Insurance is often discussed in terms of premiums, benefits, exclusions and claims. Those elements determine the contractual protection available to a policyholder, but an equally important question arises before the contract is signed: Was the product appropriate for the person who purchased it? A policy can be correctly documented and legally issued while failing to address the financial risk the customer intended to protect against.
Bank Negara Malaysia's proposed framework on proper advice practices for insurance and takaful business brings this question into sharper focus. Published on 30 September 2026, the exposure draft seeks to strengthen customer fact-finding, suitability and affordability assessments, product recommendations and institutional accountability. The consultation remains open until 31 January 2027, and the final requirements have yet to be settled.
I believe the quality of financial advice should be assessed by the quality of the decision it enables a customer to make. The customer should understand the purpose of the product, the financial commitment involved, the protection provided and the material limitations that accompany it. A completed application is evidence of a transaction; it is not, by itself, evidence that the recommendation was appropriate.
This distinction becomes particularly important when insurance is purchased to meet a long-term need. A customer may seek protection for a family, assistance with future medical expenses or cover against a financial liability. Those objectives cannot be assessed in isolation from the customer's circumstances and capacity to maintain the policy. Advice must connect the product to the need it is intended to address.
Affordability deserves the same attention as suitability. The ability to pay a premium today does not necessarily establish the ability to maintain the commitment over time. Where cover is discontinued because the financial burden proves unsustainable, the customer may lose protection precisely when it is needed. The relevant assessment must therefore consider affordability in a meaningful way, within the standards ultimately adopted by the regulator.
There is also a responsibility on financial institutions to examine how their own commercial arrangements influence the advice customers receive. Sales targets, commission structures, product campaigns and performance measures can shape behaviour. If the institution rewards the volume of policies sold without adequately examining their suitability, it risks creating incentives that work against the interests of customers.
That is why governance cannot be confined to the compliance department or the individual intermediary. Boards and senior management must understand how sales practices operate, what the available evidence reveals about customer outcomes and whether recurring problems point to weaknesses in the institution's controls. The proposed Malaysian framework's emphasis on oversight and sales-quality review is important in this respect.
Documentation remains essential, but its purpose should be to demonstrate the reasoning behind a recommendation. A customer fact-find should inform the advice given; a record of advice should reflect the actual recommendation; and a review process should test whether the institution's procedures work in practice. If these elements become routine paperwork disconnected from the customer's circumstances, the intended protection will be weakened.
Investment-linked insurance illustrates the importance of this approach. Customers need to understand the relationship between the insurance cover and the investment component, along with the relevant charges, risks and conditions. The appropriate product depends on the customer's objectives and circumstances, and a clear explanation of the contract is indispensable to an informed decision.
The same principle applies to sales conducted by telephone or through technology-enabled processes. Convenience should not come at the expense of understanding. Institutions must be able to demonstrate that their systems support appropriate advice, that customers receive meaningful information and that there is a reliable process for reviewing sales quality.
I also consider the handling of complaints and remedial action an important test of institutional responsibility. A complaint should be assessed on its evidence and merits, but recurring complaints can reveal a pattern that deserves wider investigation. Where a deficiency is established, the response should address the affected customer and examine whether the same weakness may have affected others. This is a more constructive approach than treating every complaint as an isolated matter.
For insurers and intermediaries, stronger advice standards should not be viewed solely as an additional compliance burden. A properly conducted advisory process can help prevent avoidable disputes, improve customer understanding and strengthen relationships over the life of a policy. The commercial value of trust is difficult to quantify, but its absence can become apparent when customers discover that their expectations and their contractual protection do not align.
The challenge for regulators is to make the framework sufficiently clear and proportionate for institutions to implement it consistently. The challenge for the industry is to contribute practical evidence during consultation and then translate the final requirements into meaningful processes. Neither objective is served by procedures that are elaborate on paper but ineffective in the customer interaction.
The wider lesson is that financial services must be evaluated by the quality of the decisions they help people make. Insurance advice should begin with the customer's risk, proceed through a defensible assessment of suitability and affordability, and end with a clear understanding of the protection purchased. That is the foundation on which a durable relationship between policyholder and provider can be built.
Insurance is often discussed in terms of premiums, benefits, exclusions and claims. Those elements determine the contractual protection available to a policyholder, but an equally important question arises before the contract is signed: Was the product appropriate for the person who purchased it? A policy can be correctly documented and legally issued while failing to address the financial risk the customer intended to protect against.
Bank Negara Malaysia's proposed framework on proper advice practices for insurance and takaful business brings this question into sharper focus. Published on 30 September 2026, the exposure draft seeks to strengthen customer fact-finding, suitability and affordability assessments, product recommendations and institutional accountability. The consultation remains open until 31 January 2027, and the final requirements have yet to be settled.
I believe the quality of financial advice should be assessed by the quality of the decision it enables a customer to make. The customer should understand the purpose of the product, the financial commitment involved, the protection provided and the material limitations that accompany it. A completed application is evidence of a transaction; it is not, by itself, evidence that the recommendation was appropriate.
This distinction becomes particularly important when insurance is purchased to meet a long-term need. A customer may seek protection for a family, assistance with future medical expenses or cover against a financial liability. Those objectives cannot be assessed in isolation from the customer's circumstances and capacity to maintain the policy. Advice must connect the product to the need it is intended to address.
Affordability deserves the same attention as suitability. The ability to pay a premium today does not necessarily establish the ability to maintain the commitment over time. Where cover is discontinued because the financial burden proves unsustainable, the customer may lose protection precisely when it is needed. The relevant assessment must therefore consider affordability in a meaningful way, within the standards ultimately adopted by the regulator.
There is also a responsibility on financial institutions to examine how their own commercial arrangements influence the advice customers receive. Sales targets, commission structures, product campaigns and performance measures can shape behaviour. If the institution rewards the volume of policies sold without adequately examining their suitability, it risks creating incentives that work against the interests of customers.
That is why governance cannot be confined to the compliance department or the individual intermediary. Boards and senior management must understand how sales practices operate, what the available evidence reveals about customer outcomes and whether recurring problems point to weaknesses in the institution's controls. The proposed Malaysian framework's emphasis on oversight and sales-quality review is important in this respect.
Documentation remains essential, but its purpose should be to demonstrate the reasoning behind a recommendation. A customer fact-find should inform the advice given; a record of advice should reflect the actual recommendation; and a review process should test whether the institution's procedures work in practice. If these elements become routine paperwork disconnected from the customer's circumstances, the intended protection will be weakened.
Investment-linked insurance illustrates the importance of this approach. Customers need to understand the relationship between the insurance cover and the investment component, along with the relevant charges, risks and conditions. The appropriate product depends on the customer's objectives and circumstances, and a clear explanation of the contract is indispensable to an informed decision.
The same principle applies to sales conducted by telephone or through technology-enabled processes. Convenience should not come at the expense of understanding. Institutions must be able to demonstrate that their systems support appropriate advice, that customers receive meaningful information and that there is a reliable process for reviewing sales quality.
I also consider the handling of complaints and remedial action an important test of institutional responsibility. A complaint should be assessed on its evidence and merits, but recurring complaints can reveal a pattern that deserves wider investigation. Where a deficiency is established, the response should address the affected customer and examine whether the same weakness may have affected others. This is a more constructive approach than treating every complaint as an isolated matter.
For insurers and intermediaries, stronger advice standards should not be viewed solely as an additional compliance burden. A properly conducted advisory process can help prevent avoidable disputes, improve customer understanding and strengthen relationships over the life of a policy. The commercial value of trust is difficult to quantify, but its absence can become apparent when customers discover that their expectations and their contractual protection do not align.
The challenge for regulators is to make the framework sufficiently clear and proportionate for institutions to implement it consistently. The challenge for the industry is to contribute practical evidence during consultation and then translate the final requirements into meaningful processes. Neither objective is served by procedures that are elaborate on paper but ineffective in the customer interaction.
The wider lesson is that financial services must be evaluated by the quality of the decisions they help people make. Insurance advice should begin with the customer's risk, proceed through a defensible assessment of suitability and affordability, and end with a clear understanding of the protection purchased. That is the foundation on which a durable relationship between policyholder and provider can be built.