"Review of Achievements and Future Challenges"

Introduction

Thank you very much, Raymond Kwok, President of LIA. Good afternoon, ladies and gentlemen. It's a great pleasure to be with you this afternoon. I?m glad to have the opportunity to address you today.

I want to cover some of the same ground that Raymond has covered in his address, although from a somewhat different perspective. I would like to talk about what has happened within the life industry in Singapore over the last year, and then discuss some of the achievements of LIA. I will also talk about some of the challenges that are facing the industry in future years.

The Life Insurance Industry in 2003

The life insurance industry, globally, and in Singapore has weathered some pretty challenging times over the last two to three years. It has been a very difficult investment climate. It has been a year of volatility in the market place. Some life insurance companies around the world have been seriously affected. Naturally MAS has had a keen interest in ensuring that Singapore-based insurance companies successfully weathered the storm.

In 2002 and again in 2003, MAS, as part of its normal surveillance activities, carried out active stress testing of the insurance companies in Singapore to assess the capacity of the industry and companies to cope with further declines in equity and fixed income values. The testing showed that most companies were well-prepared to deal with equity declines and had put in place adequate contingency plans to respond to those declines. As I mentioned, the situation in certain other developed countries was very different from what we experienced in Singapore.

As a result of good planning and the pick-up in equity markets, life insurance companies in Singapore are well capitalized and generally in good financial health. That's an important message for Singaporeans to have.

On the market conduct front, some important issues did surface in 2003. Raymond has described them in some detail. The critical year issue was obviously the most public of those issues and it occupied the newspapers headlines for weeks at a time.  It's important to know that the seeds of this issue were sown many years ago when standards of selling practices were not as high as they are today. So, in judging the industry, we should take that historical aspect into account. But we have other market conduct problems of more recent origin, including the churning of policies, which the industry is now addressing.

Market conduct issues are not unique to the insurance industry. Raymond talked about the importance of a level playing field in ensuring that all industries are subject to similar market conduct standards. It's certainly MAS' intention to ensure that in its work, all industries are held to the same standard. Also, it is important to recognize that market conduct problems are not unique to the life insurance industry in Singapore. This is a global phenomenon. Market expectations are changing. Consumers are becoming more sophisticated. The realities of the market are changing in terms of investment returns and needs of consumers and so the industry needs to adjust to more changes. It needs to continue to raise the bar. There are going to be market conduct challenges for the industry globally and in Singapore for some time to come.

Achievements of LIA in 2003

In this challenging year, LIA has played a positive role in guiding the industry, serving as a co-ordinating body within the industry and also with important stakeholders like the Consumers Association of Singapore. It has played an increasingly important role as a standard-setter for the industry, raising the bar for performance and behavior among the member companies. It has acted as an effective industry liaison with MAS.

We are seeing other important achievements. The past work of the Committee for Efficient Distribution of Life Insurance, known affectionately as CEDLI, is beginning to pay dividends. It has helped the industry deal with the challenges introduced by the Financial Advisors' Act. It is helping members adjust to the higher expectations in the market place that I described regarding professionalism and transparency in insurance practices.

LIA has played a positive role in partnering MAS in the development of risk-based capital standards for life insurance companies. We will begin to see the fruits of what has been an enormous undertaking involving a great deal of hard work from the LIA, member companies and indeed many people around these tables as well as MAS.

The LIA's establishment, with the GIA, of the Insurance Dispute Resolution Organisation, IDRO, has been a most important step. IDRO has already benefited a number of Singaporeans. It has enhanced the reputation of the industry and begun the task Raymond spoke of - the important task of enhancing the level of trust that Singaporeans have in their insurance industry.

Raymond made reference to MoneySense. We are delighted that LIA has become an active participant in this joint industry-MAS initiative to increase the financial sophistication of Singapore consumers.

Despite its very small staff and an Executive made up of volunteers, LIA has continued to make a positive contribution to the development of the life insurance industry in Singapore and, increasingly, the surrounding region. It remains an important force in moving the industry forward.

Before I complete my list of LIA's accomplishments, I do want to acknowledge the help of LIA and individual members in providing information to reviewers from the IMF and the World Bank who were in Singapore over the last year carrying out a financial stability assessment (effectively a financial health check) of the Singapore economy. The financial stability assessment (FSAP) proved to be a major undertaking. It was also a valuable experience for everyone involved. The FSAP is just about to be completed. We expect to see generally good results for the insurance sector, as well as for the other sectors reviewed. I would like to pay tribute to LIA members who participated so actively and gave so much of their time to that process.

MAS' Relations with LIA

I now would like to talk a bit more specifically about MAS' relations with LIA. I used the term "partner" a minute ago. MAS does see LIA as a partner in its efforts to strengthen the insurance industry in Singapore and improve service to consumers.

As many as you know, MAS is moving away from its traditional approach to supervising financial industries. In the past, MAS, like other regulators, relied on a highly-prescriptive regulatory approach - prescribing the activities institutions were and were not permitted to engage in and the types of products they were permitted to sell.

More recently, MAS, like a number of other regulators, has begun to step back, unwinding some of its regulatory requirements, relying more heavily on industry-developed standards of best practice, companies' own risk management systems, and improved disclosure. Our objective has been to challenge companies to take more responsibility for the management of their own risks and to challenge consumers to make decisions based on timely, accurate and meaningful disclosures.

As we leave more to companies and consumers, industry associations have an increasingly important role to play.  The role includes:

• standard setting
• providing input to MAS on proposed regulatory and supervisory policies
• acting as communication channel for members in discussions with MAS
• supporting the future development of the industry in Singapore.

So LIA is an increasingly important body in the eyes of MAS. The partnership that I have been talking about must broaden and deepen in the interests of consumers and the insurance industry here in Singapore.

Future Challenges

Now I would like to move on to talk about some future challenges.

Raymond has talked about the importance of your continuing work in the area of market conduct and continuing to build trust among consumers. This will remain a challenge.

MAS will continue working with LIA to discuss problem areas and to find ways to encourage improved practices.

IDRO made a good start in 2003. Indeed it was significantly tested over the critical year issue. While it made a good start, more work is needed to firm up IDRO's financial base and establish operating guidelines for the future. In MAS' view, consumers must have access to an effective and inexpensive dispute resolution mechanism in insurance and other financial areas and to have confidence that such a strong mechanism will be in existence for the long term.  We will look forward to further progress in solidifying IDRO's capacity to serve customers of insurance companies in Singapore.

The MoneySense initiative, which is also off to a good start, is a multi-level, long-term programme. It is very important for all participants to maintain a long-term commitment to this project. We are not going to change consumers' understanding and knowledge of financial products and issues overnight. This is something we need to work on over a period of years. We look forward to LIA's continuing long-term commitment to this important initiative.
 

Another important initiative on which we will see activity this year is the Participating Fund Review (Par Review) which the LIA, Singapore Actuarial Society and MAS launched in 2002. That group has not been particularly active because we have been waiting for the completion of the Risk Based Capital standards which link closely to many of the issues that must be addressed in the Par Review. But now with that behind us, the Par Review can proceed to look at the governance standards and disclosure issues affecting participating funds. Par funds have been a mainstay of the insurance industry globally for decades. The relevance of par funds is now under challenge. It is important that we take necessary steps to modernize this important savings and protection vehicle and ensure that it is made relevant to the future needs of Singaporeans.

Another important project on which MAS is hard at work on is a policyholder protection programme for customers of life and general insurance companies in Singapore.  The programme that we are planning will be inexpensive to operate, should not represent a significant financial burden to life insurers, and yet will provide protection to back-stop much of the insurance cover purchased by customers of Singapore-based life insurance companies. Once we have completed the preliminary design of the programme, we will be looking for active and constructive input from LIA and its members to help ensure that the policyholder protection programme is a success and meets the genuine insurance needs of Singapore consumers.

Conclusion

In summary, LIA has had a busy and productive year. It has been an effective ally to MAS and of course to its own members in strengthening life insurance industry in Singapore.

We congratulate LIA executives and all its members on the achievements over past year. We look forward to working with all of you in 2004 to help ensure a healthy, profitable and growing industry, with many satisfied and well-informed customers.
 

Thank you.