Bank Negara Malaysia: Operating Cost Controls for Life Insurance and Family Takaful Business - 22 December

Transcription

1. Operating Cost Controls for Life Insurance and Family Takaful Business Applicable to : 1. Licensed insurers carrying on life business 2. Licensed takaful operators carrying on family takaful business Issued on: 22 December 2017 BNM/RH/PD 029-18
2. Operating Cost Controls for Life Insurance and Family Takaful Business TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction ..................................................................................... 1 2 Applicability ..................................................................................... 1 3 Legal provisions .............................................................................. 1 4 Effective date .................................................................................. 1 5 Interpretation................................................................................... 2 6 Related legal instruments and policy documents ............................ 4 7 Policy documents superseded ........................................................ 4 PART B ROADMAP FOR DEREGULATION OF OPERATING COST CONTROL LIMITS AND IMPLEMENTATION OF BSC FRAMEWORK ...................................... 5 8 Implementation timeline .................................................................. 5 PART C 9 10 11 12 13 POLICY REQUIREMENTS ....................................................................... 6 Remuneration policy for intermediaries........................................... 6 Implementation of BSC Framework ................................................ 6 Specifications of operating cost limits for specific products and intermediaries ................................................................................. 7 Agency-related requirements .......................................................... 7 Governance requirements .............................................................. 9 PART D 14 REPORTING REQUIREMENTS ............................................................. 10 Reporting requirements ................................................................ 10 APPENDICES .......................................................................................................... 11 Appendix I Commission limits for intermediaries ............................................. 11 Appendix II Operational details of BSC Framework ......................................... 16 Appendix III Template for submission of returns (family takaful operators only) .............................................................................................. 18 Appendix IV Policy documents superseded ...................................................... 19 Issued on: 22 December 2017
3. Operating Cost Controls for Life Insurance and Family Takaful Business PART A 1 of 19 OVERVIEW 1 Introduction 1 .1 As set out in the Life Insurance and Family Takaful Framework issued on 23 November 2015, the Bank continues to implement reforms for the gradual removal of operating cost control limits for life insurance and family takaful business. 1.2 The deregulation of operating cost control limits will accord licensed persons greater flexibility to manage operating expenses commensurate with their business strategies and encourage greater innovation and competition. This will be accompanied by standards to strengthen the professionalism of insurance and takaful intermediaries. 1.3 This policy document sets out the following – (a) the roadmap for the deregulation of operating cost control limits; (b) expectations on remuneration policies implemented by a licensed person for intermediaries; (c) requirements relating to the implementation of the balanced scorecard framework (BSC Framework); (d) the disapplication of, and adjustments to, operating cost controls for specific products and intermediaries; (e) enhancements to and rationalisation of requirements relating to agency structures and related expenses; and (f) governance and reporting requirements. 2 Applicability 2.1 This policy document is applicable to licensed insurers carrying on life business and licensed takaful operators carrying on family takaful business. 3 Legal provisions 3.1 The requirements in this policy document are issued pursuant to sections 47, 123 and 143 of the Financial Services Act 2013 (FSA) and sections 57, 135 and 155 of the Islamic Financial Services Act 2013 (IFSA). 4 Effective date 4.1 This policy document comes into effect on 1 January 2018. 4.2 The Bank is committed to ensure that its policies remain relevant and continue to meet the intended objectives and outcome. Accordingly, the Bank will review this policy document within 5 years from the date of issuance or the Bank's last review and, where necessary, amend or replace this policy document. Issued on: 22 December 2017
4. Operating Cost Controls for Life Insurance and Family Takaful Business 2 of 19 5 Interpretation 5 .1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document – “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action. “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted. “agency-related expenses” refer to expenses incurred for the provision of benefits in cash or kind to insurance/takaful agents, which include medical expenses, insurance/takaful schemes, contributions to retirement/gratuity schemes and sponsorship of agents’ participation in seminars/conferences, but excludes commissions; “agent” refers to any ordinary agent, agency leader (agency supervisor or agency manager) or corporate agent, or all of these, as the case may be; “annual premium/contribution” is the premium/contribution receivable on a policy/certificate for any policy/certificate year; “annuity premium/contribution” refers to the premium/contribution that is attributable to the annuity benefits; “bancassurance partner” includes a bancatakaful partner, and refers to a banking institution or development financial institution that has a distribution or marketing arrangement with a licensed person, as described in the Guidelines on Bancassurance and Guidelines on Bancatakaful; “board” means the board of directors of a licensed person, including a committee of the board where the responsibilities of the board set out in this policy document have been delegated to such a committee; “breakaway benefit” refers to the relief provided by a licensed person to the agency manager in respect of the immediate loss of overriding commissions due to the promotion of an agency supervisor reporting to the agency manager; “BSC commission” refers to the proportion of commission payable to the intermediary which is measured against the key performance indicators (KPIs) under the BSC Framework; “BSC Framework” refers to the operational framework that links remuneration of intermediaries to quality of service; Issued on: 22 December 2017
5. Operating Cost Controls for Life Insurance and Family Takaful Business 3 of 19 “commission” refers to any remuneration payable to intermediaries, and includes basic commission, overriding commission, production and persistency bonus, allowance and salary. “direct distribution channel” refers to the distribution of life insurance or family takaful products through any or both of the following: (a) the head office and branch premises of a licensed person, or (b) an online platform, whether developed as a licensed person’s proprietary system or provided by third party vendors, whereby consumers deal directly with the licensed person without any involvement of insurance or takaful intermediaries; “first year persistency” refers to the premium/contribution for a new product sold/marketed (other than single premium/contribution product) which remains in force at the end of the first policy/certificate year; “first year premium/contribution” refers to the premium/contribution receivable for the first policy/certificate year, where the premium/contribution payment term is two or more years; “intermediary” refers to any agent, financial adviser (including Islamic financial adviser), broker or bancassurance partner, or all of these, as the case may be; “licensed person” refers collectively to a licensed insurer carrying on life business and a licensed takaful operator carrying on family takaful business; “ordinary life insurance/family takaful product” refers to any or a combination of an individual/group product, supplementary contract or rider attached to a basic policy/certificate, but excludes any – (a) investment-linked product or annuity; and (b) medical and health insurance/takaful product. “product with paid-up option” refers to a life insurance/family takaful product that is designed and marketed with an option that enables the policyholder/participant to cease payment of premium/contribution prior to the full contractual premium/contribution payment term, but excludes any product which offers a paid-up option as part of the non-forfeiture provision; “pure protection product” refers to all or any of the following standalone life insurance or family takaful products – (a) a term product that is structured to cover only the risk of death with or without total permanent disablement, and does not have maturity benefits (referred to as a pure protection term product in this policy document); (b) a critical illness product (referred to as a pure protection critical illness product in this policy document); or (c) a medical and health product (referred to as a pure protection medical and health product in this policy document). “savings product” refers to a product which is designed to provide benefits on survival to maturity or during the policy/certificate term (excluding Issued on: 22 December 2017
6. Operating Cost Controls for Life Insurance and Family Takaful Business 4 of 19 surrender benefits ), and includes an investment-linked policy/certificate and annuity; “second year persistency” refers to the premium/contribution for a new product sold/marketed (other than a single premium/contribution product) which remains in force at the end of the second policy/certificate year; “single premium/contribution” refers to the premium/contribution receivable on a policy/certificate where the entire premium/contribution for the policy/certificate is payable at inception. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular – (a) ‘Life Insurance and Family Takaful Framework’; (b) ‘Policy Document on Direct Distribution Channels for Pure Protection Products’; (c) ‘Guidelines on Medical and Health Insurance Business’; (d) ‘Guidelines on Medical and Health Takaful Business’; (e) ‘Guidelines on Bancassurance’; (f) ‘Guidelines on Bancatakaful’; (g) ‘Guidelines on Investment-Linked Insurance/Takaful Business’; and (h) ‘Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business’. 7 Policy documents superseded 7.1 This policy document supersedes the guidelines and circulars listed in Appendix IV. Issued on: 22 December 2017
7. Operating Cost Controls for Life Insurance and Family Takaful Business 5 of 19 PART B ROADMAP FOR DEREGULATION OF OPERATING COST CONTROL LIMITS AND IMPLEMENTATION OF BSC FRAMEWORK S 8 Implementation timeline 8 .1 The effective dates for the deregulation of operating cost control limits and implementation of the BSC Framework are set out below– Timeline Effective from 1 Jan 2018 onwards Removal of commission limits for pure protection term products offered through all intermediaries, subject to meeting the specific requirements for pure protection term products offered through direct distribution channels Implementation of the BSC Framework for agents, financial advisers and brokers Effective from 1 July 2018 onwards Removal of commission limits for pure protection critical illness and pure protection medical and health products offered through all intermediaries, subject to meeting the specific requirements for pure protection critical illness and pure protection medical and health products offered through direct distribution channels Effective from 1 Jan 2019 onwards Adjustment of commission limits for bancassurance partners Implementation of BSC Framework for bancassurance partners Removal of limits on commission and agency-related expenses for investment-linked products S 8.2 Prior to the effective dates for removal of operating cost control limits as set out in paragraph 8.1, a licensed person shall observe the commission limits as specified in Appendix I in remunerating intermediaries and the limits on agency-related expenses specified in paragraph 12.4, unless otherwise provided in this policy document. Issued on: 22 December 2017
8. Operating Cost Controls for Life Insurance and Family Takaful Business PART C S 6 of 19 POLICY REQUIREMENTS 9 Remuneration policy for intermediaries 9 .1 In setting the remuneration policy and criteria for the maintenance of contracts or promotion of an intermediary, the board and senior management shall exercise due care to promote the following outcomes – (a) encourage intermediaries to consider a consumer’s financial needs and circumstances, and provide proper advice and recommendations; (b) raise and maintain effective and responsive customer support services provided by intermediaries to a policyholder/participant throughout the policy/certificate term; (c) drive the continuous professional development (CPD) of intermediaries; and (d) assure the ethical and professional conduct of intermediaries. 10 Implementation of BSC Framework S 10.1 A licensed person shall incorporate the BSC Framework in its remuneration policy for intermediaries by – (a) 1 January 2018 for agents1, financial advisers and brokers; and (b) 1 January 2019 for bancassurance partners2. S 10.2 A licensed person shall ensure that the design and operation of the BSC Framework are consistent with the outcomes specified in paragraph 9.1 and comply with the operational requirements specified under Appendix II. S 10.3 A licensed person shall reflect the following KPIs in the design of the BSC Framework – (a) number of policies/certificates sold/marketed or annualised first year premium/contribution; (b) completion rate of Customer Fact Find (CFF) form; (c) persistency rate; (d) number of substantiated complaints; and (e) CPD hours. S 10.4 A licensed person shall measure the specific percentage of commission payable to an intermediary against the KPIs of the BSC Framework. The relevant percentage for BSC commission is set out in Appendix II. 1 2 Life Insurers or Family Takaful Operators may exempt new agents from the BSC Framework in the first two years of The BSC Framework for Bancassurance will be issued in 2018. Issued on: 22 December 2017
9. Operating Cost Controls for Life Insurance and Family Takaful Business 11 7 of 19 Specifications of operating cost limits for specific products and intermediaries S 11 .1 The maximum commission limits for specific pure protection products sold/marketed through intermediaries are hereby removed, subject to a licensed person complying with the following conditions – (i) the pure protection products offered by the licensed person provide the same benefits and coverage as that for pure protection products available through its direct distribution channels; and (ii) the licensed person meets all the requirements specified in the Policy Document on Direct Distribution Channels for Pure Protection Products. S 11.2 The maximum limits on commission and agency-related expenses for investment-linked insurance/takaful products specified in Appendix I and in paragraph 12.4 respectively are removed with effect from 1 January 2019. Prior to 1 January 2019, the maximum commission limits for investment-linked insurance/takaful products3 applicable to agents shall be those specified in Schedule 1 of Appendix I. S 11.3 With effect from 1 January 2019, a licensed person shall not exceed the maximum commission limits applicable to bancassurance partners as specified in Schedule 4 of Appendix I. Prior to 1 January 2019, the maximum commission limits applicable to bancassurance partners4 shall be those specified in Schedule 3 of Appendix I. S 11.4 Where the commission limits for specific life insurance/family takaful products are removed under paragraphs 11.1 and 11.2, a licensed person adjusting its respective commission rates for such products shall (i) submit the relevant information to the Bank as specified in the Guidelines on Introduction of New Products by Insurers and Takaful Operators; and (ii) disclose the commissions in the sales/marketing illustrations. For products with no sales/marketing illustrations, the commissions must be disclosed in the product disclosure sheet. 12 Agency-related requirements G Agency-related Expenses 12.1 A licensed person may provide additional benefits in cash or kind to agents. S 12.2 Any expenses incurred by a licensed person for the provision of such benefits shall be deemed to be agency-related expenses. S 12.3 The provision of benefits to agents and the corresponding qualifying criteria for receiving such benefits shall be clearly provided for and documented in the licensed person’s remuneration policy, with due regard to the outcomes set out in paragraph 9.1. S 12.4 The aggregate amount of agency-related expenses incurred by a licensed 3 4 These are the same limits currently specified in the Guidelines on Investment-linked Insurance/Takaful Business. These are the same limits currently specified in the Guidelines on Bancassurance and Guidelines on Bancatakaful. Issued on: 22 December 2017
10. Operating Cost Controls for Life Insurance and Family Takaful Business 8 of 19 person shall not exceed the following limits , except where operating cost limits are removed as provided in paragraph 11. i. 3% of the total annual premium/contribution for ordinary life/family takaful products and investment-linked products; ii. 0.5% of the annual or single annuity premium/contribution for deferred annuity insurance/takaful products. S S S S S S Agency Organisation Structure 12.5 Where a licensed person adopts a tiered structure for its agency organisation, the tiered structure shall not exceed three tiers5. Agency Breakaway Benefits 12.6 The breakaway benefits accorded by a licensed person to an agency manager shall not exceed 50% of the average annual overriding commissions earned from an agency supervisor’s unit over the two years immediately preceding the date of promotion of the agency supervisor. 12.7 No breakaway benefits shall be accorded by a licensed person to an agency supervisor in respect of the promotion of an ordinary agent under him. Career Agent 12.8 When an ordinary agent who is eligible for promotion as an agency supervisor chooses not to accept such promotion, the licensed person shall provide an option for him to be promoted as a career agent under the supervision of an agency manager or directly under the supervision of an officer of the licensed person. 12.9 In such an event, additional commissions payable by the licensed person to the career agent (not inclusive of the basic agency commissions) shall not exceed 50% of the total overriding commissions which would have been payable to agency leaders. Salaried Agent 12.10 Where a licensed person remunerates its insurance agents through a combination of a fixed salary and variable commission, the aggregate amount paid by the licensed person shall not exceed the commission limits specified in Appendix I. S 12.11 A licensed person shall measure the aggregate amount of the salary and commission remunerated to the salaried agent against the KPIs of the BSC Framework, as specified under paragraph 10. S 12.12 A licensed person shall not remunerate salaried employees or officers with the exception of full-time marketing staff, by way of commissions or any other incentive payments by whatever name called that are linked to the quantum of premium/contribution production. S 12.13 Where a licensed person remunerates its salaried staff who are principally 5 Generally comprising an agency manager, agency supervisor and ordinary agent. The terminology used for these designations is not binding and a licensed person may adopt other terminology that corresponds to these designations. Issued on: 22 December 2017
11. Operating Cost Controls for Life Insurance and Family Takaful Business 9 of 19 engaged in business development in the form of bonus based on the volume of business production , the aggregate amount of salary and benefits including bonus paid by the licensed person shall not exceed the commission limits specified in Appendix I. 13 S Governance requirements Responsibilities of board and senior management 13.1 The board and senior management shall be responsible for ensuring that the conduct of the licensed person is consistent with the objectives and requirements set out in this policy document. This includes – (a) developing and approving the remuneration policies, which include parameters for the implementation of the BSC Framework; (b) ensuring adequate training and support are provided to intermediaries to understand the key outcomes and implementation of the BSC Framework; (c) ensuring that the performance of intermediaries is reviewed against the KPIs of the BSC Framework at least once annually; (d) ensuring that the maintenance of contracts or promotion of intermediaries is assessed against the performance under the BSC Framework; and (e) monitoring the effective implementation of the remuneration policies and the BSC Framework and taking timely corrective measures as required to promote the objectives of the BSC Framework. Issued on: 22 December 2017
12. Operating Cost Controls for Life Insurance and Family Takaful Business PART D 14 10 of 19 REPORTING REQUIREMENTS Reporting requirements S 14 .1 A licensed person shall submit to the Bank a report on the performance of intermediaries against the KPIs of the BSC Framework as reviewed by the board under paragraphs 13.1 (c) and (e), and the information on the amount of BSC commissions payable to the intermediaries for the different categories (‘under-performer’, ‘normal’ and ‘outperformer’) by the end of the first quarter of the following year for each year beginning from the year 2018. S 14.2 A licensed person shall submit to the Bank information relating to its compliance with the operating cost control limits, in the relevant statutory returns specified for life and family takaful business, as set out in the Statement of Operating Cost Control for Life Business (AS4) under the Guidance Notes for Insurance Companies Statistical System (for life business) and Appendix III (for family takaful business). S 14.3 The statutory returns required from licensed persons under paragraph 14.2 shall report for each annual period ending in December and shall be submitted to the Bank by 21 January of the following year. Life insurers shall submit the returns via the Bank’s Insurance Online Submission System website, and family takaful operators shall submit the returns in Appendix III to the Director of Insurance and Takaful Supervision Department, Bank Negara Malaysia. S 14.4 A licensed person shall maintain proper records of its agency-related expenses, which shall be made readily available to the Bank upon request. Issued on: 22 December 2017
13. Operating Cost Controls for Life Insurance and Family Takaful Business 11 of 19 APPENDICES Appendix I S Commission limits for intermediaries General Requirements 1 .1 A licensed person shall ensure that commissions (other than persistency or production bonus under Schedules 1 and 3) for a policy/certificate are paid over a minimum period of 6 years or the premium/contribution payment period, whichever is shorter. In cases where the premium/contribution paying term is less than 20 years, a licensed person shall apply the prorating formula to the commission limits as specified below. x maximum allowable percentages under Schedules 1, 2, 3 and 4 where t = term of premium/contribution payment for policy/certificate in years. S 1.2 In line with the pro-rating requirements, the commission payable for a product with paid-up option shall also be pro-rated by the licensed person based on the premium payment term upon which the policyholder can exercise the paid-up option and cease payment of premium6. As an example, for a 20-year premium payment term product with an option to cease payment of premium in the 10th policy year, the commission payment by the licensed person shall be based on a 10-year pro-rated commission scale instead of a 20-year commission scale. If the paid-up option is not taken up, the remaining commission (difference between the amount computed above and amount based on the original premium payment term) may be payable thereafter. Any savings in commission must be returned by the licensed person to consumers in the form of higher cash value/non-guaranteed benefits. S 1.3 Corporate agents shall be deemed as ordinary agents and therefore, shall not be entitled to payment of any overriding commissions by the licensed person. S 1.4 A licensed person shall observe the maximum allowable commission limits as specified in the following Schedules. 6 The requirement does not apply to the reduced paid-up option offered as part of the non-forfeiture provision. Issued on: 22 December 2017
14. Operating Cost Controls for Life Insurance and Family Takaful Business 12 of 19 Commission limits for insurance /takaful agents Schedule 1: Commission limits pre-BSC implementation (prior to 1 January 2018) S 1.4.1 Ordinary life insurance/family takaful products with premium/contribution paying term of 20 years or more: Policy Year 1 2 3 4 5 6 Total S 1.4.2 Maximum % of annual premium/contribution Ordinary Agents/Corporate Agents Agency Leaders Basic Production Persistency Overriding Production 7 Commission Bonus Bonus Commission Bonus 8 7 35% 5% 20% 5% 9 25% 5% 10% 10 15% 5% 6% 15% 5% 10% 10% 110% 5% 10% 41% 5% Total commission 65% 40% 26% 20% 10% 10% 171% The maximum percentage of commissions (including overriding commission, if any) on single premium/contribution ordinary life insurance/family takaful products, including mortgage term assurance/takaful and yearly renewable term assurance/takaful, shall be 10% of the single premium/contribution. S 1.4.3 Investment-linked insurance/takaful products with premium/contribution paying term of 20 years or more: Policy Year 1 2 3 Total S 1.4.4 S Maximum % of annual premium/contribution Basic and Overriding Commission 40% 40% 25% 160% The maximum percentage of commissions (including overriding commission, production and persistency bonus) on single premium/contribution investment-linked insurance/takaful products and top-up premium/contribution shall be 3.75% of the single premium/contribution. 1.4.5 The maximum percentage of commissions (including overriding commission) on deferred annuity insurance/takaful products shall be 3% of the annual or single annuity premium/contribution. 7 The maximum aggregate amount of overriding commissions payable to all levels of agency leaders is computed based on the maximum allowable percentage for the overriding commissions. A licensed person may however decide the manner in which the overriding commissions are apportioned to each level of agency leaders subject to the aggregate limit. 8 Conditional upon meeting the qualifying criteria as established under the remuneration policy of the licensed person. 9 Conditional upon achieving first-year persistency rate of 90%. 10 Conditional upon achieving second-year persistency rate of 80%. Issued on: 22 December 2017
15. Operating Cost Controls for Life Insurance and Family Takaful Business 13 of 19 Schedule 2 : Commission limits post-BSC implementation (1 January 2018 and thereafter) S 1.4.6 Ordinary life insurance/family takaful products with premium/contribution paying term of 20 years or more: Policy Year 1 2 3 4 5 6 Total Maximum % of annual premium/contribution Basic Commissions for Ordinary Agents/ Overriding Commissions for Corporate Agents Agency Leaders 40% 25% 30% 10% 20% 6% 15% 5% 10% 10% 125% 46% S 1.4.7 Commission limits for single premium/contribution ordinary life insurance/family takaful products shall be applicable as stipulated in Schedule 1. S 1.4.8 Prior to the deregulation of commission limits for investment-linked insurance/takaful products effective from 1 January 2019, the commission limits shall be applicable as stipulated in Schedule 1. S 1.4.9 Commission limits for deferred annuity insurance/takaful products shall be applicable as stipulated in Schedule 1. Issued on: 22 December 2017
16. Operating Cost Controls for Life Insurance and Family Takaful Business 14 of 19 Commission limits for bancassurance /bancatakaful partners Schedule 3: Commission limits pre-BSC implementation (prior to 1 January 2019) S 1.4.10 Products with premium/contribution paying term of 20 years or more: Policy Year 1 2 3 4 5 6 7 8 9 10 Total S Maximum % of annual premium/contribution Protection Savings Production Persistency 11 12 Products Products Bonus Bonus 30% 20% 5%13 10% 5% 10%14 10% 5% 10%15 10% 5% 10% 5% 10% 5% 5% 5% 5% 5% 80% 65% 5% 20% 1.4.11 Single premium/contribution or yearly renewable products: Ordinary life insurance/family takaful products Investment-linked products (including top-ups) 11 Protection Products 10% - Savings Products 5% 3.75% Protection products include credit/financing-related products. Savings products include investment-linked and annuity product. 13 Conditional upon meeting the qualifying criteria as established under the remuneration policy of the licensed person. 14 Conditional upon achieving first-year persistency rate of 90%. 15 Conditional upon achieving second-year persistency rate of 80%. 12 Issued on: 22 December 2017
17. Operating Cost Controls for Life Insurance and Family Takaful Business 15 of 19 Schedule 4 : Commission limits post-BSC implementation (1 January 2019 and thereafter) S 1.4.12 Products with premium/contribution paying term of 20 years or more: Policy Year 1 2 3 4 5 6 7 8 9 10 Total Maximum % of annual premium/contribution Protection Savings Products Products 40% 30% 30% 20% 20% 8% 15% 6% 10% 6% 10% 6% 6% 6% 6% 6% 125% 100% S 1.4.13 Commission limits stipulated in Schedule 3 shall continue to apply for credit/financing-related products and single premium/contribution or yearly renewable savings-type ordinary life insurance/family takaful products. S 1.4.14 Commission limits applicable for investment-linked insurance/takaful products will be removed effective from 1 January 2019. Issued on: 22 December 2017
18. Operating Cost Controls for Life Insurance and Family Takaful Business Appendix II 16 of 19 Operational details of BSC Framework S 1 .1 The BSC Framework shall only be applicable to the sale/marketing of regular premium/contribution products that are subject to the Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business. S 1.2 The percentage of BSC commission payable by a licensed person to an intermediary shall be set at 25% of the total commission payable. S 1.3 For the purpose of calculating the BSC commission for agents, a licensed person shall assign weightages for the respective KPIs according to the table below – No. S 1.4 Key Performance Indicators (KPIs) 1 Completion rate of CFF form (Option 1 or 2) 15 2a 1st year persistency rate 15 2b 2nd year persistency rate 15 16 3 Number of substantiated complaints 4 CPD hours 5 Number of policies/certificates sold/marketed annualised first year premium/contribution 15 or 30 1 January 2018 - 31 December 2018 Key Performance Indicators (KPIs) Under-performer BSC Score Normal Outperformer 50% 75% 100% 125% 150% 1 Completion rate of CFF form (Option 1 or 2) 10% 15% 20% 25% 30% 2a 1st year persistency rate - 85% 90% 92.50% 95% 2b 2nd year persistency rate - 75% 80% 85% 90% - - 0 - - - 9 per quarter or 36 per year or RM90,000 3 4 5 17 10 A licensed person shall measure the performance of agents, where applicable, against the criteria set out in the tables below – No 16 Weightage (%) Number of substantiated complaints CPD hours Number of policies/certificates sold/marketed or annualised first year premium/contribution - - - RM37,500 17 30 3 per quarter or 12 per year or RM50,000 6 per quarter or 24 per year or RM70,000 Substantiated complaints refer to unprofessional conduct causing financial impact to customer such as wrong advice, misrepresentation or misleading advertisement, twisting of policies and misconduct in premium handling. Including 5 CPD hours focused on training programmes relating to proper sales process, code of ethics and regulatory updates conducted by Malaysian Insurance Institute (MII), National Association of Malaysian Life Insurance Fieldforce and Advisers (NAMLIFA), Malaysia Financial Planning Council (MFPC) or Islamic Banking and Finance Institute Malaysia (IBFIM). Issued on: 22 December 2017
19. Operating Cost Controls for Life Insurance and Family Takaful Business No 17 of 19 1 January 2019 - 31 December 2019 Key Performance Indicators (KPIs) Under-performer BSC Score 50% 75% 100% 125% 150% Normal Outperformer 1 Completion rate of CFF form (Option 1 or 2) 20% 25% 30% 35% 40% 2a 1st year persistency rate - 85% 90% 92.50% 95% 2b 2nd year persistency rate - 75% 80% 85% 90% 3 Number of substantiated complaints - - 0 - - 4 CPD hours - - 3018 - - 5 Number of policies/certificates sold/marketed or annualised first year premium/contribution - 3 per quarter or 12 per year or RM50,000 6 per quarter or 24 per year or RM80,000 9 per quarter or 36 per year or RM100,000 12 per quarter or 48 per year or RM120,000 S 1.5 With effect from 1 January 2020, a licensed person has the flexibility to set additional KPIs and adopt higher standards and thresholds for measuring the performance of agents to promote the outcomes set out in paragraph 9.1. S 1.6 Subject to the effective timelines as specified in paragraph 10.1, a licensed person shall also measure the performance of the other intermediaries based on the weightages and criteria of the KPIs, as may be specified by the Bank. S 1.7 Subject to 1.8 below, a licensed person shall pay the BSC commission to the intermediaries based on their individual level of performance measured under the BSC Framework, which may exceed the commission limits specified by the Bank, as the case may be. S 1.8 Where the remuneration payable to the intermediaries exceeds the commission limits specified by the Bank, a licensed person shall fund the additional commissions directly from the shareholders’ fund. S 1.9 In relation to paragraph 1.8, except for the Participating Fund, any unpaid commission resulting from intermediaries under-performing the BSC shall be utilised, in a reasonable manner, by the licensed person for purposes of training and development of under-performing intermediaries. In the case of the Participating Fund, the licensed person will have the option either to use any unpaid commission for training and development of under-performing intermediaries or to add back to the asset shares of the policyholders in that Participating Fund. 18 Including 5 CPD hours focused on training programmes relating to proper sales process, code of ethics and regulatory updates conducted by Malaysian Insurance Institute (MII), National Association of Malaysian Life Insurance Fieldforce and Advisers (NAMLIFA),Malaysia Financial Planning Council (MFPC) or Islamic Banking and Finance Institute Malaysia (IBFIM). Issued on: 22 December 2017
20. Operating Cost Controls for Life Insurance and Family Takaful Business Appendix III 18 of 19 Template for submission of returns (family takaful operators only) Name of Company: __________________________________ Agency-Related Expenses (ARE) for Ordinary Family Takaful Business From January to December 20XX Currency: RM Description Source of Data Rate (%) (a) A. Agency-Related Expenses (ARE) 1. Allowable ARE Amount Sch 1, Form FT1-1 2. Actual ARE / Wakalah Fee for Commission Expenses Sch 6, Form FT1-1 and Sch 3, Form 19 FT2 / Form FT1-1 3. (Over) / Underspending [1 - 2] 3 4. % of Total (Over) / Underspending [(3/1) x 100] to allowable ARE Amount Explanation for Non-Compliance with BNM/RH/PD 029-18 [Text for explanation if A(3) is negative] Signature : ___________________________________ Name : ___________________________________ Principal Officer Date : ___________________________________ 19 Wakalah fee for commission expenses (exclude gross commission on direct business). Issued on: 22 December 2017 Gross Direct Contributions (b) Amount (c) = (a) x (b)