Insurance / Takaful: BNM issues Policy Document on Perlindungan Tenang

Key Contacts:
To-Puan-Janet-Looi-web.jpg Phua-Pao-Yii-web.jpg
To’ Puan Janet Looi  Phua Pao Yii

Following on the issuance of the Exposure Draft Policy Document on Perlindungan Tenang on 1 December 2020, the Central Bank of Malaysia, Bank Negara Malaysia (‘BNM’) issued the Policy Document on Perlindungan Tenang (‘Policy Document’) on 2 July 2021.
The Policy Document, which took effect on 5 July 2021, applies to licensed insurers under the Financial Services Act 2013 and licensed takaful operators under the Islamic Financial Services Act 2013 (individually a ‘licensed person’ and collectively ‘licensed persons’).
Perlindungan Tenang is an initiative launched by BNM in 2017 in collaboration with the insurance and takaful industry to provide microinsurance/microtakaful products (being life and general insurance and takaful products) to the unserved and underserved segments, in particular the households belonging to the bottom 40% of the income groups in Malaysia (B40), which are affordable, accessible, provide good protection value and are easy to understand, simple to purchase and to make claims.
The Policy Document seeks to provide a more enabling and fit-for-purpose regulatory framework since the launch of the Perlindungan Tenang initiative in 2017 and focuses on the following areas:
  1. empower licensed persons to offer more innovative, diverse and meaningful microinsurance and microtakaful products in a sustainable manner through clearer expectations on product development;
  2. promote a wider take-up of microinsurance and microtakaful products by broadening the distribution channels to address challenges associated with high distribution costs, as well as enabling product combination; and
  3. strengthen consumer protection requirements to safeguard consumer interests.
All Perlindungan Tenang products, including any riders or endorsements, must adhere to the following principles:
  • Amount of premium/takaful contribution is affordable for the target group.
  • Choice of distribution channel is convenient for and accessible to the target group.
  • Product has minimal exclusions.
Good value
  • Protection provided corresponds to the key needs of the target group.
  • Proportion of premium/takaful contribution allocated to insurance/takaful benefit is maximised.
Easy to understand
  • Product features are self-explanatory such that no advice is required as only simple disclosure is needed.
  • Terms and conditions, including simplified underwriting questions, are straightforward.
  • Content, language, mode and timing of disclosure and marketing are suitable for customers with only a basic to no understanding of insurance or takaful.
  • Benefits are easily understood.
Easy of purchase,
and claims
  • Simple processes from purchase to claims with minimal burden for the target group.
  • Simplified claims documentation that minimises the time between the risk event and pay-out.
  • Claims benefits with payment structure other than lump-sum payment basis can be considered provided that the benefits are conveniently and expediently paid to address financial burden during the risk event, and fair to the target group.
Licensed persons are required to meet the following requirements for Perlindungan Tenang products:
  1. maximum term coverage of up to three years;
  2. minimum 15 days free look period1 and 30 days grace period2 for policies or takaful certificates with term coverage of at least one year;
  3. allows guaranteed acceptance or on-the-spot acceptance or rejection of risk;
  4. without savings or investment feature, or surrender benefits; and
  5. claims to be paid out within five working days (for death claims) and seven working days (for non-death claims) from the receipt of a claim notification.
BNM is also willing to consider applications from licensed persons to offer a combination of Perlindungan Tenang products with other products offered by financial institutions (‘combined products’).
The requirements and matters to be considered in relation to the structuring and offering of combined products are set out in section 9 of the Policy Document.
All Perlindungan Tenang products (including combined products) require BNM’s approval before they are launched.3
A new category of intermediaries4, ‘Perlindungan Tenang partner’ (‘PT Partner’), is introduced to broaden the distribution channels for Perlindungan Tenang products. This new category is in addition to the existing intermediaries. A PT Partner must be:
  1. a sole proprietorship, partnership or company;
  2. an agent bank; or
  3. a society, including co-operatives or non-governmental organisation.
For the purposes of distributing Perlindungan Tenang products, the Policy Document requires a licensed person to ensure that its PT Partner describes to the customer the product features and relevant processes including premium or takaful contribution payment, policy or takaful certificate renewal and claims procedures in accordance with the marketing and educational materials provided by the licensed person. Any further queries are to be routed to the licensed person.
There is no limit to the number of licensed persons a PT Partner may represent.
Detailed requirements relating to a PT Partner are set out in sections 10 and 11 of the Policy Document.
It is hoped that the Policy Document will pave the way for greater penetration of insurance and takaful products among the unserved and underserved segments of Malaysian society.
Alert by To’ Puan Janet Looi (Partner) and Phua Pao Yii (Partner) of the Corporate Practice of Skrine.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such.

1 A ‘free look period’ is a period of time in which a policyholder/participant may examine a newly issued individual policy/certificate and surrender it in exchange for a full refund of premium minus any claims made.
2 The ‘grace period’ is an additional period of time after the due date of the premium/takaful contribution during which payment may be made without penalty while keeping the policy/certificate in force.
3 Refer to section 12 of the Policy Document for further details.
4 The expression “intermediaries” refers to any insurance or takaful agent, financial adviser or Islamic financial adviser, insurance or takaful broker, bancassurance or bancatakaful partner as defined under the Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business.