MAS proposes to simplify requirements and facilitate access to simple and cost-effective insurance products

28 February 2024

On 2 February 2024, the Monetary Authority of Singapore (“MAS”) published a consultation paper to seek feedback on proposals to allow financial institutions to collect a reduced set of client information when making recommendations on selected life or long-term accident and health insurance policies in accordance with the rules of thumb in the Basic Financial Planning Guide (“Guide”), subject to safeguards. The proposal seeks to promote the adoption of the Guide by the financial advisory industry and enable consumers to more easily purchase simple and cost-effective insurance policies to meet their needs, which can help narrow insurance protection gaps in Singapore. The consultation closes on 15 March 2024.

Background

The Guide was launched in October 2023 by MAS and MoneySense, in collaboration with Central Provident Fund Board and finance industry associations, to help Singaporeans take steps to enhance their financial well-being. The Guide outlines a few rules of thumb for individuals to start taking proactive steps to address their savings, insurance, and investment needs. In particular, the Guide recommends:

  • obtaining insurance protection coverage of nine times annual income for death and total and permanent disability (“TPD”);
  • obtaining insurance protection coverage of four times annual income for critical illness (“CI”); and
  • spending at most 15% of take-home pay on insurance protection.

Reduced set of client information to be collected for recommendations on insurance policies made in accordance with the Guide

MAS proposes to exempt financial institutions which make recommendations on term life insurance policies, standard CI riders sold with term life insurance, and standard standalone CI policies in accordance with the rules of thumb in the Guide from the full information collection requirements under paragraph 11 of the Notice on Recommendations on Investment Products (FAA-N16) and paragraph 35 of MAS Notice 120 on Disclosure and Advisory Process Requirements for Accident and Health Insurance Products. Instead, financial institutions will be required to collect the following information:

  • objectives of the client;
  • current insurance policies of the client that provide death and TPD, and/or CI coverage;
  • (for standalone CI policies and CI riders) any medical conditions that the insured may have; and
  • the client’s annual income.

Controls and safeguards for recommendations made based on the Guide

Financial institutions which rely on the exemption to collect the reduced set of information will be required to:

  1. explain all the rules of thumb in the Guide to the client to guide the client in budget allocation to meet key financial needs such as setting aside sufficient emergency savings;
  2. confine the recommendation made to only term life insurance policies, standard CI riders sold with term life insurance policies, and/or standard standalone CI policies;
  3. verify that the client’s total death and TPD, and CI coverage, after taking into consideration his existing insurance policies and the recommended policy, does not exceed nine times and four times of his annual income, respectively; and
  4. verify that the client’s total annual outlay on insurance policies that provide death, TPD, and CI coverage, after taking into consideration his existing insurance policies and recommended policy, does not exceed 15% of his take-home pay.

MAS also seeks views on whether the exemption from full information collection should be confined to situations where the client’s existing insurance policies providing death, TPD, and CI coverage comprise solely of the types of policy in paragraph 2 above.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg: