The Consumer Protection (Fair Trading) Act (CPFTA) came into force on March 1 2004 to provide victims of unfair practices civil remedies in Singapore courts. Recently, a bill amending the CPFTA was passed and is applicable to “financial products,” including “any arrangement, transaction or contract regulated, or supplied by any person regulated, under … the Monetary Authority of Singapore…” and “financial services” including “any services regulated, or supplied by any person regulated, under … the Monetary Authority of Singapore…” Since insurance is regulated by the Monetary Authority of Singapore (MAS), the CPFTA applies.
Industries targeted by the amendments are financial services providers, time-share contracts, and beauty services and products.
Sections 4 (read with its Second Schedule) and 5 of the CPFTA (not amended by the bill) define “unfair practices”. Compared to similar UK legislation, the CPFTA provides an exhaustive list of practices, as stated in Section 4 and its Second Schedule.
Some common insurance contract clauses which may be objectionable under the new law are terms:
• Hindering an insured’s right to sue.
• Permitting insurers technical defences (e.g. requiring claims be filed within 24 hours or proof “satisfactory” to an insurer).
• Excluding insurer liability for claim handling and payment delays.
• Allowing insurers to vary insurance contracts unilaterally without valid reason.
Terms that clearly define or circumscribe the insured risk (as in indemnity policies for car or accident insurance) and/or the insurer’s liability are permissible. Such terms are necessary because insurance premiums are determined by the scope of risk and the insurer’s liability.
For marketing material, care should be taken to ensure that elderly and/or illiterate consumers fully appreciate the nature of insurance policies which they are considering. In this regard, only customers obtaining financial products and services “otherwise than exclusively in the course of business” will be considered “consumers” under the CPFTA. Hence, individuals obtaining financial products and services solely for their businesses are excluded from the ambit of the CPFTA. Other recommendations include:
• Accurately representing in an offer or sale of any insurance the terms of the insurance contract.
• Making, issuing and circulating only true statements.
• Not making any incomplete comparison of insurance policies.
• Not making any false or misleading representations as to an insurer’s financial condition.
• Not coercing or intimidating customers into buying insurance policies.
Policy wording may not be as skewed towards the insurers as previously. There is a need to incorporate ‘reasonableness’ into all terms, and product summaries should be clear and precise.
Other significant amendments to the CPFTA include:
(1) Increase of the prescribed limit of claims under Section 6(6) from S$20,000.00 (US$13,295) to S$30,000.00.
(2) Extension of the limitation period for actions under Section 12(1) from one year to two years.
(3) Placing the burden of proof on suppliers to show their compliance with certain requirements under the CPFTA or its regulations (new Section 18A).
(4) Allowing courts to consider whether a consumer has made a reasonable effort to resolve the dispute using the specific dispute resolution scheme identified under the CPFTA (new Section 7(10)).
The new CPFTA requires courts to consider whether a consumer had sought to resolve a dispute through a specified dispute resolution scheme where available, such as the Financial Industry Disputes Resolution Centre Limited (FIDReC). In this way, consumers will be encouraged to resolve their disputes with financial institutions via FIDReC first before going to court.
The Act does not mandate consumers use FIDReC. However, if an action is brought, a consumer who had refused to use FIDReC may be penalised in costs or otherwise.
The introduction of the CPFTA is a welcome move in light of recent events involving the Lehman minibonds and DBS High Notes 5 saga. This should create awareness in the insurance industry to be more careful when selling products and to protect small and vulnerable consumers.
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