Address by Mr Low Kwok Mun, Executive Director (Insurance Supervision), Monetary Authority of Singapore, at the General Insurance Association of Singapore Annual General Meeting Luncheon, 30 March 2007, Amara Hotel, Singapore
GIA President, Mr Derek Teo,
Ladies and Gentlemen,
1 Thank you for inviting me to address you at your Annual General Meeting Luncheon. Allow me first to congratulate Mr Derek Teo for being re-elected as GIA President for yet another year. This is clear evidence of the good work that he has been doing for the Association and the industry. I would also like to congratulate the newly-elected Management Committee (MC). Many of you are old hands at serving in the MC and I thank you for your dedication to working for the betterment of the industry.
2 The GIA plays an important role in bringing together all the different interests within the industry and collectively seeking to enhance the profile of the industry. It is also a key partner of MAS in enhancing the prudential and professional standards of the general insurance industry. MAS and GIA have always enjoyed a good working relationship and I look forward to working with the new MC over the next year.
Overview of Industry Results in 2006
3 When I spoke to you at about this time last year, the general insurance industry in Singapore was showing encouraging signs of growth. Indeed, as Mr Derek Teo has reported, gross premiums written grew in 2006. This growth was achieved on the back of softening market rates in a number of business lines. However, underwriting profits remained largely unchanged at about S$240m as management and distribution expenses increased. It is perhaps important to re-emphasise the need for insurers to maintain prudent pricing strategies and effective cost control measures as this is in the best interest of the industry at large.
4 Last year, I urged the industry not to compromise on underwriting and pricing discipline in the pursuit of market share. This was particularly important in the highly competitive motor insurance market. It appears that some have already succumbed to the pressure. As Mr Derek Teo mentioned earlier, the industry incurred a marginal underwriting loss from motor insurance business in 2006. Based on the 2006 unaudited returns submitted to MAS, of the 30 insurers engaging in motor insurance business, only 15 managed underwriting profits.
5 After more than a decade of losses in the motor insurance business between 1992 and 2003, some insurers appear to have forgotten the painful lessons. While more competitive premium rates do benefit consumers – and I must add I’m one of the consumers – they are not sustainable if they are achieved at the expense of sound underwriting and pricing. Eventually, the losses will be too difficult for insurers to bear and they will either exit the market, leaving consumers with fewer choices, or raise their premium rates. Many of us will recall the numerous complaints from consumers who had not made any claims against their policies that insurers were unilaterally raising their premium rates unfairly. I would venture to say that the image of the insurance industry received a slight dent following that episode.
Importance of Sound Risk Management
6 It is worth emphasising again that insurers need to pay particular attention to sound risk management practices. Sound risk management is critical to building a sustainable business over the long-term. Insurers need to be disciplined and adhere to good underwriting practices. I don’t think anyone of us here needs convincing that an industry that provides high quality products and services, and remains profitable, is in the best interest of both consumers and insurers. I therefore urge all of you once again to pursue strategies that bring sustainable growth to the industry in Singapore and not sacrifice prudence for potential short-term gains.
7 Besides sound underwriting and pricing practices, good intermediary management is another critical area. Intermediaries are the industry’s public face. They have a powerful influence on the public’s opinion of insurers and the insurance industry. At the same time, intermediaries are an important distribution channel for many insurers, and they can influence the profitability and persistency of an insurer’s portfolio by the business they bring in.
8 While insurance brokers are licensed and regulated by MAS, general insurance agents are required to be registered with the Agents’ Registration Board (ARB) of the GIA. The professional conduct of each agent is the responsibility of the three insurance companies that have agreed to be the Principals of the agent. The Primary Principal plays a significant role in ensuring that the agent maintains high professional standards and is technically competent to market insurance products to the public. MAS supports the efforts of the ARB in seeking to continually upgrade the professional standards of agents. All general insurers should play their part by actively participating in the various initiatives being rolled out by the ARB as well as contributing ideas to further enhance the professionalism of the agency force.
Expanding Beyond Traditional Boundaries
9 The insurance markets in the region are poised to expand rapidly in tandem with the strong growth of economic activities. Insurers that are able to manage their business in a sound and prudent manner will be well-placed to take advantage of the growing business opportunities. We see potentially strong demand for specialised products such as directors’ and officers’ liability, marine hull and cargo, energy and trade credit insurance.
10 Insurers in Singapore should therefore look beyond the more traditional business lines and broaden their product offerings to these higher value adding activities. They should take advantage of Singapore’s strong position as an international financial centre, with a wide variety of financial institutions from all over the globe, to expand their scope of business beyond Singapore’s shores. However, as a regulator, it would be remiss of me not to add a cautionary note that with the increased business scope, there will be increased risk of loss. So, only insurers that have adequate risk management capabilities should contemplate venturing into the more complex product lines.
11 We recognise, however, that for the insurance industry to seize the growing business opportunities, we need a pool of experienced and competent talent. As you are all aware, the labour market is tight for experienced staff across most, if not all, financial sector activities.
12 Insurance is a knowledge-intensive and complex business. Therefore, we need to grow and attract talent for all activities in the insurance value chain, ranging from front-end operatives to senior level management. With increasing customer sophistication and greater complexity of financial instruments, manpower development cannot be put off any longer.
13 We are pleased to learn that GIA has already recognised this need and has launched its Talent Outreach Programme (TOP) in January this year; Mr Derek Teo has mentioned this earlier. The TOP aims to attract new talent to the general insurance industry, and to groom the next generation of industry leaders. It also strives to raise public awareness of the general insurance industry as the whole. MAS will be happy to work with GIA on such efforts and I hope all GIA members will offer their full support to the programme.
14 Singapore’s competitiveness as a financial centre will depend on the breadth and depth of the expertise available in our entire workforce. Expanding our talent pool will therefore be a key area of focus for MAS’ developmental initiatives over the next few years. We hope to be a hub for global talent and knowledge with world-class capabilities. This vision encompasses three outcomes that we hope to achieve in Singapore:
- A large pool of skilled and adaptable talent in financial and supporting services;
- A critical mass of top specialists and leadership talent; and
- A hub in Asia for financial research, education and training.
15 To facilitate the growth of skills and talent in the financial industry, the Financial Industry Competency Standards (FICS) were launched by the Institute of Banking and Finance in 2005. FICS benchmarks competency standards of finance professionals, including insurance professionals, to international best practices. To date, standards have been established for key insurance job families, including claims handling and underwriting. FICS can form a valuable part of a financial institution’s training and development programmes. To allow greater access to FICS programmes, the Financial Sector Development Fund managed by MAS will co-fund 70% of the training and assessment fees incurred by Singapore-based staff participating in FICS-accredited programmes.
16 On-the-job training and continuous upgrading of staff is another key component of manpower development. MAS has a Financial Training Scheme that is available to the insurance industry. This provides co-funding for staff training in specialised areas. It includes support for on-the-job training when staff are sent overseas, and can run for as long as 12 months.
17 MAS will continue to provide strong support to the industry to grow our financial sector talent pool. But the industry itself must also play its part. I would therefore urge all insurance companies to seriously plan for their talent needs. Funding is available from MAS’ various incentive schemes where appropriate, but individual companies must invest some of their own resources, including bearing the intangible costs, in training their own employees.
18 Insurers today face an increasingly volatile and complex operating environment. With this increasing complexity, there are clear opportunities for growth. But we should not ignore the need for sound risk management and business practices as they are critical to achieving sustainable growth and profitability. Investing wisely in manpower development is also important. The GIA will continue to play an important role in ensuring long-term growth for the insurance industry and I wish you every success.
19 Thank you.