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Proposal for the Reform of Payment of Marine Insurance Premiums in Singapore

  • 16 April 2020 16 April 2020
  • Marine

Proposal for the Reform of Payment of Marine Insurance Premiums in Singapore

On 28 February 2020, the Singapore Academy of Law's Law Reform Committee published its Report on Reforming Insurance Law in Singapore. The report reviewed areas of Singapore's insurance laws the Committee considered might be potentially outdated and whether reform was needed. Features relating to general insurance aspects have been covered in our previous legal update here. This article covers the proposed changes that only affect marine insurance, specifically brokers’ responsibility for unpaid premiums.

Summary of the report

The report recommends that marine insurance brokers should no longer be personally liable to pay premium to the insurer. Unique to maritime insurance law, a broker is directly responsible to the insurer for the payment of premiums. Section 53 of the Marine Insurance Act (‘MIA’) provides that:-

(1)  Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of losses, or in respect of returnable premium.

(2)  Unless otherwise agreed, the broker has, as against the assured, a lien upon the policy for the amount of the premium and his charges in respect of effecting the policy; and, where he has dealt with the person who employs him as a principal, he has also a lien on the policy in respect of any balance on any insurance account which may be due to him from such person, unless when the debt was incurred he had reason to believe that such person was only an agent.

Historically, this was to safeguard underwriters’ interests as the underwriters would now have had a familiar party (i.e. their broker) against which they could seek recovery for unpaid premiums. This custom was thereafter codified into legislation.

The report considered the position in other jurisdictions.

  • United Kingdom: Singapore inherited s53 of the MIA from the UK’s Marine Insurance Act 1906, and both sections remain the same. In an issue paper published in July 2010, the UK Law Commission considered section 53 of the UK Marine Insurance Act 1906 and proposed reforming the section such that, inter alia, the broker was no longer directly responsible for the payment of the premium.
  • Germany: there is no equivalent section and brokers are not responsible to the insurers for unpaid premiums.
  • Norway: similar to the German position, there is no equivalent section and brokers are not responsible to the insurers for unpaid premiums.

The report observed that the original policy concerns were no longer a pressing issue. Instead, various conflicting decisions had emerged surrounding the application of the custom leading to legal uncertainty. Moreover, the law did not reflect practice, where insurers rarely sought recovery directly against brokers, preferring instead to maintain their commercial relationship.  

In the circumstances, the report proposed two changes to the law, which are to:-

  1. Repealing section 53(1) and replacing it with a provision stating that unless agreed otherwise, a broker is not personally liable to pay the premium to the insurer; and
  2. Re-enacting section 53(2) with an amendment that makes clear that the lien provided therein should be extended to non-marine insurance as well.

Comment

The proposed amendments better reflect commercial realities for the payment of premiums.

Moreover, the general insurance industry in Singapore has already developed general rules governing the payment of insurance premiums through the Premium Payment Framework (“PPF”). These rules provide recourse for the non-payment of premiums, in particular, through cancelling the unpaid policies after 60 days. At present, the PPF explicitly excludes marine insurance, and if the proposed reforms are adopted, it is possible that the PPF would be expanded to include marine insurance. This would increase harmonisation of the insurance industry.

As this report is presently a proposal, further developments and public consultations are expected before any proposals in the report would be adopted. We will keep you up to date with developments.

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