2.2 The Policy Owners' Protection (PPF) Scheme
Key Takeaways
SDIC administers the PPF Scheme under the Deposit Insurance and Policy Owners' Protection Schemes Act 2011, funded by risk-based levies on member insurers.
Compulsory motor third-party and Work Injury Compensation policies are protected for the full amount of the failed insurer's liability under the relevant legislation.
Specified personal lines issued to individuals are covered: personal motor, personal travel, personal property (structure and contents) and foreign domestic maid policies.
General insurance claims are not capped, except S$50,000 for own-damage claims under personal motor policies and S$300,000 for property damage claims under personal property policies.
Commercial policies are outside the scheme except for compulsory cover; for motor policies issued to companies, only the compulsory insurance portion is protected.
2.2 The Policy Owners' Protection (PPF) Scheme
Quick Summary: If a member insurer fails, the Policy Owners' Protection (PPF) Scheme steps in. For general insurance, it fully protects compulsory motor third-party and Work Injury Compensation liabilities and short-term accident and health policies. It also protects four specified personal lines issued to individuals. Only two caps apply: S$50,000 for own-damage claims under personal motor policies and S$300,000 for property damage claims under personal property policies.
Why a Protection Scheme Is Needed
Solvency rules such as RBC 2 reduce the chance of an insurer failing but cannot remove it. Some policyholders are especially exposed. Road accident victims and injured employees did not choose the insurer, and individuals cannot easily judge an insurer's financial strength. The PPF Scheme gives these groups a statutory safety net.
Legal Framework and Administration
- The scheme is set up under the Deposit Insurance and Policy Owners' Protection Schemes Act 2011.
- It is administered by the Singapore Deposit Insurance Corporation (SDIC). SDIC is a company limited by guarantee, not a government department, but it was designated by Act of Parliament and its board is accountable to the Minister in charge of MAS. SDIC also runs the Deposit Insurance Scheme for bank deposits.
- Membership is compulsory for insurers licensed to carry on direct life business (other than captive insurers) and direct general business (other than captive insurers and specialist insurers), including foreign insurers' Singapore branches, unless MAS grants an exemption.
- Funding: members pay risk-based annual levies into the PPF Life Fund and/or the PPF General Fund. For general insurance, the levy is normally a percentage of the member's gross premium income on protected policies. Policy owners pay no separate levy.
Which General Insurance Policies Are Covered?
| Category | Examples | Protection |
|---|---|---|
| Compulsory insurance | Motor third-party cover under the Motor Vehicles (Third-Party Risks and Compensation) Act 1960; Work Injury Compensation Act insurance | The full amount of the failed insurer's liability as provided by the relevant legislation |
| Short-term accident and health policies | Personal accident; hospital cash; other short-term A&H | Covered; no cap |
| Specified personal lines issued to individuals (risk in Singapore or owner resident in Singapore) | Personal motor; personal travel; personal property (structure and contents); foreign domestic maid insurance | The full amount of the failed insurer's liability under the policy terms, subject only to the two caps below |
The Only Two Caps for General Insurance Claims
| Claim type | Cap per claim |
|---|---|
| Own property damage claims under personal motor policies | S$50,000 |
| Property damage claims under personal property (structure and contents) policies | S$300,000 |
All other protected general insurance claims are paid in full. Policy owners are compensated for claims incurred up to 30 days after the winding-up order against the failed insurer.
What Is Not Covered?
- General insurance policies that are neither compulsory nor within the specified personal lines, such as commercial property, business interruption, public liability, professional indemnity, marine and engineering policies issued to businesses.
- Specified personal lines issued to non-individuals. A travel or property policy issued to a company is not covered.
- For motor policies issued to non-individuals, only the compulsory third-party portion is protected; own damage to a company car is not.
- Policies outside the list even when issued to individuals; SDIC gives tuition fee protection policies as an example.
- Policies written by insurers that are not scheme members, such as captive insurers.
Important
Distinguish who the policy owner is from what the policy is. Compulsory cover is protected whoever holds it, so a company's WIC policy is protected. Personal lines are protected only when issued to an individual.
What Happens When a Member Insurer Fails?
MAS chooses the approach that causes the least disruption:
- Transfer: the failed insurer's business is moved to another insurer. This is the preferred option, especially for life insurers.
- Run-off: where a transfer is not possible and policyholders would be significantly affected, SDIC takes over and runs the business until policies expire or mature.
- Termination: where policyholders can easily find alternative cover, the policies may be terminated, and SDIC compensates protected claims within the scheme's limits.
A combination of these may be used for different parts of the business. In every case, protected general insurance policies receive the same level of protection, capped only in the two specified instances.
How Customers Find Out
- Since 20 July 2011, policy owners can ask a member insurer for its register of the types of insured policies.
- Since 1 January 2012, policy documents and product summaries display a PPF disclosure statement when the product is protected.
- GIA's Code of Practice for Agents requires agents to tell customers about the PPF Scheme, and any limits on it, as part of explaining their rights.
Life Policies in Brief
Although BCP focuses on general insurance, remember the contrast. Life policies are protected only for guaranteed benefits, subject to caps such as S$500,000 aggregate guaranteed sum assured and S$100,000 aggregate guaranteed surrender value per life assured per insurer. Accident and health policies and riders are not subject to caps.
A general insurer that is a PPF Scheme member is wound up. A policyholder had a personal motor policy and a covered own-damage claim of S$68,000. How much is protected under the PPF Scheme?
S$68,000, because personal motor claims have no cap
S$300,000 cap applies, so the full S$68,000 is paid
S$50,000
Nothing, because own damage is not compulsory cover
Which of the following policies issued by a PPF Scheme member is protected by the scheme?
A company's public liability policy
A travel policy issued to a company for its staff
Own-damage cover on a company-owned car
A company's Work Injury Compensation policy
When a PPF Scheme member insurer fails, which course of action do the scheme's materials describe as preferred, especially for life insurers?
Transferring the business to another insurer
Terminating all policies immediately
Refunding all premiums ever paid
Converting the policies into bank deposits
Sections you finish are checked off in the contents.