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1
1.
INTRODUCTION....................................................................................................1
2.
PURPOSE...............................................................................................................1
3.
COVERAGE............................................................................................................2
4.
GENERAL FEATURES.........................................................................................2
6.
REQUIREMENTS ..................................................................................................4
8.
CONTENT ...............................................................................................................4
REQUIREMENTS ..................................................................................................5
10.
CONTENT ...............................................................................................................5
REQUIREMENTS ..................................................................................................5
12.
CONTENT ...............................................................................................................6
13.
OTHERS..................................................................................................................6
APPLICATION........................................................................................................7
15.
REQUIREMENTS ..................................................................................................7
16.
GENERAL FEATURES.........................................................................................7
17.
CONTENT ...............................................................................................................8
REQUIREMENTS ............................................................................................... 10
19.
GENERAL FEATURES...................................................................................... 10
20.
FORMAT .............................................................................................................. 11
21.
REQUIREMENTS ............................................................................................... 15
23.
CONTENT ............................................................................................................ 15
24.
REQUIREMENTS ............................................................................................... 16
25.
CONTENT ............................................................................................................ 16
BNM/RH/GL/003-14
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PART I - OVERVIEW
1.
INTRODUCTION
1.1
This Code of Good Practice for Life Insurance Business, hereinafter referred
to as the Code, is issued under subsection 149(5) of the Insurance Act 1996 (Act),
which specifies that Bank Negara Malaysia (the Bank) may specify a code of good
practice in relation to any description of proposal form, policy or brochure.
1.2
This Code replaces the existing Code of Good Practice issued by the Bank
1.3
This Code shall be read in conjunction with the relevant guidelines and
circulars, which include, but are not limited to, the following:(a)
(b)
(c)
2.
PURPOSE
2.1
The purpose of the Code is to set rules for life insurers to maintain ethical
standards in the design and sales of life policies. In order to maintain a high
standard of professionalism in the sale of life insurance products, the Code
provides illustration formats, prescribes standards and specifies disclosures that
are required to achieve the following objectives:(a)
(b)
(c)
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3.
COVERAGE
3.1
observe the Code. The Code covers product design, proposal form, marketing
materials ( including sales illustration, announcements, press statements or
advertisements), policy contract, information statement and annual statement in
respect of individual life products, including individual annuities.
3.2
The chief executive officer and the appointed actuary of a licensed life
insurer shall be individually responsible for compliance with the Code. Any
disregard of the Code or lack of due diligence to secure compliance shall render
the person to be not fit and proper to hold his position in the licensed life insurer.
4.
IMPLEMENTATION DATE
4.1
The Code shall apply to all new1/ life products filed to the Bank on or after 1
February 2007. A licensed life insurer must fully inform its agents or other
intermediaries of the requirements of the Code.
GENERAL FEATURES
5.1
the public. For example, a product must not be described as vanishing premium.
5.2
extending beyond the age of 80 years should not be designed as a term assurance
product.
1/
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5.3
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payment of surrender value in the event of death before the maturity date.
5.4
(a)
(b)
5.5
The sum insured by a personal accident extension to a life policy shall not
6.
6.1
For participating policies, the policy owner shall not get less than the policys
asset share on average as the total cash surrender value in any particular policy
year, subject to the Act requirement. This shall be guided by the following:(a)
Surrender values for the early years should be at least 90% of the
total asset share for each group of policies in the expected main age
range, with a 3% deviation allowed for other ages. However, at least
100% of the asset share should be paid from the 15th policy year
onward for whole life plans, and from mid-term of the policy onwards
for all other plans;
(b)
(c)
Any balance of unpaid asset share in any year must be rolled over to
next years next asset share to determine the surrender value for that
particular year. Any balance of unpaid asset share or estate for each
group of policies must be completely distributed by maturity.
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REQUIREMENTS
7.1
shall be written in clear and simple language and the questions shall be specific
and not such that it requires the proposer to guess as to what information should be
provided in reply.
8.
CONTENT
8.1
(b)
(c)
where applicable, a notice that the proposer should ask for and study
the marketing materials, including the sales illustration in respect of
the life policy product, paying particular attention to benefits which are
guaranteed, benefits which are not guaranteed and the duties of the
policy owner under the policy contract.
8.2
(a)
(b)
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REQUIREMENTS
9.1
A life insurer shall provide a form in which a policy owner may record his
9.2
provisions of Part XIII of the Act on Payment of Policy Moneys under Life Policy or
Personal Accident Policy.
10.
CONTENT
10.1
(b)
a policy owner should appoint a trustee for the policy moneys and in
the event of failure to do so, the competent nominee shall be the
trustee; and
(c)
if the policy owner intends the nominee to receive the policy money as
beneficiary and the nominee is not his spouse, child or parent under
section 166 of the Act, then he should assign the policy benefits to the
nominee.
REQUIREMENTS
11.1
A life insurer shall provide a copy of the proposal form and a copy of the
sales illustration where applicable (refer to paragraph 18.1 below), relating to the
policy to the policy owner together with the policy.
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12.
CONTENT
12.1
A life insurance policy shall incorporate within its body, the following
minimum particulars:(a)
(b)
it is
(d)
name and IC number of life assured if different from the policy owner;
(e)
age of the life assured and whether the age has been admitted;
(f)
(g)
(h)
(i)
(j)
(k)
(l)
13.
OTHERS
13.1
Where a life insurer provides provisional insurance protection from the date
of receipt of a payment towards the premium, the receipt for the premium shall
specifically state the terms and conditions and limitations attaching to such
insurance protection during the period up to the date of issue of the life policy.
13.2
Where a life insurer does not provide insurance until the proposal has been
examined and accepted by the insurer, the receipt for a payment towards premium
shall specifically state that insurance protection shall only be provided effective
from the date of issue of the life policy.
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13.3
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13.4
APPLICATION
14.1
15.
REQUIREMENTS
15.1
15.2
A life insurer or its agent shall not issue or use marketing materials providing
information that is inconsistent with the contents of the actuarial certificate filed with
the Bank.
16.
GENERAL FEATURES
16.1
comprehensible language.
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16.2
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The font style and size used, including those applicable to all qualifying
16.3
understood.
16.4
16.5
All graphs, tables and other diagrams must be clearly labelled and where
16.6
17.
CONTENT
17.1
(b)
(ii)
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(iii)
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(iv)
(v)
(c)
(d)
(ii)
if you terminate your policy in the early years, you may get
back less than the amount you have paid in;
(iii)
you should satisfy yourself that this plan will best serve your
needs and that the premium payable under the policy is an
amount you can afford;
(iv)
(e)
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REQUIREMENTS
18.1
For a participating policy, a life insurer or its agent shall provide to the
proposer at the point of sale, an illustration of the premiums and benefits applicable
to the specific proposal hereinafter called a sales illustration. Where an insurer
issues sales illustration for a non-participating policy, the degree of disclosure
should be similar.
19.
GENERAL FEATURES
19.1
A life insurer shall not illustrate the costs and benefits of an extension of a
life policy together with the life policy unless a clear distinction is made between the
costs and benefits of the life policy and those of the extension. Exceptions shall be
made for packaged products identified in subparagraphs 5.4(b).
19.2
19.3
Any reference to the past performance of the insurer in the sales illustration
shall be appropriate to the product being illustrated and shall include a statement
that past performance may not be a guide to future p erformance which may be
different.
19.4
The sales illustration shall clearly state the benefits which are not
guaranteed. The sales illustration shall emphasise that these benefits are not
guaranteed and that the quantum declared in future may be less or more than the
values illustrated. Non-guaranteed benefits should be shown separately from the
guaranteed benefits. In the case of a collateral policy where the maturity proceeds
are for loan settlement but which are dependant on non-guaranteed benefits, the
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sales illustration should mention that there is no guarantee that the full loan
amount will be available on maturity.
19.5
information regarding the participating policy to the proposer. This will include, but
is not limited to, suitable definitions / explanations on the following:(a)
(b)
(c)
An example of this section is shown in the final page of Schedule I and Schedule II.
19.6
A life insurer shall not represent that premium is not required for each year of
the premium payment term of the policy. For example, a life insurer shall not
illustrate premium being financed through guaranteed cash value of the basic sum
assured.
20.
FORMAT
20.1
insurance product from the specimen formats given in Schedules I and II. Where
none of these formats is appropriate to the specific product, the life insurer may use
a different format without reducing the extent of disclosure provided such format
has been filed with the Bank together with the actuarial certificates.
20.2
A sales illustration shall show the values as at the end of each policy year for
policy years 1 to 20 and every 5 years thereafter until maturity or the age of 70
years, for a life assured in respect of:(a)
(b)
(c)
(d)
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(e)
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reversionary bonuses
cash bonuses
terminal bonuses
21.
21.1
scenarios shall be applicable for participating policies. Sample profit tests for both
scenarios must be submitted to demonstrate the supportability of illustrated
benefits, with assumptions no more favourable than the following:-
(a)
Age and term - age shall be taken as 25 and 35 years and the
projection shall be for the entire term of the policy. For juvenile plan or
any other plans which are available for age zero and above, age 1
and 5 years shall be taken for the purpose of conducting profit test.
For other plans where the abovementioned ages are not reflective of
the target market, the relevant main target ages shall be used in the
profit test;
(b)
(c)
(d)
(e)
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(f)
(g)
Interest rate - the two rates of interest assumed shall reflect the
potential variability of returns of the participating fund, subject to the
following:-
(i)
(ii)
(h)
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(i)
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(j)
Expenses
of
(k)
(I)
(m)
Cost of bonus - the bonus assumption shall be the same as that given
in the sales illustration and the cash value of bonus shall be based on
the statutory basis.
21.2
In the profit test, the fund at the end of the year shall be the accumulation of
the cash flows for the respective projected years, without taking into account the
change in reserves, but after considering transfer to/from shareholders, subject to
the minimum statutory reserves.
21.3
In order to test the profitability of the plan, the profit margin concept shall be
applied using the same basis as that used in the profit test for cashflow pricing.
Overall, the product shall not be loss-making. Where the transfer to shareholders is
shown to be less than that allowed under the statutory limit as specified in
Regulation 11 of the Insurance Regulation 1996, a certified copy of the Board
Resolution shall be provided. Transfers to shareholders are not allowed if the
accumulated estate is negative.
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21.4
The above points shall also be applicable for single premium products.
21.5
21.3 above, the cash flows and profit estimates shall be shown as in Schedule III.
21.6
21.7
REQUIREMENTS
22.1
A life insurer shall issue together with a life policy, a policy information
23.
CONTENT
23.1
A policy information statement shall include information which will help the
(b)
(c)
(d)
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(e)
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the availability of a surrender value with the caution that the policy
owner will lose if he surrenders his policy;
(f)
(g)
(h)
23.2
A policy information statement shall inform the policy owner about the
23.3
A policy information statement shall inform the policy owner about the
availability of the Financial Mediation Bureau and the insurers Complaints Unit, its
address and its role in the resolution of any dispute arising from the policy.
24.
REQUIREMENTS
24.1
25.
CONTENT
25.1
(b)
the sum assured and the vested bonus and other vested nonguaranteed benefits as at the date of the statement;
(c)
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(d)
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the guaranteed cash value (for basic sum assured plus vested
bonus);
(e)
(f)
(g)
(h)
the balance of loan amount and accrued interest, and the policy loan
rate at the date of the statement, in case of a loan taken on the
security of the policy; and
(i)
whether the policy has been assigned or has a nominee and if so, the
name and address of the person.
With the issuance of this Code, the following circular is hereby withdrawn:-
Guideline/Circular Title
Date
JPI: 46/1997
3 November 1997