Bank Negara Malaysia (BNM) is proposing tighter rules governing the sale and recommendation of insurance and takaful products, including stronger affordability assessments, mandatory customer fact-finding, enhanced safeguards for vulnerable consumers and a prohibition on completing sales through telemarketing.
The central bank said its Exposure Draft on Proper Advice Practices for Insurance and Takaful Business, issued on Sept 30, is intended to strengthen sales conduct standards and hold financial service providers and intermediaries more accountable for advice given to customers.
The proposals apply to licensed banks and Islamic banks, insurers, takaful operators, prescribed development financial institutions, financial advisers and insurance and takaful brokers.
BNM said proper advice has become increasingly important as insurance and takaful products grow more complex, requiring providers to consider customers’ needs, objectives, financial circumstances and other relevant factors before recommending products.
A key element of the proposed framework is a stronger customer suitability and affordability assessment throughout a product’s lifecycle.
Insurers and takaful operators would need to take into account risks that could make products less affordable over time, including repricing, medical inflation, poor investment performance and step-up premium or contribution structures.
For investment-linked products, providers would also be expected to assess whether customers can sustain premiums or takaful contributions over the expected duration of the policy, including the potential impact of rising insurance charges, medical costs and investment performance.
The proposed framework would also require intermediaries to conduct a more comprehensive Customer Fact-Find, covering information such as occupation, dependants, income, risk tolerance, existing insurance or takaful coverage and the customer’s budget for additional protection.
If a customer declines to provide the required information, the intermediary would have to inform the customer that the sale cannot proceed because there would not be enough information to determine whether the product is appropriate.
Under another significant proposal, an intermediary would be prohibited from recommending a product unless it can demonstrate that the product suits the customer’s identified needs, objectives and financial circumstances.
If none of the products an intermediary is authorised to sell is suitable and affordable for the customer, no product should be recommended.
Recommendations would also have to be documented through a Record of Advice, including the reasons a particular product was recommended and how it addresses the customer’s needs. After a purchase, customers would receive a Confirmation of Advice summarising the fact-finding, recommendation and key product features.
BNM is also proposing additional safeguards for vulnerable customers purchasing investment-linked products.
Such products could only be recommended to vulnerable consumers under specified circumstances, including where they have previous financial product experience or have expressed interest in investment-linked products. The remaining sales process would also require the customer’s consent to be recorded through audio or video.
The proposed vulnerable-consumer categories include senior citizens aged 60 and above, persons with disabilities, financially dependent or unemployed individuals, and customers who only speak a language other than Bahasa Malaysia or English.
The exposure draft also proposes a significant change to insurance and takaful telemarketing.
While companies could continue using telemarketers to market products and explain their features, telemarketers would no longer be allowed to conclude an insurance or takaful sale over the phone.
Interested customers would instead have to be referred, with their explicit consent, to a qualified intermediary who can conduct the required needs and suitability assessment. Telemarketing calls involving insurance or takaful products would also have to be recorded and retained for at least seven years.
BNM is additionally proposing independent pre-issuance verification and post-sale reviews to identify potential mis-selling and determine whether customers understood the products they purchased.
The central bank is considering bringing the requirements into force six months after the final policy document is issued, allowing institutions time to upgrade systems and processes.
BNM has invited industry and public feedback on the proposals, with submissions due by Jan 31, 2027.
