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.