Page 31 - LIAM Annual Report 2021

AnnuAl RepoRt 2021 29

rePort of tHe ManageMent coMMittee

inVestMent-Linked (iL) PoLicies

Bank Negara Malaysia (BNM) issued the policy document on Investment-linked (IL) business on 11 January 2019 with the principal
objective of ensuring that insurers provide fair treatment to consumers in preserving the value of consumers’ IL policies. The
policy document stipulates requirements aimed at achieving:
i) High corporate governance and professionalism in administration of IL business;
ii) Professional and proper conduct in sales and marketing of IL policies; and
iii) Enhanced product transparency and disclosure to protect the interest of policy owners.

The policy document sets out the:

i) Introduction of Minimum Allocation Rate (MAR) to protect the account value of policy owners in tandem with the liberalisation
of commission;
ii) Introduction of standards for sustainability tests for proper management of long-term persistency of IL policies;
iii) Enhancements of product illustration formats.

The past two years saw LIAM, together with after entering into a contract – or one
the Malaysian Takaful Association (MTA), that is automatically invoked by the
embarking on a campaign to educate insurer, whereby the insurer must make
and create awareness on IL Insurance sure that policy owners are provided
and Takaful plans among consumers – by with appropriate advice on managing
improving transparency and ensuring that extensions at the point of sale and
consumers are provided with sufficient thereafter (e.g. providing avenues for
and timely information, so their policies policy owners to pre-fund the extensions).
are sustainable.
Disclosure requirements at the point of
Insurers have communicated with their sale, post-sale and prior to the extended
policyholders on how IL policies work, period were also specified by Bank Negara
what affects IL fund values, and actions Malaysia (BNM).
that can be taken if the fund becomes
insufficient to ensure continued coverage Insurers are required to ensure that due
for the full policy term. Policyholders are care, skill, and diligence are exercised when
also given annual updates on the expected sustainability dealing with financial consumers, in line with the BNM Policy
of their IL policies with the intention to encourage policy Document on Fair Treatment of Financial Consumers. In this
owners to manage their policies more proactively and take case, comparisons between investment-linked products with
appropriate actions where necessary. and without extension to coverage term features, as well as
available alternatives, must be clearly explained to ensure
LIAM also issued Minimum Standards for Sales Practices for informed decision-making. Insurers are also expected to
IL policies in May 2020, as best practices for the industry to periodically engage with policy owners’ post-sale and ensure
ensure agents are properly trained to sell IL policies that are that they sufficiently understand the key information stated
suitable for policyholders’ needs and risk appetite. in the written disclosure.

Further to this, BNM issued specifications pursuant to Sections
47, 123 and 143 of the Financial Services Act 2013 (FSA)
on 22 March 2021, related to investment-linked products
which provide an extension of coverage beyond the initial
coverage term, aiming to mitigate risks of mismatch between
consumers’ expectations on the term of cover and the actual
sustainability of the policy, and/or lack of understanding on
the financial implications of an extension.

With effect from 22 September 2021, insurers must ensure
that an extension is designed as an option – whereby the
policy owner must take explicit action to exercise the option