Speech by Mr. John Palmer, Former Deputy Managing Director (Prudential Supervision),Monetary Authority of Singapore, at the LIA Annual Luncheon, on Wednesday, 2 March 2005, 12.30pm at Marina Mandarin Singapore
"A Review of LIA's Achievements, it's relationship with MAS and Furture Challenges" Introduction
Good afternoon everyone. Thank you for inviting an old retired guy to come and talk to you. Well it's very good to be here; it's particularly good to be here now that I've stepped down from MAS because I finally have the opportunity to tell you what I really think of you. And as you hear my talk this afternoon I think you will find that I think rather well of you.
What I want to do this afternoon, as Jason indicated, is to review some of the accomplishments of the life insurance industry over the last year. Then I want to indulge in a bit of retrospection, if I may, on LIA's relationship with MAS during the period of my watch, particularly looking at LIA's various roles and the way they have helped MAS in our supervisory and regulatory work. And finally I want to conclude by sharing some insights on the remaining challenges facing the industry and its association.
As you listen to my comments, you may hear the word "we" creeping into those comments. That's an MAS "we" even though I retired 36 hours ago from MAS. I have to say it will be some time, if ever, before I begin to think of MAS as "they". So, let me now talk about some of the achievements of LIA in 2004.
Achievements in 2004
First I think we need to take some satisfaction in the fact that the life insurance industry in Singapore experienced good growth and better results in 2004, helped by the strong recovery of the Singapore economy and a more favourable investment climate. Long may those factors continue.
The implementation of the RBC framework in August of last year was a milestone in our industry and the fruit of years of labour. LIA played an important role in assisting MAS in the development of the RBC standards. With the new framework in place, we think insurers will have even stronger incentives to manage their risks more effectively and to raise overall prudential standards.
An Accident & Health regulatory framework was put in place, including rules governing disclosure and conduct for insurance companies and other intermediaries selling A&H products. These will help ensure that consumers are adequately advised and better informed of the features of these sometimes rather complicated products.
LIA has contributed to the important Par fund review carried out last year. As you know, the recommendations for the Par fund review went out for public consultation last month and we will be awaiting the results of the consultation process before beginning implementation.
On the market conduct front LIA issued standards pertaining to key areas of market conduct for distributors of life insurance back in June last year. This was an important step in improving the sales advisory and distribution processes and fostering greater transparency in product disclosure.
I could go on, because it has been a busy and active year. Indeed one could say you all have been as busy as monkeys over the last year. I'll be talking about roosters later.
MAS' Relationship with LIA
Let me talk for a moment about MAS' relationship with LIA and reflect on the evolution of that relationship. MAS sees LIA as an important - perhaps even crucially important - partner in strengthening and enhancing the professional standards of the life insurance industry in Singapore. In view of trends now underway within the industry, this has to be a dynamic and proactive partnership.
The life insurance industry has undergone significant changes in recent years, globally and here in Singapore. There has been considerable consolidation. There has been a shift from protection to wealth management products. Insurers have had to face more challenges to their market conduct practices. This has been driven by more volatile investment conditions, and also by changing expectations of consumers - consumers are more educated, they are more sophisticated, they are more demanding, and they understand their rights.
As we look at the changes that are underway, we see an increasing move to heighten the standards of practice in the industry. As MAS looks at the challenge of enhancing standards, we realise that we can't raise standards alone. Indeed, it would be presumptuous of us to think we can raise standards across a big and sophisticated industry alone. We realise that we have to place greater reliance on industry associations, consumers and individual insurers to raise the standards of practice in our life insurance industry. In this context, LIA will become even more important, and MAS will increasingly look to LIA for help in fostering a progressive financial sector in Singapore while ensuring that companies manage their operations responsibly and soundly.
Roles of LIA
Now there are several facets to LIA's role.
The first is standard-setting. LIA is taking the lead in setting best practice standards for life insurers in Singapore, as evidenced by work in CEDLI and the more recent standards for market conduct. MAS will then play a complementary role providing some of the regulatory support to facilitate the effective implementation of LIA standards across the financial services industry.
Helping MAS in our Supervisory and Regulatory Work
The second important facet of LIA's role is helping MAS in its supervisory and regulatory work. Through its participation in work groups and dialogue sessions, LIA has provided valuable input to MAS in our regulatory and supervisory activities. The launch of the RBC framework is an excellent example of LIA and MAS working effectively together for the betterment of the industry in Singapore.
Educating and Empowering the Public
The third important role is educating and empowering the public. LIA has actively supported MAS' objective of encouraging and empowering consumers to take greater responsibility for their financial decisions. To that end, LIA has embarked on several consumer education initiatives as part of the MoneySense programme.
As Singapore's financial industry matures and still more complex products become available, consumers need help in making informed product choices and in managing their finances. LIA has a key role in providing that help.
And finally, another important facet of LIA's role is acting as a communication channel. LIA serves as an industry liaison with the media and consumer groups. This includes coordinating prompt and effective industry responses to matters such as market conduct issues. It includes getting the message out about the important benefits of life insurance and its importance in any family's financial affairs. It includes responding to ad hoc events such as the work coordinated by LIA in response to the tsunami crisis. That is an important part of LIA's communications role.
LIA also works closely with other stakeholders such as the CPF Board and the Investment Management Association of Singapore (IMAS) to advance Singapore's life insurance sector and the interests of policyholders.
We have been pleased to see LIA's growing effectiveness in each of the various facets of its role.
And as we look forward, LIA and its members face some big challenges ahead.
Market conduct issues will continue to confront insurers. This group of issues is certainly not going away. It will be important to continue to build, and in some cases rebuild, consumers' trust in the industry.
The empowerment of consumers through MoneySense and other issues will remain a long term challenge. Educating consumers to understand the financial choices that they face, and to take full responsibility for their financial decisions is not something that we can accomplish in a day, in a week, in a month or in a year. It is a multi-year challenge and LIA and the other partners in MoneySense will have to stay on the course until that objective is achieved.
There are some big outstanding projects remaining that will need LIA's active support and involvement. One of these is the operationalisation of the Policyholders Protection Fund about which I know all of you are all so enthusiastic. Another challenge will be completing the Par fund review, seeing the consultation process to its conclusion and making final decisions on the recommendations as we go forward, and then implementing those recommendations.
There is a need to address the implications of a significantly ageing population. The life insurance industry must adapt its sales practices and products to the needs of Singapore's older citizens, for whom I am developing an increasing sympathy, I have to note.
LIA has established a commendable track record to date. We have every reason to think LIA can play a useful role in addressing these future challenges. Could LIA do more? Could LIA be more proactive in recommending policy measures to strengthen the life insurance industry in Singapore? Could it do more to encourage its members to meet standards and rely less on MAS? Could it play a larger role more generally in the partnership with MAS?
At present, LIA has been somewhat constrained by its resources. It has an efficient secretariat, though a small one. I'm pleased to see that the secretariat has recently been strengthened by the addition of Mr John Lockyer as Executive Director. But fundamentally, LIA still relies on volunteers to staff its various projects and initiatives. The bar will continue to rise. I think there will continue to be more things for the industry association to do. And I think one of the issues you will have to think about is whether the members would have sufficient resources in the future to enable LIA to meet those various challenges. And you may want to think about what has happened in other countries - joining forces with other associations to pool resources in order to play a more effective role. That is a decision for you to make, but I do want to leave you with that thought.
Note of Thanks
In the meantime, let me say to all of you how grateful I am for the contributions of LIA to the betterment of the life insurance industry and to the financial sector in Singapore more generally during my watch. I also appreciate LIA's support for various MAS initiatives during my time here. I found it a great pleasure to work with LIA's executives, its secretariat and the many members I've come into contact with over the last three years. We have had some spirited debates. We haven't always agreed on everything and that's how it should be. But in the end, we have been able to resolve our differences in a constructive and positive way for the betterment of Singapore and its life insurance industry.
And while I'm offering thanks, I'd like to thank my colleague, Hauw Soo Hoon, who's currently undergoing a transition as I am. She's just stepped down as the Executive Director of our Insurance Supervision Department, and she'll be leaving MAS at the end of March. I think she's made an outstanding contribution to Singapore's insurance industry and to MAS, and I would like to recognise her for that.
And I'd like to offer best wishes to her successor, Low Kwok Mun, who's with us today at the head table. I know he's going to do an excellent job in continuing Soo Hoon's good work, and working with you in a cooperative way to help move the industry forward.
Finally I want to tell you that I've been privileged, I've been very privileged, to have been a member of MAS over the last three years, and to have the opportunity to work with the MAS team to help strengthen Singapore's financial sector. I have to acknowledge that not everyone may see our role in such positive terms. I was at the ABS luncheon about two weeks ago, and one of the speakers - who shall remain nameless - described MAS as a rooster, strutting around the barnyard, lording it over the hens. You of course are the hens. Of course that's not our role - far from lording it over the hens, our job is to work lovingly with the hens to help make them more productive. So we ought to work lovingly and helpfully with you so as to make you more successful and stronger, for the benefit of the industry, for the benefit of your policyholders, and for the benefit of Singapore.
So in conclusion, I want to thank all of you for your cooperation, for your support and indeed for your friendship over the last three years. I hope that it is going to be possible to stay in contact with at least some of you as I ride off into the sunset to explore life after regulation.
Thank you very much.