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GUIDELINES REVIEW Importance of Board Oversight

Greater responsibility is placed upon


BNM/RH/GL 010 – 14: GUIDELINES the board and senior management to
ON INTRODUCTION OF NEW ensure the objectives of the guidelines
PRODUCTS FOR INSURANCE are met efficiently and effectively.
COMPANIES AND TAKAFUL Appropriate policies and procedures1
OPERATORS should be in place to support the
stakeholder’s product management
programme.
GENERAL INSURANCE & GENERAL
TAKAFUL OPERATORS ONLY
What is termed as “New Product” is
defined within the Guidelines:
The Prudential Financial Policy (i) Products that are being offered
Department of Bank Negara to Malaysian market for the
Malaysia has in mid-2009 reviewed first time, or
relevant “Guidelines” within the (ii) Any product variations to an
existing regulatory framework for existing product that may
introduction of New Products for result in any material change`
insurance and Takaful. The purpose to the profiles of its existing
is to further enhance consumer form.
protection while according greater
flexibility for insurers and Takaful What constitute “material change”? Any
operators (“termed the interpretation of what constitutes
“STAKEHOLDERS”) to respond to “material change” and any decision
changing market conditions, both in thereto shall lie with either the
managing risks and enhancing their appointed actuary, or member(s) of
competitiveness". senior management who is (are)
1
Basically, the guidelines within the The policies and procedures should be
designed to identify and control product risk
framework aim towards improving across the value chain – from all stages of
relevant risk management practices product development, authorization, pricing,
among stakeholders during product marketing, sale, distribution, portfolio
management, accounting and ongoing
development and marketing stages, service and maintenance. Such policies
and from the perspectives of should be reflective of the stakeholder’s
corporate strategy, competitive positioning,
consumers, serve to strengthen the risk/reward philosophy and financial capacity
duty of care owed in regards to needs, to absorb losses. The policies should
comply with relevant principles and
resources and financial capability of guidance issued by BNM. The Board should
targeted consumer segments. formally endorse such policies and
procedures.
responsible for risk management
functions. Such interpretations and the `What is “launch-and-file”
basis of determination must be properly system? Simply means a
documented for internal controls as stakeholder can start its product
well as for BNM’s review. Changes in launch upon completing its
the Shariah contract for existing submission of the necessary
products (example – from mudharabah information to BNM.
to wakalah contract) are deemed to be
material changes.  In cases concerning other
New Products (falling within
The Guidelines do not generally apply the definition) introduced to
to new delivery channels or operating the market for the first time
systems or processes or involving Shariah
contractual principles –
Criteria to observe before any stakeholders must submit the
New Product introduction following information to BNM
Stakeholders must ensure the following prior to introduction of the
important certain criteria are met before product:
introducing the New Product:  required information as
(i) financial capacity to support per Appendix 1 and
the product lines, Appendix 2 (applicable to
(ii) capability to manage and takaful operators), and
control the risks associated  proposed capital and
with the new product, accounting treatment for
(iii) product must have complied the product.
with established regulatory
requirements, including However, stakeholders can
related guidelines issued by commence with the New
BNM and Securities Product introduction after the
Commission, expiry of 30 days from the date
(iv)  In the case of Medical & of receipt of full documentation
Health New Products, and information by BNM unless
information described in a review is being called for.
Appendix 1 and Appendix 2
(takaful operators only) must Supervisory Expectations
be submitted under a Appropriate Policies and Procedures
“launch-and-file`” system to should be in place to identify and
BNM before the introduction. control product related risks – this
entails a comprehensive Product Risk 3. Stakeholders shall submit (upon
Management Programme to be request) to BNM information
effectively put in place. Main objectives concerning policies and procedures
are to: in respect of managing product risk
 identify and control product risk (including specific information on its
across the value chain IT system) and the areas
 align with the insurer’s business concerning fair treatment of
objectives and consistency with its consumers.
capability and capability to manage
associated risks An important point to note
 ensure the adequacy and security Stakeholders that fail to meet the
of the IT systems and infrastructure conditions and requirements under
to support the product suites these Guidelines and related
 manage risks as an ongoing obligations will be subject to
concern and ability to deploy appropriate supervisory action by BNM.
strategic risk mitigation measures The actions can take the form of
 for takaful operators, ensure recalling a launched product,
compliance with Shariah principles compensate affected consumers,
imposing additional capital risk charges
The policies and procedures should and publishing details of corrective
also take into consideration the actions imposed on the stakeholder, to
interests of consumers in the name the major ones.
development, marketing and dale of
new product – basically this is about
Fair Treatment of Consumers. Appendix
Appendix 1 (applicable for both
conventional and takaful) –
Supervisory Action Information requirements for
1. Senior management must ensure New Products
that the conditions and
requirements set out in these Appendix 2 (applicable for
Guidelines are adhered to, with takaful) – Shariah information
effective oversight by the board. requirements – requirement for
2. The board is required to submit an presentation of takaful product
annual attestation to the Bank at proposals to the Bank and the
the end of each financial year that Bank’s Shariah advisory council.
the conditions and requirements of
the Guidelines have been met.