BCP Ch 1:Insurance and Reinsurance Market Notes

The Insurance and Reinsurance Market

• The insurance and reinsurance market includes sellers, intermediaries, and buyers.

Sellers

• Sellers of insurance in Singapore:

  • Direct Insurers

  • Reinsurers

  • Captive Insurers

  • Approved Marine, Aviation and Transit (MAT) Insurers

  • Lloyd’s of London

  • Marine Mutuals

Direct Insurers

• Direct insurers offer insurance protection to buyers in Singapore.

• Both domestic and foreign insurers operate in Singapore, licensed under the Insurance Act 1966 and regulated by the MAS.

• Classified by the type of insurance business they underwrite.

• Types of Direct Insurers:

  • Direct Life Insurers: Write life and long-term accident/health policies.

  • Direct General Insurers: Write all insurance except life and long-term accident/health; includes specialist insurers for marine mutual, trade credit, political risk, and financial guarantee insurance.

  • Direct Composite Insurers: Write both life and general insurance.

Reinsurers

• Act as insurers to direct insurers.

• Licensed in Singapore, restricted to life and/or general reinsurance business.

• They cannot write direct business but assume risks from other insurers.

• Interact with direct insurers directly or via reinsurance intermediaries.

• Overseas reinsurers can apply for authorization to solicit business and collect premiums in Singapore under the Insurance (Authorised Reinsurers) Regulations.

• Terminology:

  • Ceding Company/Cedant/Reinsured: The insurer transferring risk.

  • Retrocession: Reinsurers transferring risks to other reinsurers.

  • Retrocessionaire: The assuming reinsurer.

  • Retrocedent: The ceding reinsurer.

Captive Insurers

• Licensed in Singapore to insure risks of their parents and related companies as defined under Section 6 of the Companies Act 1967.

• Typically subsidiaries of large multinational corporations.

• Parents purchase insurance from their captives, who then transfer risks to reinsurers.

Approved Marine, Aviation and Transit (MAT) Insurers

• Overseas insurers in designated countries approved to provide direct MAT insurance in Singapore.

• Restrictions:

  • Only collect/receive premiums for MAT insurance.

  • No physical presence in Singapore; provide services from overseas.

  • Limited oversight by MAS (e.g., no required separate insurance funds or solvency margin requirements).

Lloyd’s Of London

• Specialist insurance market formed in 1686, governed by the Lloyd’s Act 1871 (UK).

• Provides infrastructure for underwriting members to conduct insurance business.

• Operated by underwriting members (Names) grouped into syndicates, managed by managing agents.

• Until 1994, only individual members with unlimited liability were admitted.

• From 1994, corporate capital was introduced, providing limited liability to corporate members.

• Syndicates specialize in classes like accident & health, aviation, casualty, energy, marine, motor, property, and reinsurance.

• Managing agents manage syndicates on behalf of members, handling operations and employing underwriting staff.

Marine Mutuals

• Shipowners form insurance mutuals to cover the group's risks, including purchasing reinsurance.

• Referred to as "Clubs" (e.g., Protection and Indemnity Clubs (P&I Clubs), Hull Clubs, War Risks Clubs).

• P&I Clubs insure shipowners for third-party liabilities on an indemnity basis.

Intermediaries

• Insurance agents and brokers who arrange contracts of insurance.

• Role: Bring buyers and sellers together.

• Authorized by a principal to create contractual relationships with a third party.

• Types:

  • Insurance Agents (including Trade Specific Agents).

  • Insurance Brokers.

  • Reinsurance Brokers.

Insurance Agents

• Carry on insurance business as an agent for one or more insurers, including foreign insurers under a foreign insurer scheme.

• Remunerated by insurers via commissions (percentage of premium, potentially including profit-sharing).

• Classification of Agent Types:

  • Individual agents (cash or credit agents). All premium payments other than cash must be made payable only to the Agent’s Principal, and cheque payments must be handed by the Agent to the Agent’s Principal promptly.

  • Corporate agents (agencies): sole proprietorships, partnerships, limited liability partnerships, companies, societies, and co-operative societies.

  • Trade Specific Agents (TSAs): Sell insurance incidental to their core business (e.g., travel agents selling travel insurance).

• Various types of TSAs:

  • Electrical and electronic retailers.

  • Freight forwarders.

  • Credit card providers.

  • Foreign worker agencies.

  • Mobile device dealers.

  • Motor dealers.

  • Foreign domestic worker agencies.

  • Travel agencies.

Nominee Agents

• Act for an agent registered with the Agents’ Registration Board (ARB).

• Corporate agents must solicit business through Nominee Agents, as codified in the revised GIARR effective January 2020.

Insurance Brokers

• Must be registered with the Monetary Authority of Singapore (MAS), unless exempted.

• Advise clients on insurance needs, negotiate, and arrange insurance with insurers.

• Appointed by corporate clients, providing independent expert advice.

• Exercise care in meeting client needs and act fairly in their interest.

• The vast majority of commercial businesses are transacted through licensed brokers.

• Brokers receive brokerage from insurers and may charge fees for advice.

• Insurance broking companies must have Professional Indemnity Insurance as per Section 77(1)(c) of the Insurance Act 1966.

Classification of Insurance Brokers

• Types:

  • Direct insurance broker: General business and long-term accident and health policies.

  • General reinsurance broker: General reinsurance broking business.

  • Life reinsurance broker: Life reinsurance business.

  • Insurance broker: Any combination of the above.

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Key Differences Between A General Insurance Agent & An Insurance Broker

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Lloyd’s Brokers

• Lloyd’s underwriters generally do not deal directly with policyholders.

• Business is brought in by accredited brokers who satisfy Lloyd’s regarding experience, integrity, and financial standing.

• Lloyd’s brokers may also place business with other insurance companies.

Reinsurance Brokers

• Intermediaries and consultants for insurance and reinsurance companies.

• Advise on risk transfer aspects and help structure reinsurance placements.

• The process involves analyzing portfolios and finding markets for capacity at competitive terms.

Buyers

• Those who need insurance: the general public, government, and commercial enterprises.

• Direct insurers and captive insurers are also buyers when seeking reinsurance.

Structure of the Singapore Insurance and Reinsurance Market

• Insurers in Singapore include licensed insurers, authorised reinsurers, approved MAT insurers, and foreign insurers.

• Insurance brokers include registered insurance brokers, approved MAT insurance brokers, and approved reinsurance brokers.

• Insurers can be licensed as direct insurers, reinsurers, or captive insurers.

Permitted Activities by Type of Insurance Entity

The table details the description of each type of insurance entity and their
permitted activities.

Alternative Distribution Channels

• Insurers use alternative channels to balance consumer needs against distribution costs.

• Besides bancassurance, other channels include credit card providers, retailers, post offices, self-service terminals, and mobile apps.

• Banks sell insurance through branches, often owning or partnering with insurance companies.

Bancassurance

• Partnership between a bank and an insurance company to distribute insurance products through the bank's sales channels.

Web Aggregators

• Compile and provide information about insurance policies from various companies.

• Designed as a self-help tool for customers to compare products.

• Section 39(8) of the Insurance Act 1966 defines “web aggregator”.

• Personal lines like health, travel, and motor insurance are commonly displayed.

• Comparison sites help customers shop for and compare quotes and terms.

• Some aggregators work directly with insurers and intermediaries.

Insurance Trade Associations

• Main Associations, including:

  • General Insurance Association of Singapore (GIA).

  • Life Insurance Association of Singapore (LIA).

  • FinTech Association.

  • Singapore Insurance Brokers’ Association (SIBA).

  • Singapore Reinsurers’ Association (SRA).

  • Reinsurance Brokers’ Association (Singapore) (RBAS).

  • Loss Adjusters’ Association (Singapore) (LAAS).

  • Association of Financial Advisers (Singapore) [AFA(S)].

  • Insurance and Financial Practitioners Association of Singapore (IFPAS).

  • Association Of Singapore Insurance Agents (ASIA); and the

  • Insurance Law Association, Singapore (ILAS).

• Act as forums for members to discuss issues and make representations to authorities.

General Insurance Association of Singapore (GIA)

• Represents general insurance companies in Singapore.

• Promotes growth and development of the general insurance sector.

• Acts as the regulatory body for general insurance agents through the Agent’s Registration Board.

• Sets standards and provides best practices for agency management.

Life Insurance Association of Singapore (LIA)

• Represents life insurance and reinsurance providers in Singapore.

• Voices member interests, develops industry guidelines, and helps consumers understand life insurance.

FinTech Association

• A cross-industry non-profit initiative to facilitate collaboration in the FinTech ecosystem.

Singapore Insurance Brokers’ Association (SIBA)

• Sets minimum standards for education and experience for insurance brokers.

Singapore Reinsurers’ Association (SRA)

• Comprises non-life reinsurance companies and reinsurance broking firms.

Reinsurance Brokers’ Association (Singapore) (RBAS)

• Represents reinsurance brokers licensed in Singapore.

• Requires members to conform to rules regarding accounting, compliance, ethics, professional indemnity coverage, and a code of conduct.

Loss Adjusters’ Association (Singapore) (LAAS)

• Represents loss adjusting firms in Singapore.

• Advances the study and practice of loss adjusting and cooperates with authorities.

Association of Financial Advisers (Singapore) [AFA(S)]

• Represents licensed Financial Advisers (Firms) that provide advice on and engage in sales of Financial Products.

• Aims to provide a forum for its members, to develop opinions, recommendations and educational programmes, which can contribute to the further development of the financial services industry for the benefit of the Singapore public.

Insurance and Financial Practitioners Association of Singapore (IFPAS)

• Association for financial services and insurance practitioners dedicated to upholding ethics and professional standards.

Association of Singapore Insurance Agents (ASIA)

• Represents registered general insurance agents in Singapore.

• Provides a platform for members to exchange views and updates members of latest developments in the insurance industry.

Insurance Law Association, Singapore (ILAS)

• Comprises members from the legal profession and the insurance industry.

• Focuses on legal matters affecting insurance, hosting seminars and talks.

Other Insurance Related Bodies

• Includes:

  • Financial Industry Disputes Resolution Centre Ltd (FIDReC).

  • Singapore College Of Insurance (SCI).

  • Singapore Insurance Institute (SII).

Financial Industry Disputes Resolution Centre Ltd (FIDReC)

• Launched in August 2005 by MAS.

• Provides affordable, independent dispute resolution for retail disputes with financial institutions.

• Disputes are usually resolved within 6 months, without lawyers.

Jurisdiction of FIDReC

• Set out in its Terms of Reference.

• No claim limit for mediation.

• Adjudication limit is up to 150,000 per claim (for claims filed on or after 1st July 2024).

• Handles disputes between financial institutions (subscribers) and consumers.

• The financial institution must have had the opportunity to resolve the dispute with the consumer first.

• Complaints that cannot be brought before FIDReC:

  • Commercial Decisions

  • pricing policies and other policies such as interest rates and fees

  • cases relating solely to investment performance of a financial product

  • cases under investigation by any law enforcement agency, including cases where allegations of fraud or criminal activity have been made, and where the matter has been referred to the police for investigation

  • disputes between an FI and its officers and employees relating to agency or employment issues

  • Complaints that are more than six months old after the FI’s final reply

  • Complaints arising under a Former Scheme and which have been considered by or resolved under that Scheme

  • Complaints that have been dealt with by or resolved by FIDReC unless there is new material information that was not reasonably available at the time the previous complaint had been filed

  • Complaints that have been settled privately or otherwise between the Eligible Complainant and the FI

  • cases which have been subjected to a court hearing and for which a court judgment and/or order has been passed

• Cases FIDReC can dismiss without mediation:

  • Frivolous or vexatious cases.

  • Other compelling reasons.

FIDReC’s Dispute Resolution Process

• Complaint Filing (1st Stage): Consumer lodges complaint at FIDReC and Case Manager verifies if the complaint is within FIDReC’s jurisdiction.

• Mediation (2nd Stage): When a complaint is first received, the Case Manager will arrange mediation to facilitate discussions between disputants with the objective of reaching a settlement.

• Adjudication (3rd Stage): the consumer can choose to allow an Adjudicator to decide the case on the facts and merits. If the consumer is not satisfied with the decision, he has the option to continue to pursue the complaint through other channels or means such as litigation.

• The decision of the Adjudicator or Panel is final and binding on the financial institution, but not on the consumer.

Filing A Complaint

*(a) Any consumer who has a dispute that he has not been able to resolve with a financial institution can file a complaint free of charge with FIDReC either in person or via fax, post or e-mail.

*(b) On receipt, a Case Manager will process the complaint. If the complaint is within FIDReC's jurisdiction, the Case Manager will take it up with the financial institution concerned and will facilitate a resolution of the dispute if possible through case management and mediation. This service is free of charge to consumers.

*(c) If the resolution cannot be reached, the consumer may then choose to take his complaint further by referring the dispute to the Adjudicator or a Panel of Adjudicators for adjudication. The consumer needs to pay an adjudication case fee when his case proceeds to adjudication.

FIDReC-NIMA Scheme

• Helps consumers resolve non-injury motor accident disputes with insurance companies.

• Applies to claims below S$3,000.

• Covers claims against a third-party insurance company.

Singapore College of Insurance (SCI)

• Not-for-profit, industry-based training and education body set up in 1974.

• Upgrades expertise of insurance and financial services practitioners.

• Administers regulatory examinations for MAS.

• Builds talent pipelines for the industry.

• Plays an active regional role under the ASEAN Insurance Council.

• Has international links with professional bodies.

• Secretariat for the Asia-Pacific Risk and Insurance Association (APRIA).

Singapore Insurance Institute (SII)

• Professional membership body for professionals in insurance and financial services.

• Organizes talks, discussion groups, and activities to upgrade professionalism.

• Members must observe a Code of Conduct.

Rating Agencies

• Provide independent assessments of financial capacity and creditworthiness.

• Categorize institutions into letter grades (e.g., AAA, AA, A, BBB, BB).

• Assess insurer's financial strength and ability to meet obligations.

• In insurance, ratings reflect financial strength and ability to meet policy obligations.

• Help insurance buyers make informed decisions.

• Increasingly incorporate sustainability and ESG issues in rating methodologies.

Loss Adjusters

• Independent claims specialists who assist in validating claim settlements fairly and quickly.

• Appointed by insurers to investigate large and complex claims.

• Remunerated by insurers.