Published Date: 28 August 2001

"Challenges in the Insurance Industry" Keynote Address by Ms Teo Swee Lian, Senior Executive Director (Insurance), Monetary Authority of Singapore, at the 27th ASEAN Insurance Council Meeting

Date: 28 Aug 2001


Good morning. I am happy to be able to join you at the official opening of the 27th ASEAN Insurance Council Meeting.  I warmly welcome all our overseas friends to Singapore and hope you enjoy your stay here in our city-state.

2   The ASEAN Insurance Council is a unique private sector forum aimed at fostering regional co-operation in the development of the insurance industry.  Since 1978, participants from member countries - Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand have met regularly to promote the development of regional insurance markets. 

3   Strong collaborative spirit among ASEAN countries is a cornerstone to our mutual progress.  This is ever more needed at a time when the region continues to be affected by deteriorating economic conditions, especially with the fallout effect arising from weak export demand.  All major markets in the world are showing signs of slowdown.


4   Even as the global economy slows down, the transformation of the financial services industry has not abated. Technology, financial deregulation and increased competition remain as powerful forces driving the change.  Mergers and acquisitions now take place across traditional sectoral and geographical boundaries. Traditional boundaries among financial products are now more porous.  Insurers are encroaching into the turf of banking as they attempt to provide integrated risk management solutions that have significant financing elements.  At the same time, corporations and insurers have turned towards the larger capacity of the capital markets not just to raise funds but also to transfer catastrophic and other type of insurance risks.

5   Financial deregulation and greater emphasis on shareholder values bring about greater pressure for efficiencies and cost competitiveness.  With enhanced information and communication technology (e-business) solutions, these competitive and cost imperatives lead to pressures on financial institutions to deconstruct the value chain and explore alternative distribution channels to reap efficiencies.

6   As an integral part of the financial services industry, the insurance sector is not spared from these important forces of change.  Nevertheless, high saving rates, low insurance penetration, and eventual economic recovery in the region make for potential growth opportunities.  But the incumbent market players have to gear up to face increased competition within the insurance industry as well as from other financial and non-financial institutions.  Market liberalisation, enhanced disclosure, and overall raising of operational standards are essential to unlock the growth potential of our industry.


7   All these tumultuous developments also pose significant challenges for regulators.  As financial institutions become larger and more complex and financial products converge, regulators and supervisors have to cope with the risk profile and characteristics of new business models and financial products.  Previous regulatory and supervisory models do not necessarily guarantee success in the future. Policy makers must also be attuned to market changes and be able to respond accordingly if they are not to hold back market innovation.  All the regulators currently attending the 4th ASEAN Insurance Regulators meeting here today face the same challenge. We must formulate and refine the regulatory and supervisory framework on an on-going basis so that prudential standards are safeguarded and market efficiency enhanced, and yet there is room for insurers to innovate and capture market opportunities.

8   Early last year, we opened up Singapore's direct life and general insurance market completely.  At the same time, the 49% foreign shareholding limit was also lifted. The earlier closed-door policy had prevented the entry of new players and insulated incumbents from competition which could have spurred the development of new products and more efficient operational practices.  We believe that creating a more competitive insurance market is a necessary first step to raising standards and enable us to move closer towards international best practices if we are to be a leading centre for insurance services in the Asia-Pacific region.

9   As part of the overall change in how it regulates and supervises the financial services industry, MAS has also been reviewing and updating its approach towards the oversight of the insurance industry.  The review is carried out with active collaboration with the industry.

10   At the most fundamental level, we have instituted a basic shift in emphasis away from 'one-size-fits-all' regulation of insurers to a risk-based supervision approach which aims to take into account the business complexity and risk profile of financial institutions to drive supervisory intensity.  This is achieved through the evaluation of inherent risks associated with an institution's significant activities and the quality of risk mitigation for those activities.  Supervisory resources would then be concentrated on activities that are most likely to affect the institution's solvency position.

11   Our current valuation and solvency framework within our capital adequacy regime is also being reviewed to better address the capital needs of insurance companies facing increasing complex insurance activities and risks. Under the proposed framework, we aim to align our prudential requirements for insurance business with the emerging global trend of using "fair value" valuation basis and a risk-adjusted method for calculating capital requirements.  A workgroup comprising representatives from the Singapore Actuarial Society, Institute of Certified Public Accountants of Singapore and MAS officials was formed to review the valuation and solvency requirements for life insurance business in Singapore.  A similar workgroup has also been formed to develop best practices in setting premium and claim reserves in respect of general insurance. These are important first steps towards building a credible Risk Based Capital model for life and general insurance.

12   Besides seeking to align our regulatory requirements with international standards, MAS is also working to develop a more harmonised and integrated regulatory approach across the banking, insurance and securities industries.  Consistency in regulation across similar financial activities and products will help level the playing field, lower compliance costs, and reduce the scope for regulatory arbitrage.

13   MAS is also proposing a legislation to provide a single licensing regime and a more flexible and integrated regulatory framework for distributors of investment products.  The framework would also provide for the application of consistent standards of business conduct for entities engaging in financial advisory activities for all investment products.


14   But all these efforts are not one-off process.  As the industries and products continue to evolve, our laws, regulations and supervisory practices would have to evolve along with them.

15   MAS aims to work closely with the industry players to enhance the efficiency and professional standards in all segments of the financial services industry.  For instance, as part of an overall approach to enhance the efficiency of distribution channels in Singapore, MAS worked with the life insurance industry to implement needs-based sales analysis and enhanced disclosure standards to enable investors and customers to make better informed decisions.  The largely private sector committee's recommendation on enhancing professional training requirements for intermediaries selling life insurance products was also implemented this year.

16   The general insurers in Singapore are also acutely aware of the need to meet the changing expectations of consumers and to improve the public image of the general insurance industry.  As a result, they have formed several working groups, some with participation from the brokers, to review and bring about changes to upgrade the standards of the general insurance industry.

17   Technology, globalisation and financial deregulation pose challenges for us all in the insurance industry ? both the market players and the regulator.  MAS is aware that it has to continue strengthening its own capabilities to keep abreast with the rapid changes in the global financial markets.  The pace of change and the demands on MAS' resources, expertise and judgement will only intensify.  We aim to play our part effectively in this process of continuous review and upgrading so that the right conditions are created for the industry to emerge stronger and more resilient to reap the growth opportunities that remain in our market.

18   While our efforts to maintain close dialogue with the industry would continue, it is also important that market players in the insurance industry should continue to collaborate with one another.  The ASEAN Insurance Council is one such forum which is well-poised for this sort of co-operation to flourish.  I wish you a fruitful meeting.

19   Thank-you.