This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Singapore.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
As the central bank of Singapore, the Monetary Authority of Singapore ('MAS') administers the Insurance Act (Cap. 142 ('IA') and regulates the insurance industry in Singapore. The IA has provisions governing the regulation of insurance business, insurers/ reinsurers, insurance intermediaries as well as related institutions in Singapore. MAS is also responsible for the supervision and regulation of insurance and reinsurance companies, including captives, and insurance and reinsurance brokers.
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
There is no distinction in the regulation of different types of insurers such as life insurers or reinsurers. However, there is a distinction between licensed insurers or foreign insurers in Singapore. Insurers and reinsurers with an establishment in Singapore must be licensed. These insurers are able to carry out the business of direct life and/or general business, life and/or general reinsurance business as well as captive insurance. Foreign insurers authorised to carry on insurance business in another jurisdiction may operate in Singapore under one of two foreign insurer schemes established under Part IIA of the IA, i.e. The Lloyd's scheme and the Lloyd's Asia Scheme.
Are insurance brokers and other types of market intermediary subject to regulation?
Generally, insurance brokers are subject to regulation under the IA.
Entry into insurance intermediation business in Singapore is fairly regulated and supervised. In Singapore, insurance agents are to be registered with the General Insurance Association of Singapore ('GIA') and insurance brokers are to be registered with MAS.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
Insurance brokers are required to obtain an insurance broker license from the MAS, pursuant to the IA. Banks, financial advisers, direct life insurers, capital market service providers licensed under the relevant governing Acts are, however, exempted from this requirement.
Applicants may be registered as:-
- A direct insurance broker;
- A general reinsurance broker;
- A life reinsurance broker; or
- An insurance broker to carry out any combination of the above.
In order for this licence to be granted, potential applicants must also satisfy a number of criteria, including minimum financial requirements, management expertise, track record and the adequacy of internal compliance systems and processes.
All potential applicants must submit their application in a prescribed form to the MAS. MAS takes approximately 4 months to process and approve a registration application.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
Prior approval from the MAS is required before anyone, whether acting together with another person or otherwise, obtains an interest or holding in voting shares ≤ 5% of the total voting share in a licensed insurer incorporated in Singapore.
Prior approval is also required from MAS before anyone obtains effective control of a licensed insurer in Singapore. A person is regarded as obtaining effective control of a licensed insurer if, inter alia, that person (whether alone or together with his associates) hold ≤ 20% of the total number of issued shares or is in a position to control such voting power in the insurer. Approval from MAS may be subject to conditions, such as restricting the person's disposal or further acquisition of shares or voting power in the licensed insurer concerned.
The applicant must satisfy MAS that he is a fit and proper person, and that having regard to the likely influence of the person, the licensed insurer concerned will continue to conduct its business prudently and comply with the provisions of the IA.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
Save for compulsory classes of insurance, there is no prohibition against non-admitted insurers from insuring domestic risks.
However, registered insurance brokers are not permitted to negotiate any insurance contract covering domestic risks with an unlicensed insurer without prior approval from MAS. Such approval would only be granted in respect of exceptional risks or under exceptional circumstances where it is not reasonably practicable for the risk to be placed with a licensed insurer.
What penalty is available for those who operate without appropriate permission?
Section 2 of the IA provides that an unlicensed or unauthorised insurer carrying out business in Singapore shall be guilty of an offence and shall be liable on conviction:-
- In the case of an individual, to a fine not exceeding $125,000 or to imprisonment for a term not exceeding 3 years or to both, and in the case of a continuing offence, to a further fine not exceeding $12,500 for every day or part thereof during which the offence continues after conviction; or
- in any other case, to a fine not exceeding $250,000 and, in the case of a continuing offence, to a further fine not exceeding $25,000 for every day or part thereof during which the offence continues after conviction.
How rigorous is the supervisory and enforcement environment?
Singapore maintains a rigorous regime of supervision and regulation of the financial services sector, including the insurance industry, to ensure the stability of the domestic financial system.
How is the solvency of insurers (and reinsurers where relevant) supervised?
Licensed insurers are required to maintain a separate insurance fund for each class of business they carry out. This applies to both Singapore policies as well as offshore policies. Life insurers must also maintain separate funds for investment-linked, participating and nonparticipating policies.
MAS adopts a risk-based regulatory capital framework for insurers. The capital which an insurer is required to hold is dependent on its risk exposures (i.e. Total Risk Requirements ('TRR')) for each insurance fund and in aggregate. TRR is calculated in three components: C1 – insurance risks; C2 – asset portfolio risks, such as market and credit risks; and C3 – asset concentration risks.
MAS conducts a review of its regulatory capital framework from time to time to re-calibrate the capital requirements to better reflect an insurer's activities and risk profile. MAS is currently reviewing its regulatory capital framework. Key revisions include the downward calibration of capital requirements for equity investment, credit spread, counterparty default and operational risks. The revised framework is also expected to establish a prescribed capital requirement and a minimum capital requirement at insurance fund and insurer level.
What are the minimum capital requirements?
Direct Insurers (excluding insurers underwriting investment-linked policies or short term accident and health policies only) S$10 million Direct Insurers (investment-linked policies and short-term accident and health policies) S$5 million Captive Insurer S$400,000 Approved Marine, Aviation and Transit Insurer S$2 million, in the form of a bank deposit Reinsurer S$25 million Authorised Reinsurer S$2 million per class of authorised reinsurance business, and in the form of a bank deposit
Is there a policyholder protection scheme?
Singapore has a Policy Owners Protection ('PPF') Scheme, which provides 100% coverage of the guaranteed benefits of life insurance policies (including riders) in the event that the insurer concerned is unable to meet its obligations / insolvent. Policies issued by overseas branches of a registered direct life insurers incorporated in Singapore are not covered under the PPF.
The PPF also provides coverage to insureds under compulsory general insurance policies, and Singapore policies of specified lines (e.g. personal travel insurance policies, personal property insurance policies, and individual and group short-term accident and health insurance policies) issued by registered general insurers which are PPF Scheme members. A policy is regarded as a "Singapore policy" if it insures risks arising in Singapore or the insured is a Singapore resident or has a permanent establishment in Singapore.
How are groups supervised, if at all?
Singapore insurance groups whose parent entity holds an insurance subsidiary operating in Singapore or is itself an insurance company operating in Singapore will come with the purview of the supervision of MAS.
Group-wide supervision of intermediate insurance groups whose parent entity is incorporated outside Singapore may also be carried out by MAS if it has significant operations in Singapore and the insurance group is not subject to group-wide supervision by the foreign home supervisor. The prudential requirements of MAS for an insurance group will be applied via the controlling parent of the group.
Some of the notable aspects of the group-wide supervision regime include:
- The parent entity should have a suitably qualified and competent board to discharge its oversight role objectively and free of undue influence;
- The parent entity must provide quarterly updates to MAS on matters such as the activities of unregulated entities in the group, key persons governing these unregulated entities, and intra-group transactions and exposures and risk concentrations;
- Obtaining prior approval from MAS before any direct or indirect acquisition of ≤ 10% of shares in issue or voting power in any company, and notifying MAS of any disposal of such stake even if the operation is not in Singapore; and
- Group level capital requirement in addition to the solo entity level requirements.
Do senior managers have to meet fit and proper requirements and/or be approved?
Only appointments of relevant persons having control or effective control of the insurer's activities is subject to supervision by MAS. These persons include a principal officer, director or chief executive officer of a registered insurer, a Certifying Actuary, a substantial shareholder, and the Singapore representative who is responsible for the activities of the insurer's local representative office.
Are there restrictions on outsourcing parts of the business?
There are no restrictions on outsourcing. However, the insurer concerned must adopt a framework to effectively manage its outsourcing arrangements, such as maintaining a register of its outsourcing arrangements which is to be submitted to MAS on an annual basis or upon request, and conducting independent audits and/or expert assessments of its outsourcing arrangements. The regulatory framework for outsourcing is set out in the Outsourcing Guidelines dated 27 July 2016 of MAS.
How are sales of insurance supervised or controlled?
All representatives of insurance companies or financial institutions who advises other and/or arranges for any contract of insurance in respect of life policies must be licensed under the Financial Advisers Act (Cap 110).
General insurance products may only be sold by individuals registered with Agents' Registration Board ('ARB') of the GIA through their principal insurers. These individuals must be equipped with minimum qualifications and fulfill GIA's Fit and Proper Criteria.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
Insurance companies are subject to the Consumer Protection (Fair Trading) Act (Cap 52A). The Act prohibits unfair practices, such as conduct which reasonably results in a consumer being misled, and taking advantage of a consumer if the insurer knew or ought to know that the consumer is not in a position to protect its own interest, understand the character, nature or effect of the transaction or any matter related to the transaction.
MAS also requires registered insurers to provide a 14-day "free look period" to its policyholders of a life policy or accident and health policy with a duration of one year or more. This allows the policyholder to terminate the policy within 14 days from the date of receipt of the policy documents without incurring any premiums.
The PPF Scheme also provides coverage for policyholders of various classes of consumer policies in the event that the insurer concerned is insolvent or unable to meet its obligations.
Are the courts adept at handling complex commercial claims?
Singapore Courts have substantial expertise handling and managing complex international commercial claims. The Supreme Court of Singapore also include an International Commercial Court division which offers litigants the option of having their disputes adjudicated by specialist commercial from Singapore and international judges from both civil law and common law jurisdictions.
Is alternative dispute resolution well established in the jurisdiction?
Singapore has dedicated facilities to handle arbitrations and mediations.
The Singapore International Arbitration Centre is widely recognized as one of the leading arbitration centres. The Singapore Mediation Centre and Singapore International Mediation Centre also have proven track records. Other alternative dispute resolution options include mediation and neutral evaluation services provided at the State Courts of Singapore, and other ad-hoc private mediation centres.
What are the primary challenges to new market entrants?
Apart from a rigorous regulatory framework, challenges to new market entrants include:
- Strong competition from local and international insurers and reinsurers with an established presence in Singapore in a relatively smaller market vis-à-vis neighbouring countries in Asia;
- Low penetration rates for various classes of insurance, such as life insurance; and
- Attraction and retention of specialist talent.
To what extent is the market being challenged by digital innovation?
Many insurers are beginning to adopt technology in their operations to engage and retain consumers and manage increasing operation costs. As large quantities of sensitive and personal data are stored on servers or held in the "cloud", effective risk management to minimize and contain risk of breaches is paramount.
Digital innovation has also brought about new and emerging risks (e.g. cyber-attacks and use of autonomous vehicles) and evolution of traditional lines of business like motor insurance (e.g. to cater to new consumer technologies such as Uber). The insurance industry needs to regularly gather and review risk data and loss scenarios brought about by technological innovations to enhance the relevance of insurance coverage provided.
Over the next five years what type of business do you see taking a market lead?
Over the next five years, we see bancassurance and online platforms as being strong demand drivers in the Singapore market.
With a present penetration rate of approximately only 4%, uptake in life insurance policies is expected to increase with more innovative coverage, such as protection against loss of income and mortgage protection.
Demand for cyber insurance is also expected to continue to gain traction.