From 2 February 2024 to 15 March 2024, the Monetary Authority of Singapore (“MAS“) is seeking comments on its proposals to reduce the information financial institutions (“FIs“) need to collect when making recommendation of selected life or long-term (LT) accident and health (“A&H“) insurance policies based on the Basic Financial Planning Guide (“Guide“), subject to safeguards. The aim of the proposed changes is to also encourage the adoption of the recently released Guide which, among other things, is to help consumers narrow their insurance protection gaps.
Reduced Set of Client Information for Recommendations Based on Guide
Currently, FIs are required under the Financial Advisers Act 2001 (FAA) to have a reasonable basis for recommending any investment product (including a life policy) to a client. FIs are also required to have a reasonable basis for providing advice with respect to A&H policies, under MAS Notice 120 on Disclosure and Advisory Process Requirements for Accident and Health Insurance Products (“Notice 120“). The information which FIs must collect from the client in respect of investment products is set out in MAS Notice on Recommendations on Investment Products (“FAA-N16“).
The Guide sets out the principles regarding insurance protection: (i) have insurance protection coverage of nine times annual income for death and total and permanent disability (TPD); (ii) have insurance protection coverage of four times annual income for critical illness (“CI”); and (iii) spend at most 15% of take-home pay on insurance protection. It also encourages consumers to consider the following term insurance policies: (i) term life insurance policies; (iii) standard CI riders sold with term life insurance; and (iii) standard standalone CI policies.
MAS proposes to exempt an FI which makes recommendations on the types of insurance policies covered under the Guide, in accordance with the principles in the Guide, from the full information collection requirements under FAA-N16 and Notice 120.
Controls and Safeguards for Recommendations Made Based on Guide
To rely on the exemption to collect the reduced set of information, FIs must institute various safeguards.
MAS notes that clients may have existing insurance policies that fall outside the coverage of the Guide. For such products, financial advisers and their representatives must take more care when advising clients on ways to address the insurance protection gap. MAS also seeks views on whether the reduced set of client information is also justified in these situations.
The Consultation Paper is available here on the MAS website.
