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~ 27JBAN K N EGARA MALAYSIA .-CENTRAL BANK OF MALAYSIA'"'"--::--"-:':'~~ ,~ ~ -D~ -d-COlvlr;:..,'Y::; ~E/~~';.~~~):~7'.!";: -.,,! : ~-.~..~ ' '\;' I;tr.=L!-" ,,-. .,-,. '. " ~ I ~ h~' .., ,r,i, '"}on~ ~".I -,.,'~,{'I hi-", t.: U\.J .'TelefonFaksimiliWeb60{3) 2691-360660{3) 2691-6976www.bnm.gov.myJalan Data' Onn50480 Kuala LumpurMalaysiaDatuk Zamani Abdu/ GhaniTimba/an Gabenor Surat Pekeliling JPI: 7/2006,;"\""'"i '1 1 c.,,, ..\ r7~'.o...rl'.0 ~~ ,;:J,:~",,"'n;":::'::" 11 't)-.. 1 ~ , jPI DG. 7/2006~~U!':'!;:::...::.:.:.;~;;,;J , S "'~'IA.{~ _..er.Z?f,~~,Ketua Pegawai Eksekutif&;:'D ~ ('"D~* .I'~ "3 0 ,vlPenanggung-penanggung Insurans Am'dan Komposlt ~April 2006Tuan,Breach of JPI/GPI 2: Guidelines to Control Operating Costs ofGeneral Insurance BusinessIt has come to the attention of Bank Negara Malaysia (Bank) that someinsurers have been offering numerous additional incentives to their agents over and abovethe maximum commission arid agency-related expenses limits allovv"ed under JPI/GPI L.The additional remuneration are offered under the guise of various incentive schemes andpolicy owners' benefits designed to circumvent JPI/GPI 2. Among others, these incentiveschemes include the following:(i) overriding commissions of 1 %-5% based on production channelledthrough reimbursement of entertainment bills;(ii) payment of sand-blasting fee of RM15 to agents for every motor policyissued, including renewal cases (instead of direct payment to workshopsbased on actual number of vehicles sand-blasted);(iii) financial incentives of up to RM10 for every insurance certificate issuedby agents in addition to commissions paid;(iv) distribution of petrol and redemption vouchers meant for policy owners toagents;(v) monthly dinners for agents sponsored by insurers based on production;(vi) sales campaign for agents with prizes in the form of holiday trips; and(vii) overseas trips arranged for agents by a third party. Payment for the tripis channelled through the third party under the guise of purchase ofpromotional gifts charged at cost higher than the actual cost.2. The Bank takes a very serious view of these unethical and unhealthypractices amongst insurers. Insurers are hereby reminded to observe all the requirementsof JPI/GPI2. particularly the limits on agency remuneration. Insurers should not berewarding their agents more than the maximum commission and agency-related expenseslimits allowed, including any payment in the form of introducer/referral fees andexclusivity fees. Such unhealthy schemes, including those funded by related companies

2of insurers, are not in line with the spirit of JPI/GPI 2 and insurers must cease theseschemes Immediately. The Bank will conduct focused examinations on insurers from timeto time and findings of involvement in such irregular schemes will be considered in theassessment of the eligibility of Board members and chief executive officers of insurers forreappointment by the Bank. We would like to reiterate that the senior management team ofinsurers cannot absolve themselves of any unhealthy schemes involving their companyincluding by reason of ignorance.3. Insurers are required to table the contents of this circular at their next Boardof Directors' meeting. To instil greater market discipline and ensure full compliance withJPI/GPI 2, the Board is required to immediately initiate an internal investigation and submita report of its findings to the Bank to attest to either of the following:(i) the insurer is not involved in any such unhealthy schemes; or(ii) the insurer has immediately ceased such unhealthy practices with anundertaking that the insurer will not engage in such practices in thefuture.Insurers are also required to provide to the Bank a half-yearly attestation to be signed bytwo Board members and the chief executive officer confirming full compliance of theinsurer with all the provisions of JPI/GPI 2.4. Reports on the internal investigations and the first attestation from the Boardshould be submitted to the following address by end-May 2006:PengarahJabatan Penyeliaan InsuransBank Negara MalaysiaTingkat 15Dataran Kewangan Darul TakafulNo.4, Jalan Sultan Sulaiman50000 Kuala Lumpur.Subsequent half-yearly attestations, commencing from the second half of 2006, should besubmitted to the same address not later than three weeks after the end of each reportingperiod.Sekian.Yang benar,(Datuk Zamani Abdul Ghani)Timbalan Gabenor5.k.:Pengarah, Jabatan Penyeliaan InsuransPengarah, Jabatan Perbankan Islam dan Takaful