BCP Ethics and Professional Conduct — Questions and Answers
Question 1: What is 'churning' in the Singapore insurance industry?
- Regularly reviewing a client's portfolio
- Encouraging a policyholder to replace an existing policy with a new one primarily to generate commission (Correct answer)
- Processing claims quickly
- Offering discounts on premiums
Correct answer: Encouraging a policyholder to replace an existing policy with a new one primarily to generate commission
Churning or twisting is an unethical practice where an adviser recommends unnecessary policy replacements primarily to earn fresh commissions, often to the detriment of the policyholder.
Question 2: What ethical obligation does an insurance agent in Singapore have regarding conflicts of interest?
- No obligation exists
- The agent must disclose any conflicts of interest to the client and act in the client's best interest (Correct answer)
- The agent only needs to disclose conflicts to their supervisor
- Conflicts of interest are permitted as long as premiums are paid
Correct answer: The agent must disclose any conflicts of interest to the client and act in the client's best interest
Under the FAA and MAS guidelines, insurance agents must disclose any conflicts of interest to clients and prioritise the client's interests over their own financial gain.
Question 3: In Singapore, what is the consequence for an insurance agent who misrepresents policy benefits to a client?
- No consequences if the client signs the proposal
- The agent may face disciplinary action, licence revocation, and legal liability (Correct answer)
- The agent receives a verbal warning only
- The client must accept the policy as sold
Correct answer: The agent may face disciplinary action, licence revocation, and legal liability
Misrepresentation is a serious offence. The agent may face MAS enforcement action, licence revocation, civil liability for damages, and potential criminal charges for fraud.
Question 4: What is the 'needs-based advisory' approach required by MAS for insurance sales in Singapore?
- Selling the most expensive policy available
- Recommending products that match the client's actual financial needs, objectives, and risk profile (Correct answer)
- Selling only products from the agent's own company
- Recommending all available products to the client
Correct answer: Recommending products that match the client's actual financial needs, objectives, and risk profile
MAS mandates that financial advisers recommend products suited to the client's needs, assessed through the Financial Needs Analysis (FNA), rather than pushing products that maximise commissions.
Question 5: What record-keeping obligations do Singapore insurance agents have?
- No records need to be kept
- Agents must maintain records of client interactions, recommendations made, and the basis for those recommendations for at least 5 years (Correct answer)
- Only premium receipts need to be kept
- Records are only needed for claims
Correct answer: Agents must maintain records of client interactions, recommendations made, and the basis for those recommendations for at least 5 years
MAS requires financial advisers to maintain comprehensive records documenting client interactions, the FNA conducted, product recommendations, and the rationale behind them for a minimum of 5 years.
Question 6: What is the 'replacement policy' notification requirement in Singapore?
- No notification is needed when replacing a policy
- When a client replaces an existing policy, the new insurer must notify the existing insurer and ensure the client understands the implications (Correct answer)
- Only the client needs to notify their family
- Replacement policies are prohibited in Singapore
Correct answer: When a client replaces an existing policy, the new insurer must notify the existing insurer and ensure the client understands the implications
When a policy replacement is proposed, MAS guidelines require proper disclosure to the client about potential losses (e.g., loss of bonuses, new waiting periods) and notification to the existing insurer.
BCP Ethics and Professional Conduct
What is 'churning' in the Singapore insurance industry?