Speech by Mr John Palmer, Deputy Managing Director (Prudential Supervision), Monetary Authority of Singapore, at the GIA Annual General Meeting Luncheon on Wednesday, 31 March 2004, 12.40 pm at Amara Hotel, Singapore
Thank you very much Terence. Good afternoon ladies and gentlemen. I?m very happy to be invited to speak to you again. I was here a year ago, and being back here gives me an opportunity to tell you once again how important the GIA is to Singapore, and to the Monetary Authority.
The General Insurance Industry in 2003
Last year when I spoke to you, I talked about some of the challenges facing the industry both globally and locally. The President has mentioned some of these challenges. And the challenges were serious ones. Globally, insurers were still facing the aftershocks of September 11. The industry had experienced serious declines in equity markets as well as other investment losses. They had bad claims experiences and increases in claims reserves. A few failures had occurred and some household names were in serious trouble.
Locally, the problems facing the industry were not as serious. But companies here had experienced some lean years and needed to strengthen their financial positions and improve their profitability.
As we look at the general insurance world this year, the outlook is much better. Underwriting discipline has improved. Terms and conditions have tightened and prices have increased. Some companies have raised new capital. Profits have improved and balance sheets strengthened
Locally, the outlook has also improved, despite a very challenging first half last year with the economic downturn, SARS, the Iraq war and the impact of some reinsurance downgrades. Despite the tough year, the industry achieved modest premium growth and a significant turnaround in operating results. And I congratulate you all for this achievement. It?s an important one. We need a financially strong and profitable industry in Singapore.
The general insurance environment continues to be challenging despite these improvements. It?s going to be important to maintain the underwriting discipline that contributed to the improved results in 2003.
Achievements of GIA in 2003
Progress has occurred not just on the financial front. The industry has made good progress in improving standards of service to customers. Your President has commented on some of the very important achievements in this area.
The industry and its customers continue to benefit from the various CESGI initiatives. The Code of Practice went into effect last year. A survey conducted by GIA indicates that companies are making good efforts to implement the provisions of the Code and I understand that you are planning a second survey to continue to monitor progress. CESGI also introduced new industry training and competency standards. These will improve professionalism and quality of service across the industry, and I was glad to hear from your President?s remarks that a very large number of agents have signed up for training. This is a very encouraging indication of commitment to this programme.
Since its formation in 2000, the Motor Insurance Task Force has made significant contributions to improving communication with customers, enhancing service standards and investigating causes of ongoing losses in this important insurance market. The Motor Insurance Review Workgroup, referred to by Mr Tan, was formed last year to address continuing concerns and will be making some important recommendations to the industry later this year. We look forward to this.
To enhance the framework for managing general insurance agents, a joint GIA, ARB and MAS workgroup was formed last year. Amongst the outcomes of that workgroup will be an improved accountability framework that includes an enhanced disciplinary process, and an agents? registration system that will better meet the needs of the industry and the public it serves.
I should also acknowledge other past achievements of GIA that are benefiting the industry and consumers. The Independent Damage Assessment Centre (IDAC) is helping to improve cost discipline and reduce the potential for claims abuse. Another very important consumer initiative mentioned by your President is the Insurance Dispute Resolution Organization (IDRO). IDRO is now well and truly up and running. It has already handled a large number of cases, some of them rather difficult, on both the general and life insurance sides. So we are pleased with the start that IDRO has made. However, more work is needed to firm up IDRO?s financial base and establish operating guidelines for the future. It is important that this be done because Singapore consumers must have assess to an effective and inexpensive dispute resolution mechanism and be able to have the confidence that such a mechanism will always be there.
Role of the GIA
The many achievements of GIA underline its important role in Singapore. It is a role that Singaporeans and MAS need and want it to play. Its role includes setting standards, helping to resolve problems, assisting consumers and acting as a coordinating body on joint initiatives with MAS and other government agencies.
With the initiatives spearheaded by CESGI, including the recent Code of Practice, GIA has shown that it can act as an effective standards-setting body. And as MAS moves away from prescriptive regulation towards risk based supervision, it is important for GIA to continue to grow into its standard-setting role.
General insurance is a tough industry; we all know that. Returns have been inadequate in recent years and public demands are high and growing. Many of the problems facing the industry are better addressed on an industry wide basis. The Motor Insurance Task Force and the recent Review Workgroup are important examples of the collective actions needed to achieve improvements for all.
For MAS to move away from prescriptive regulation and for the industry to take greater responsibility for its own destiny, an important pre-condition is better-informed consumers who are able to take greater responsibility for their own financial decisions. Industry associations have an important role in educating consumers. The President mentioned some of your consumer education initiatives, which we value very much. We are grateful for these and pleased that GIA, along with LIA and others, has become a partner in the important MoneySense initiative, and a co-sponsor of IDRO.
While MAS is ?nannying? less these days, it retains an important oversight responsibility for the success of the financial industries in Singapore and the quality of their service to customers. It must work closely with the industries that it serves, and it can do this best by working with strong industry associations.
In that sense, GIA and MAS are partners, and I can tell you that the partnership is working well. We have quarterly meetings with your Management. You provide feedback on MAS regulatory and supervisory policy initiatives such as the recently introduced Risk-Based Capital standards. And you also participate in discussions with MAS and other ministries and agencies with an interest in insurance matters such as MOM and LTA.
Another successful example of partnership between MAS and the general insurance industry was the help provided by many members in supporting the recent Financial Stability Assessment of Singapore carried out by the IMF and World Bank. The Financial Stability Assessment was a financial health check of the Singapore economy. It included industry reviews and an evaluation of the quality of supervision against general accepted best practices. The Singapore Assessment was very successful. We will be publishing the results, recently released by IMF and World Bank, in the next few weeks. These will include good results for the insurance sector. I would like to thank all of the GIA members who participated in the Assessment. Your participation was very helpful.
The GIA and the general insurance industry in Singapore have made good progress over the last year and the outlook for the industry is improving. But as your President said, important challenges remain.
Consumers are increasingly sophisticated and demanding, and so standards of service must continue to improve. The insurance environment has become more volatile in recent years both in terms of claims experience and investment performance. This volatility is likely to continue. That?s a given. You can no longer take for granted the soundness of the counterparties you deal with in carrying on your business. That?s another given. The industry must enhance its ability to manage in a riskier environment.
The insurance industry in Singapore is an important contributor to our economic well-being. Singapore faces competitive challenges in the next few years and must work hard to remain ahead of the game. This applies to insurance as well. We need the industry and its association to play a role in enhancing Singapore?s competitiveness.
While the role of MAS is evolving and in some ways, becoming more indirect, its expectations of the industries it serves remain high, and so we will continue to challenge this industry and the GIA to improve.
So the bar continues to move up, and as your President said, the greatest challenge is the relentless continuation of your reform process. On the basis of the progress this year, I believe the GIA is up to the challenge. We look forward to working with you in 2004 and in the years beyond. We wish you all a profitable year and success with the many initiatives you have underway.