Published Date: 20 February 2003

Keynote Speech by Mr Lim Hng Kiang, Minister for Health, Second Minister for Finance, and Deputy Chairman of Monetary Authority of Singapore, 7th Asia-Pacific Life Insurance Congress Singapore Expo Hall 2, 20 February 2003, 8.50am

"New Era, New Challenges, New Attitude"

I am very pleased to address this Congress organized by the Insurance and Financial Practitioners Association of Singapore (IFPAS). It is a great honour for Singapore to be hosting this prestigious event again after an interval of 12 years.

2   When the first Congress was held in Singapore in 1991, countries in the Asia-Pacific were heading for a period of unprecedented economic growth.  Today, the economic landscape has changed significantly. While new and promising growth opportunities continue to emerge, the path forward is also marked by greater economic uncertainty. This Congress therefore gives us the opportunity to assess the challenges ahead and map out new strategies to capitalize on the opportunities while avoiding the pitfalls.

More Challenging Global Environment

3   The global insurance industry is going through a difficult phase.  Equity markets have experienced steep falls and most analysts see continued uncertainty. Added to this, interest rates in many markets are at or near historical lows. This difficult investment climate has put heavy downward pressure on the assets of insurance companies. In addition, non-life insurers have had to make large provisions for the increase in claims over the past few years.  In the developed countries, provisions for Directors and Officers? (D&O) insurance claims and asbestos claims constitute an added financial burden.  All these have taken a toll on the solvency and financial health of insurance companies.

4   These challenges are not limited to the developed markets. Increased competition is driving down profit margins in the developing markets. The convergence of financial products and the emergence of alternative distribution channels such as bancassurance and e-commerce have given consumers many more choices from service providers that operate beyond traditional boundaries. 

New Opportunities

5   Looking at the brighter side of the insurance industry, one can see the emergence of exciting growth prospects and new opportunities. Situated in the Asia-Pacific, we are ideally positioned to capitalize on the immense growth potential in the Asian insurance markets, particularly China and India.  Asia?s increasing affluence and high savings rates, coupled with increasing consumer sophistication and risk awareness, offer a whole new world of opportunities for life insurers.

6   At the same time, products offering retirement savings and healthcare financing are rapidly gaining popularity as a result of an aging population in parts of the Asia-Pacific. Liberalization and deregulation have gained momentum in many Asian countries, allowing insurers greater flexibility and creativity in offering more innovative products.

Focus on Fundamental Strengths

7   In the face of these conflicting trends, the insurance industry today is at a crossroads. If the industry does not restructure, it risks being overwhelmed by the current difficulties. In order to capitalize on its growth opportunities while staying on top of current challenges, all segments in the insurance value-chain must play their parts in weathering the current difficulties, rebuilding consumer confidence in the industry and establishing new strengths for the industry. 

Role of Insurance Companies

8   As the key providers of insurance services, insurance companies should re-focus on the core prudential factors that have enabled them to ride the crests and troughs of past economic cycles while maintaining the long-term viability of their companies. Many of these core factors, such as the importance of good corporate governance and sound financial management, have gained additional prominence in the light of recent corporate scandals in the US. Others, such as a strong risk management culture, are increasingly critical as the market becomes more complex, resulting in greater exposure of the insurers to new and exotic instruments.

9   By placing a greater emphasis on the rigorous control of risk, insurers will be better able to weather the latest economic turbulence. When these prudential practices become more widespread and deeply rooted, the resilience of the insurance industry as a whole will also be strengthened.

10   A prosperous insurance industry will depend not only on having the necessary prudential framework and infrastructure in place, but also on having continued public confidence in the entities within the system. Responding to the adverse market developments, some companies have cut non-guaranteed benefits and the bonuses for participating policies to policyholders. This has undoubtedly affected consumer confidence in the industry. 

11   While it is important for consumers to understand that the returns on participating policies can fluctuate depending on the investment climate, they must have reasonable confidence that the policies will eventually yield comparable returns over other forms of investments. Otherwise why would they entrust their life savings to the industry or purchase insurance protection only to see it evaporate when times are difficult?

12   Where consumers are not sufficiently aware of the risks of a particular policy, insurance companies should, on their own initiative carry out a comprehensive program of consumer education to inform consumers of the risks and characteristics of the products that they offer.

Role of Insurance Advisers

13   Further along the insurance value-chain, insurance advisers also play a pivotal role in upholding public trust in the industry. Stationed at the frontlines of relationship marketing, insurance advisers are the first point of contact between the consumer and the insurer. They are therefore in the best position to help rebuild the all-important consumer confidence and trust.

14   Insurance advisers must strongly support and complement their company?s consumer education efforts by ensuring that they, as insurance advisers, carefully disclose the risks of policies to clients at point of sale. For instance, insurance advisers must ensure that the policies best fit the needs of their customers. In addition, they should always highlight the differences and implications to clients of purchasing a policy with guaranteed versus non-guaranteed benefits. They should also do their utmost to help consumers understand that the bonuses of participating policies may be reduced in adverse economic times, or that the purchase of investment-linked policies implies that the risk has been fully transferred to the policyholder.

15   In addition to helping to build public trust, insurance advisers can also strengthen the insurance industry by improving their services through leveraging on the fresh opportunities presented to them by the new environment. With an expanded product range that caters to all varieties of risk profiles and investment preferences, the capacity for insurance advisers to answer to the financial needs of their clients is greatly enhanced. To distinguish themselves from their competitors, life insurance advisers can create their own competitive strengths and find their niches, be it in terms of services, brand names, or market segments.

Role of Regulators

16   To rejuvenate the insurance industry, a sound regulatory framework that is able to restore consumer confidence is absolutely essential. The regulator-regulatee relationship must therefore also change with the times. The old model of the regulator-regulatee relationship as being a strict watchdog ready to bite in response to any missteps by the insurers is outdated. The new paradigm is one of close cooperation. Regulators, regardless of the stage of development of their industry, will always need to draw upon the expertise of insurance practitioners to generate ideas, keep abreast of the latest market developments, anticipate global trends and review strategies.

The Singapore Experience

17   In Singapore, life insurers are adopting a two-pronged approach to cope with the challenges facing the industry. First, life insurers are focusing on the prudential aspects of the business by emphasizing good asset-liability management and prudent pricing of their products. Second, Singapore insurers have also sought to raise the quality of advice provided by their insurance advisers. One of the ways by which they have done so is to have implemented the recommendations of the MAS-appointed but industry-led Committee for the Efficient Distribution of Life Insurance (CEDLI), which include guidelines on the needs-based sales advisory process, product disclosure and training and competency of life insurance advisors. These measures have served in part to strengthen the life insurance industry against economic turbulence and to help maintain consumer confidence in the industry.

18   Insurers in Singapore are also becoming increasingly aware of the need to safeguard policyholder interests. The industry associations have come together to establish the Insurance Dispute Resolution Organization (IDRO), which will begin operations shortly. IDRO will serve as a one-stop center for all insurance complaints, and will cover disputes involving market conduct and claims issues. This initiative is a move that we welcome, and we look forward to its endorsement by all insurers.

19   As companies become increasingly proactive, industry associations will gradually play the role of self-governing authorities. Moving forward, the logical progression will be for the industry associations to set and improve the minimum standards of practice for the entire industry. Eventually, initiatives spearheaded by industry associations, and not directed by the regulators, should become the norm rather than the exception.


20   In almost all countries, the insurance industry is a key cornerstone for the economic and social infrastructure. The recent troubles in some countries may lead to potentially serious social and economic consequences. In the light of its important role in the smooth functioning of the economy, it is therefore critical for the insurance industry and individual institutions to aggressively build on their strengths and improve their resilience to economic turbulence. The first step is to focus on their core competencies, and to strongly reaffirm the basic premise of protecting policyholders.

21   While the task ahead is challenging, I am confident that members of the insurance industry can overcome it and go on to grow and prosper. The future opportunities for the insurance industry and for all of you who work in the industry remains very bright, especially here in Asia.

22   I wish you all success in addressing the challenges that face you and seizing the wonderful opportunities that await.