‘TIPS’ for Sound Man­age­ment of In­sur­ers


Insurance - - CONTENTS - Text Perbadanan Insurans De­posit Malaysia

In 2010, its man­date was ex­panded to ad­min­is­ter the Taka­ful and In­surance Ben­e­fits Pro­tec­tion Sys­tem (TIPS). Glob­ally, in­surance guar­an­tee sys­tems (IGS) like TIPS play an im­por­tant role in en­sur­ing prompt pay­ment of in­surance ben­e­fits or en­sur­ing con­ti­nu­ity of in­surance cov­er­age to fi­nan­cial con­sumers in the event an in­surance com­pany fails. Through these pro­tec­tion sys­tems, PIDM pro­tects de­pos­i­tors and taka­ful and pol­icy own­ers from los­ing their bank de­posits or taka­ful and in­surance ben­e­fits in the event of a mem­ber in­sti­tu­tion fail­ure.

All li­censed com­mer­cial banks and Is­lamic banks (mem­ber banks) as well as all li­censed gen­eral and life in­surance com­pa­nies (in­surer mem­bers) are mem­bers of PIDM.

Pub­lic aware­ness about PIDM's pro­tec­tion sys­tems is an im­por­tant com­po­nent in pro­mot­ing pub­lic con­fi­dence in the sta­bil­ity of the fi­nan­cial sys­tem.

PIDM is also man­dated to pro­vide in­cen­tives for sound risk man­age­ment in the fi­nan­cial sys­tem, as well as to pro­mote and con­trib­ute to the sta­bil­ity of the fi­nan­cial sys­tem to pre­serve pub­lic con­fi­dence. PIDM re­ports to Par­lia­ment through the Fi­nance Min­is­ter and is funded by an­nual levies col­lected from its mem­bers.


Scope and lim­its of pro­tec­tion The pro­tec­tion pro­vided by TIPS cov­ers a ma­jor­ity of the pol­icy own­ers and third party claimants and is sub­ject to ex­plicit lim­its to mit­i­gate moral hazard. The scope and lim­its of the pro­tec­tion are sum­marised be­low:

Risk mit­i­ga­tion key to fi­nan­cial sys­tem sta­bil­ity

PIDM car­ries out in­de­pen­dent risk as­sess­ment and mon­i­tor­ing of its mem­bers and works closely with Bank Ne­gara Malaysia, the pri­mary reg­u­la­tor and su­per­vi­sor of the banks and in­surance com­pa­nies in Malaysia, to en­sure early de­tec­tion of is­sues faced by mem­ber in­sti­tu­tions so prompt ac­tion can be taken if needed. The Strate­gic Alliance Agree­ment be­tween PIDM and Bank Ne­gara fa­cil­i­tates col­lab­o­ra­tion in all sig­nif­i­cant ar­eas, with a view to hav­ing clear ar­range­ments be­tween PIDM and Bank Ne­gara for co­or­di­nat­ing their reg­u­la­tory ac­tiv­i­ties in­clud­ing risk as­sess­ment and mon­i­tor­ing and for the ex­change of in­for­ma­tion. PIDM has broad pow­ers un­der its leg­is­la­tion to in­ter­vene or re­solve a trou­bled mem­ber in­sti­tu­tion. These in­clude pow­ers to as­sume con­trol over the mem­ber, re­quire a trans­fer of shares in a mem­ber, to wind up a mem­ber or take such other ac­tions as ap­pro­pri­ate, at least cost to the fi­nan­cial sys­tem.

In­cen­tivis­ing sound risk man­age­ment prac­tices

PIDM also com­ple­ments and re­in­forces the su­per­vi­sory role of Bank Ne­gara by pro­vid­ing in­cen­tives for in­surer mem­bers to en­hance their risk man­age­ment prac­tices and min­imise risk tak­ing through the im­ple­men­ta­tion of a dif­fer­en­ti­ated levy sys­tem. Un­der the Dif­fer­en­tial Levy Sys­tem (DLS), in­tro­duced in 2012, in­surer mem­bers with sound risk man­age­ment prac­tices con­trib­ute a lower rate of levy to the fund, while those with higher risk pro­file pay levies at a higher rate. The levy rates are de­signed us­ing a “dou­ble-up ap­proach” within the four cat­e­gories, rang­ing from 0.025% to 0.2% for Fam­ily Taka­ful Busi­ness and 0.1% to 0.8% for Gen­eral Taka­ful busi­ness. In­surer mem­bers in the lower cat­e­gories are thus in­cen­tivised to im­prove risk man­age­ment prac­tices so that they can move up into an­other cat­e­gory with a lower levy rate. In de­sign­ing the DLS, PIDM drew on lessons from the Dif­fer­en­tial Pre­mium Sys­tems (DPS) for mem­ber banks, ex­ten­sive ju­ris­dic­tional re­search, tak­ing into con­sid­er­a­tion the unique fea­tures of the in­surance in­dus­try in Malaysia, and con­sulted ex­ten­sively with the in­dus­try.

Pro­mot­ing a ro­bust in­surance in­dus­try

PIDM also pro­motes sound risk man­age­ment prac­tices through the terms and con­di­tions of mem­ber­ship that set stan­dards of be­hav­iour to pro­mote safety and sound­ness. They re­quire the in­surer mem­bers to have in place sound risk man­age­ment prac­tices, main­tain ad­e­quate level of cap­i­tal funds, en­sure com­pli­ance with leg­is­la­tion and to no­tify PIDM of sig­nif­i­cant events that may af­fect their safety and sound­ness. Pro­tec­tion sys­tems ad­min­is­tered by PIDM and other IGS around the world work to min­imise the im­pact caused by trou­bled in­sur­ers to the fi­nan­cial sys­tem and with­out bur­den­ing tax­pay­ers’ money. The in­volve­ment of IGS in coun­tries such as South Korea and Canada have also made it pos­si­ble for pol­i­cy­hold­ers of trou­bled in­sur­ers to con­tinue main­tain­ing their ben­e­fits. Pub­lic aware­ness about PIDM's pro­tec­tion sys­tems is an im­por­tant com­po­nent in pro­mot­ing pub­lic con­fi­dence in the sta­bil­ity of the fi­nan­cial sys­tem. With the knowl­edge about the ben­e­fits and lim­i­ta­tions of the pro­tec­tion sys­tems, the pub­lic will be bet­ter in­formed to make fi­nan­cial de­ci­sions and safe­guard their fi­nan­cial in­ter­ests. In the event of fail­ure of an in­surer mem­ber, PIDM will act promptly to pro­tect the pol­icy own­ers.

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