The Monetary Authority of Singapore (MAS) is planning to revise the Policy Owners' Protection Scheme (PPF Scheme) that would take into account, among other things, new employment models.
In a statement yesterday, MAS said that it proposes that a “personal” insurance policy be defined as one that is owned by an individual; this will allow claims on damage to properties owned and used by individuals to be protected under the PPF Scheme, even if these properties are sometimes used for commercial purposes. Examples of such properties include privately owned cars used for hire and reward and home offices. This proposal recognises the growing trend of individuals using their personal properties for commercial purposes, who nonetheless deserve protection under the PPF Scheme.
Ceiling on property damage claims
Another key proposal is to exclude certain high value property damage claims from protection under the PPF Scheme. Specifically, MAS proposes to implement, on a per policy basis, a cap of:
a) S$50,000 (US$35,745) for own property damage motor claims, under personal motor insurance policies; and
b) S$300,000 for property damage claims, under personal property (structure and contents) insurance policies.
The caps will help keep PPF levies and insurance premiums affordable for the scheme members and consumers respectively. The caps have also been calibrated for the PPF Scheme to fully cover more than 99% of such claims, based on industry data over the past few years. The introduction of caps is also aligned with practices in other jurisdictions which have in place similar schemes.
MAS yesterday launched a public consultation to review the PPF Scheme, to ensure that the Scheme would remain relevant in the face of market developments.
In its consultation paper, MAS also clarified questions relating to investment-linked products (ILPs). The paper says that in recent years, direct life insurers started introducing ILPs where death benefit is expressed as a percentage (e.g. 105%) of the value of the underlying assets (NAV). This had led to some confusion on whether such benefits, which are tied directly to the NAV and subject to volatility, are considered as guaranteed benefits. MAS said: “Any benefits that are tied to the NAV would not be covered under the PPF Life Scheme given that these are not guaranteed benefits. Disclosure to policy owners should be made clearer to avoid potential confusion.”
The market has also seen the introduction of variable annuity policies some years ago, where the guarantees broadly fall within two primary categories – Guaranteed Minimum Death Benefits and Guaranteed Living Benefits. While these benefits are seemingly linked to the NAV as well, and hence should not be covered under the PPF Life Scheme, the difference is their ratcheting feature. For example, even if the value of the underlying investments fall during a market downturn, the minimum death benefit is based on the highest NAV observed during the past predefined number of months. In such cases, MAS says, there is a guarantee provided and hence the benefits would be covered under the PPF Life Scheme.
The PPF Scheme provides compensation to policy owners for all life insurance policies and certain general insurance policies in the event of default of any licensed direct life or general insurer. The “certain general insurance policies” refer to accident and health policies, insurance that are required by law, and Singapore policies of specified personal lines, such as personal motor and personal property (structure and contents) insurance.
The public consultation will end on 19 May 2017. The PPF Scheme was last reviewed in 2011, following enactment of the Deposit Insurance and Policy Owners' Protection Schemes Act.