud
5. MAS 506: Notice on Technology Risk
Management

Role of the government in insurance
1. Ensure that those who are licensed are competent and will have sufficient scale
2. Ensuring sufficient competition to prevent cartels from developing limiting numbers to a
level that prevents pyramid structures (e.g. cash flow underwriting)
3. Protect the public

Role of Compliance in
Insurance
5

Risks of an insurance company
• Data risk
• Underwriting risk
• Pricing risk
• Reserving risk
• Asset liability management risk
• Insurance fraud risk
• Solvency risk
• Investment default risk

Compliance within the internal control system

Compliance function within the internal control system

Role of compliance
• Protect the business and protect customers
• Ensure all participants are adequately covered
• “Risk-based reviews” of registers/issues
o Regulatory reporting
o Permissions
o Complaints
o Claims
o Gifts/benefits
o Conflicts of interest

Issues & challenges for compliance
• Product complexity
• Poor disclosure
• Conflict of interest
• Poor complaint handling
• Data Privacy
• Hard selling
• Lack of suitability
• Misrepresentation
• Poor documentation
• Customer risks
• Comparison difficulties

Risk Management
• Why?
o Minimise insurable losses
o The scope of cover which is required to cover the risks which need to be insured against
o The types of risks which a company would find more economical to minimise and bear itself
o The age old question of sourcing for the most suitable insurer who provides the widest cover at the
best rates
o In the course of renewal of cover
o In the event of claims, the broker’s expertise is required in determining the appropriate policy

Risk Management
• The concept underlying an insurance policy is that of risk transfer
• Risk management function of insurance policies bears crucial socio-economic significance
• Hedges against risks and uncertain losses that individuals/entities might be unable or
unwilling to bear
• Risk management strategies need to:
o Deal with risk
o Mitigate risk
o Clearly identify hose responsible for implementation
o Reflect expected prudent behaviour
o Proactive reviews

Risk Management
• Scope
o Underwriting and provisioning
o Reinsurance
o Investments
o Concentrations
o Asset–liability management
o Derivatives
o Liquidity management
o Business and operational strategies and processes (including business continuity planning and
outsourcing)

Governance
• Ensure proper oversight and transparency
• oversee insurance business line activities and product development and related
underwriting, pricing, reinsurance strategies and provisioning needs
• Ensure the effectiveness, soundness and integrity of the overall control system
Guidelines on Corporate Governance for Financial Holding Companies, Banks,
Direct Insurers, Reinsurers and Captive Insurers which are Incorporated in
Singapore

Governance – Board & Senior Management
• Financial reporting framework
• High Quality accounting principles
• Fairly represented
• Solvency position of the insurer
• Assess capital, borrowing and liquidity needs
Financial Position
• Have the requisite insurance, financial, accounting,
actuarial, management and leadership skills
• Demonstrate independence and exercise objective and
impartial judgement in the affairs of the insurer
Fitness & Propriety

Governance – Actuaries
• Insurance (Actuaries) Regulations
• Certified actuary must be appointed
• Reports to any of Board or Committee
• Duties:
o formulating a suitable policy
o assisting any risk management activity for its business
o assisting in product pricing and development

MAS’ Financial Advisory Industry Review
• “FAIR” – comprehensive evaluation of the FA industry, done with the Life Insurance
Association of Singapore
• Aims
o raising the competence of financial advisory representatives
o raising the quality of financial advisory firms
o making financial advice a dedicated service
o lowering distribution costs
o promoting a culture of fair dealing
o Guidelines on Fair Dealing

• Regulatory Implementation – changes were made in 2015 to:
o Financial Advisors’ Act
o Insurance Act
o Subsidiary Legislation

• Initiatives/implementation
o Balanced Scorecard Remuneration Framework (for Representatives and Supervisors)
o Restrictions on Non-Financial Advisory Activities for Representatives and Standalone Financial
Advisory Firms
o Banning of Short-Term Incentives
o Continuing Professional Development (minimum of 30 hours annually)

Training - Insurance

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