Published Date: 30 March 2005

Address by Ms Teo Swee Lian, Deputy Managing Director, Prudential Supervision, MAS, at the Annual General Insurance Association of Singapore Lunch on 30 March 2005 at M Hotel, Singapore

1   Good afternoon ladies and gentlemen.  It has been three years since I had dealings with the General Insurance Association of Singapore (GIA) and the insurance industry.  I'm glad to be invited to your annual GIA lunch following your Annual AGM.  I should start by thanking Mr Terence Tan for all the good work he has done as President of the GIA.  I would also like to congratulate the incoming Management Committee, and in particular, Mr Derek Teo, who is taking over as President for 2005-2007.

2   This afternoon, I would like to focus on the challenges we see facing the general insurance industry in Singapore and the role GIA can play in meeting these challenges.  But before I dwell on these, I would like to commend the good work the GIA has done in 2004, in particular, the following projects:

3   First, I would like to touch on the Motor Insurance Review Workgroup which was formed in 2003 and completed its work in 2004.  It has achieved much.  Among other things, two consumer guides were published under the MoneySENSE national financial education programme.  These guides provide practical tips on what consumers should look out for when buying motor insurance policies and when making claims from insurers.  The Singapore Accident Statement was introduced to educate motorists that they too have a responsibility to control claims cost by providing information on the motor accident promptly and indeed, accurately.

4   Second, I would like to commend GIA for its work on managing general insurance agents.  This framework encompasses a revised set of General Insurance Agents Registration Requirements and a new Best Practices Guide on Agency Management. Once these are officially adopted by GIA members, we can expect higher market conduct standards and a more robust principal-accountability regime. In addition, GIA's recent announcement of new standards for premium payments will provide consumers greater certainty in terms of policy coverage, premium collection and claims settlement.

Role of the GIA

5   Supervision of the insurance industry is more than just about the relationship between the regulator and the regulated. The industry's trade association too, plays an important role in promoting a strong general insurance industry. It is a partnership that we value and which we want to continue to strengthen.  We are very encouraged by GIA's response in performing its various roles in:

  • setting standards
  • assisting MAS in our regulatory work
  • educating consumers and empowering them and
  • providing the industry voice in various general insurance issues.

6   It is with these roles in mind, that I would now like to spend a few minutes to outline the key challenges for the industry and GIA.

Challenges facing the industry and GIA

Developmental trends: consolidation and growth

7   Today we have 42 active* insurers in Singapore. On the surface, it would seem that not much has changed since 1998 when we had 49 insurers.  However, on a closer look, we can see that the industry has gone through substantial consolidation and the profile has changed.  In 1998 there were 45 "traditional" insurers compared with 30 we now have. The rest of the 42 are made up of specialist insurers which have entered the market over the last few years. The latest ones specialise in health business and marine business. This trend is likely to continue even as the more established players continue to explore opportunities to grow market share in the traditional segments while new entrants seek to exploit market niches where they have special expertise.

8   While the average growth of the industry from 1998 to 2003 was a relatively healthy 9%, it declined in 2004 by 7%, which is largely due to the transfers of the accident and health business of composite insurers to their life insurance funds.  Nevertheless, we remain positive about the industry's growth.  Insurance provides important support for many economic activities and plays an important role in providing a safety net against unexpected events that could adversely affect the lives of individuals in our society. In particular, we note that there has been increased public interest shown in health insurance, motor insurance and workmen's compensation insurance. Singapore's insurance penetration rate (or premiums to GDP ratio) remains low compared with those of many other developed countries.  In 2003, this was only 1.5% compared to Switzerland's 4.95% and UK's 3.9%. There is great potential to be tapped - emerging opportunities such as insurance for SMEs, property insurance, and even medical insurance that could complement the revamped MediShield Scheme. All these are possible avenues for growth. 

9   Ultimately, it is up to the industry to make the best of the opportunities.  I strongly encourage GIA to conduct a study to understand the reasons and drivers for the low insurance penetration rate in Singapore.  As for MAS, we will continue to ensure that a sound and progressive regulatory framework is in place. This brings me to my next point - which is promoting a sound and dynamic industry through appropriate regulations.

Promoting a sound and dynamic industry through appropriate regulations

10   Sound growth of the industry must remain the cornerstone of prudential supervision.  The industry has seen a number of regulatory changes in recent times.  For example, there was the introduction of risk-based capital (RBC).  There was also the introduction of various regulatory frameworks for authorized reinsurers, for health insurance, and for approved marine, aviation and transit insurers and brokers. 

11   MAS has also devoted much resources to the development of a risk-based supervision (RBS) framework. The RBS provides for the identification of significant activities and assessment of the relevant inherent risks and control factors. It facilitates effective supervision according to the risk profile of each insurer.

12   With both regulatory and supervisory structures in place, MAS is on track to move away from a one-size-fits-all regime.  Implementation is equally important and we need to ensure that these frameworks work well too.  As is now our practice, MAS will continue to actively consult with the industry whenever formulating any changes to the regulatory framework.  Through such consultations, we hope to address any transitional issues that could arise when introducing such changes.

13   Ultimately, MAS' objective is to build a system for fostering good risk management and governance in the industry.  We hope to see a continual upgrading of standards and the commitment to best practices. GIA serves a complementary role as the industry standards it sets are important benchmarks for MAS' assessments' of insurers' practices.

Dealing with consumers

14   We have seen greater innovation in the financial services industry, with financial institutions offering more complex and varied products. Consumers need more help to better understand the myriad of product offerings available in the market.  With direct interface with consumers, GIA and its members play a crucial role in educating their customers on the specific risks and considerations when buying general insurance products. I am glad to note that GIA has been a strong supporter of the MoneySENSE programme.  Besides publishing consumer guides, GIA will also organise a public health insurance seminar with the Life Insurance Association of Singapore.

15   I would like to encourage GIA to continue in its efforts to educate consumers on general insurance - the concepts of risk management, risk pooling and risk transfer, and more importantly, its value in providing consumers with some peace of mind in the face of uncertainties.

16   To further help consumers make well-informed decisions, GIA can encourage its members to improve transparency, such as providing information on how motor premiums are set and adjusted, and what controls are in place to minimise claims costs.

Raising standards of professionalism and building expertise

17   The insurance industry not only needs to increase its transparency in dealings with consumers, it also needs to be more transparent in its dealings with intermediaries. Everyone here would be familiar with the recent investigations by the New York Attorney General's office in the insurance industry. One important point that arose from the investigations is the need for greater transparency in the dealings between insurers and insurance brokers.  The US has taken the lead in implementing changes to ensure that clients will now be fully aware of how their brokers are compensated by the insurers. MAS will work with GIA and other relevant industry bodies to seek a way to enhance the disclosure framework for the local general insurance industry.

18   Finally, I would like to see the industry do much more to attract and retain talent.  The focus should be on increasing the pool of people who can manage and lead insurance companies in a professional and ethical manner, as much as it is on building technical expertise.  GIA can assist in creating awareness of the opportunities for a meaningful career in general insurance.  It can also build on the work done by the Committee on Enhancing Standards for General Insurance completed in 2002, which required staff of insurers to undergo at least 24 hours of continuing professional development each year. 

Concluding remarks

19   In conclusion, let me say that the industry has certainly come a long way. A lot of good work has been done but we should never allow ourselves to be complacent.  Let us continue to work together to leverage on emerging trends to bring about quality growth to the industry and continue to educate our consumers to be discerning and sophisticated.  I congratulate you on a job well done in 2004.  MAS looks forward to working with you in 2005 and beyond.

* excludes companies on run-off