Life Insurance Business in Malaysia

• The principal legislation governing the life insurance business is the Insurance Act 1996 (replacing the previous Insurance Act 1963) which came into force on 1 January 1997.
• The supervision of the life insurance industry is Bank Negara Malaysia (Central Bank of Malaysia), a division of the Ministry of Finance.
• The licensing authority for insurers and professional reinsurers is the Minister of Finance.
  Click here to view the Malaysian Life Insurance Key Indicators Chart.

Regulations Affecting Life Insurance Business

Guidelines on operating costs of Life Insurance Business (Jan 1996)(Revised 2000)

Under this set of guidelines, the acquisition costs of life insurance business would be reduced in accordance with limits on:

1. Agency compensation;
2. Management expenses;
3. Fringe benefits; and
4. Reduction of agency system into a 3 tier structure.
   

Bumiputera Agents Training Fund (March 1996)

A RM 1 million fund will be allocated each year to assist in the training and development of the bumiputera life agency force. Contributions to this fund are from the 16 life insurance companies on the basis of volume of premiums in force. The management of the fund rests with the Malaysian Insurance Institute.

Code of Good Practice for Life Insurance Business (1998)

This Code sets out the rules for life insurers to maintain certain minimum standard in the design and sales of life insurance products. In order to maintain a high standard of professionalism in the sales of life insurance products, the code provides illustration formats, prescribes standards and specifies disclosure that are required to achieve fair pricing of products, truth in selling with full disclosure and proper advice to proposers and policyowners.

Minimum Paid Up Capital ( revised 2000)

With effect from 30 June 2001, the minimum paid-up capital of an insurer would be increased from RM50 million to RM100 million.

Taxation (Revised 2004)

Several tax incentives have been introduced within the past few years to promote life insurance products, such as:

1. Tax exempt for annuity proceeds;
   
2. Tax relief up to RM6,000 for life insurance premiums and contributions to approved retirement funds (Budget 2005);
3. Tax relief up to RM3,000 for premiums paid on education policies and medical policies.
   
4. Tax relief up to RM1,000 per annum for annuity policies purchased from EPF savings.
   

Prudential Framework of Corporate Governance for Insurers (2000)

The objectives of the Framework are to enhance insurers' corporate accountability and to further protect interests of policyowners, claimants and creditors through prescriptive requirements and best practice standards in all aspects of insurance operations. The Framework covers the following areas:

• Board responsibility and oversight;
  
• Management and accountability;
  
• Corporate independence;
  
• Internal controls and operation risk management;
  
• Public accountability and financial reporting.
  

Guidelines on Derivatives (2000)

Under the Guidelines on Derivatives, insurers are allowed to use exchange-traded derivatives and common non-exotic over-the-counter derivative contracts for hedging purposes. The Guidelines also stipulate that insurers must establish a risk management framework to ensure that additional exposure to insurance funds from derivative activities is properly managed.

Guidelines on Provision of Internet Insurance/Takaful by Insurers and Takaful Operators (2000)

Keeping in pace with rapid development in information technology, insurers and Takaful operators are now allowed to offer their products and services over the Internet. The Guidelines prescribed stringent measures to be observed for transactions using Internet to ensure protection of policyowners' interest.

Financial Sector Masterplan (FSMP) (2001)

FSMP is a blueprint for the development of the life insurance industry over the next ten years. It comprises a series of recommendations, which aims to build an efficient, effective and stable financial sector that supports the needs of the economy and socio-economic objectives of the country. The FSMP is also to build a core of strong domestic institutions that are able to provide world-class products and services to take on the challenges of liberalization and globalisation. The FSMP will be implemented under three phases. Phase one focuses on building the capacities of domestic insurers while phase two will emphasize on strengthening the financial resilience of insurers and enhancing consumer protection. Phase three will see the liberalization of the insurance sector.

Guidelines on Anti-Money Laundering Measures for the Insurance Industry (2001)

The guidelines provide the framework for insurers to establish transparent and clear policies, procedures and controls to enforce effective anti-money laundering measures. Among others, insurers are required to be vigilant in verifying the identity of the costumer, in maintenance of records, recognition and reporting of suspicious customers and transactions

The Usage of National Language in the Insurance Sector (2002)

To promote the use of the national language, Bahasa Melayu, as the medium of communication, all insurance forms, pamphlets, policies and certificates are to be printed in two languages, i.e. Bahasa Melayu and English, with effect from January 2002.

Benchmarking Programme (2003)

The programme was introduced for the industry to monitor the progress of the measures implemented under the FSMP. The specific objectives are to gauge the industry's response to the measures implemented, to assess the results in an objective and quantifiable manner, and to identify the areas for further improvements. A set of benchmarking indicators for insurers to conduct self-assessment against the industry's top performers and average industry ratios was also developed. The indicators include benchmarks for financial resilience, financial performance and productivity.

Guidelines on Unfair Practices in Insurance Business (2003)

The Guidelines, which constitute part of several measures that are being implemented under the FSMP, to provide a broad and comprehensive framework to address unethical practices by insurers. The principal objectives are to protect the policyholders' interests and promote greater market discipline.

Minimum Standard on Product Disclosure and Transparency in the Sale of Medical and Health Insurance (MHI) Policies (2003)

The guideline was introduced to enhance the level of disclosure and transparency of medical and health insurance (MHI). Under this guideline, insurers are required to provide sufficient details of the essential features of MHI policies in their marketing and sales materials. Important provisions such as exclusions and limitations of benefits, pre-existing conditions, specified illness, waiting period, etc must be explained clearly and adequately in a simple and easy to understand manner.

Setting Up of Complaints Unit (2003)

Insurers are required to set up a complaints unit to handle policyholders' complaints. The guideline also prescribed the minimum procedure for handling complaints effectively and fairly. Among others, insurers are to submit a half-yearly report on the status of complaints received and solved to BNM.

CEP/InsuranceInfo (2003)

The Consumer Education Programme (CEP), also known as CEP, is a joint effort between BNM, the insurance and takaful industries that was launched in August 2003. The objectives are to educate the consumers to have a better understanding and knowledge of the various insurance and takaful products, to be able to select products that suit their needs, and to promote greater awareness about the means and avenues to seek redress in the event of dispute or dissatisfaction with any insurance product or service. The CEP is a long-term programme spanning over 10 years and will be carried out on several levels to reach out to the various target groups. In the first year, the CEP will focus on disseminating information through the publication of 12 booklets. A website on CEP has also been set up at www.insuranceinfo.com.my.

Enhancing the Professionalism of Life Insurance Agents/Continuing Professional Development (2003)

Under this ruling:

• With effect from 1 September 2003, all new agents recruited by life insurers are required to possess a minimum SPM/MCE qualification or its equivalent.
• With effect from 1 January 2004, all agents who have been in the life insurance industry for more than one year are required to undergo 20 Continuous Professional Development (CPD) hours. This will be increased to 30 hours in January 2005.
• With effect from 1 January 2005, life insurance agents who have been in the industry for more than one year will be required to attend module 1 and module 2 of the Registered Financial Planner (RFP), the integrated financial planning programme, which is specially developed by LIAM, MII and NAMLIFA to train agents to become financial planners.