Investment-Linked Assurance Schemes ("ILAS") products are susceptible to mis-selling and aggressive selling. In addition, they can be used as vehicles for fraudulent acts and money laundering activities.
Insurers have the duty to ensure that the remuneration structure for their intermediaries do not create misaligned incentives for the intermediaries to engage in the aforesaid activities. For instance, an overly high commission in the initial years of the policy term, coupled with a short clawback period, may create such misaligned incentives.
Accordingly, indemnity commission, or any standing arrangement that offers advance payment of commission, is strictly prohibited. Insurers should only pay commission on an earned basis. Commission payable should also spread over an appropriate duration to encourage good after-sale service and duly reward long term relationship between intermediaries and policyholders.
Cases of mis-selling, aggressive selling, fraud and money-laundering often surface after the expiry of the clawback period. Insurers should therefore put in place an appropriate clawback period to address this particular risk. In addition, to deter such activities, a clawback mechanism must also be put in place to fully recover all commission paid in proven fraud / money laundering / mis-selling cases.
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