Potential landmine in Financial Services Act 2013?

I’m just a lay person where insurance is concerned but I’d like to share here whatever little that I know about the newly introduced Financial Services Act 2013 vis-a-vis the insurance industry. If I am wrong, I am willing to be corrected within this blog.

The FSA 2013 by the Malaysian Parliament last year and came into effect on 30 Jun 2013. When it was implemented on this date, among the old laws that it repealed included the Insurance Act 1996.

The FSA 2013 is a very thick slab of legislation, numbering 272 pages in all. The important section that should be of interest to insurance policy owners is Schedule 10 that touches on payment of policy moneys under life policy and personal accident policy (starting from page 255).

But first, section 272(e) of the FSA 2013 has this to say:

“without limiting the generality of paragraph (d), all insurance policies issued, all transactions or dealings lawfully executed or entered into, and all business lawfully done under the repealed Insurance Act 1996 by a person who was licensed under that repealed Act and who is authorized or registered under this Act with any policy owner, customer, creditor, debtor or other person shall be deemed to have been lawfully and validly executed, entered into, or done, under and in accordance with this Act, and any right or liability under the transaction, dealing or business existing before the appointed date shall be deemed to continue to be lawful and valid under this Act;”

So all policies issued prior to the 30th of June would still continue to take effect, which should be a great relief to all policy holders. I know that I am, because it would now be too expensive for me to sign up for any new life policy. :-)

But back to Schedule 10. It is not for me to elucidate everything that is stated here but my reading and understanding of what’s documented in section 5(3) of this Schedule is that once a nomination is made to create a statutory insurance trust under this section of the FSA 2013 (or under the old section 166 of the repealed IA 1996 for existing policies), the policy owner basically loses a considerable amount of control of his policy because:

  1. The policy owner is no longer the Trustee of his policy money;
  2. In the event that a Trustee is not appointed, a competent nominee in the policy shall be automatically made the Trustee; and
  3. The policy owner cannot revoke a nomination or add a nominee (other than his spouse, child or parent) without the Trustee giving a written consent.

Thus, almost everything a policy owner does, he would need to go back to the Trustee of his policy to get the changes approved. So who controls the policy from now on? The one paying the money to keep the policy in force or the person standing to benefit from it? Of course, there are pros and cons: the new Act ensures that an existing nominee does not lose out should a policy owner quietly changes the nomination in his policy, but – call me pessimistic if you want – there are also potential slip-ups.

For instance, if a husband and wife are no longer on good terms with one another, do you think the spouse (who is now the Trustee of a policy) will agree to any change that reduces or removes her benefit?

It just makes me scratch my head whether this peculiar situation was what the people who drafted this new legislation wanted. It also makes me wonder who were our clever law makers in Parliament who allowed this new FSA 2013 to be passed. How much debate or deliberation actually went into discussing this new legislation? Did they cover all the bases adequately? And all this doubts coming from me, speaking as a lay person!

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6 Responses to Potential landmine in Financial Services Act 2013?

  1. Pramila says:

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  2. Jackie says:

    But the policy owner can appoint his own trustee. Assuming the policy owner is no longer in talking terms with his wife, he can appoint one of his family members (brother, sister…) as a trustee and this trustee can change its nominee. Am I right? I have thinking about this for days since the implications of the FSA 2013 was highlighted in the media.

    • Nicholas Lam says:

      Hi Jackie,
      In this FSA, if the wife is the Trustee the husband must get her (the Trustee’s) consent to add new trustee and hence you are in trouble when she refuses to do so.

      The 1996 act repealed the old section 23 which was giving exactly the same problem as the FSA 2013 whenever husband and wife are no longer in good term. The 1996 act gave the insured full control of the policy and the trust is effective only upon the death of the insured and hence there is no problem when relationship went sour. With the introduction of FSA 2013, we seem to be going back to the same old problem like under S23.

  3. ssquah says:

    Jackie, yes you are right. The policy owner can appoint a friendly person as his trustee and have his trustee make the new changes to his nomination. Alternatively, have an insurance trust drawn up and appoint a corporate trustee, like Rockwills Trustee, to administer your policies.

  4. Pingback: An alarmist approach on the Financial Services Act 2013 | It's All In The Planning!

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