Address by Mr Heng Swee Keat, Managing Director, Monetary Authority of Singapore,at the General Insurance Association of Singapore, Annual General Meeting Luncheon on 26 March 2008, Marina Mandarin Hotel, Singapore
GIA President, Mr Derek Teo,
Ladies and Gentlemen,
The Current Uncertainties
1 Thank you for inviting me to your Annual General Meeting Luncheon. May I congratulate Mr Derek Teo on your re-election as President of GIA, as well as to the other newly-elected committee members. Many of you have served on the GIA committee for several years now. It is heartening to see key members of the industry coming together to serve, and to advance the development of the industry. I would also like to thank all the companies that have supported the active participation of their senior officials in the GIA.
2 The current financial turbulence in the US has clouded the global economic outlook. Various analysts have in the past few months progressively downgraded global growth forecasts for 2008 and 2009. Inflationary pressures have risen globally. In Asia, while financial markets have been affected, we have not yet suffered a significant direct impact on the real economy. The significant structural changes in Asian economies in the past decade have allowed us to weather the current problems better. Still, there are several channels where adverse economic and financial market developments in the US could be transmitted to Asia. We must therefore remain highly vigilant.
3 For the insurance industry, this comes at a time when the industry is undergoing a soft underwriting cycle and facing uncertainties about asset yields in the future. These are imminent challenges that demand management attention. However, we must also not lose sight of positive structural developments in the coming years, if we are to position ourselves to grow and expand. I will focus my talk today on this issue.
Growth Prospects in Asia
4 Notwithstanding short-term cycles, investors and policy makers remain positive that the growth prospects of Asia remain strong. In fact, with expected slower growth in the US and Europe, many corporates and financial institutions see Asia as a key source of growth.
5 As the level of GDP rises, not only will more corporations and individuals be able to afford insurance coverage, but they will find it worthwhile to do so. The increase in wealth and life expectancy will lead individuals to demand a range of wealth protection and health insurance, as well as property and casualty coverage.
6 Moreover, as economic activities become more complex and interlinked, both the level of risks, as well as the diversity of risks, will multiply sharply. To use a simple illustration, economic growth, coupled with the higher production of automobiles in Asia, will give rise to new risks requiring insurance coverage – from factory owners to cover property and casualty, and product liability risks; to officers and directors and professionals to cover professional liability; to shippers and transport agents that need to protect against losses; and finally to car owners and drivers that need automobile insurance. Thus, as Asia urbanizes, the boom in residential and commercial properties, and the impact on infrastructure and the environment will generate new perils that would need to be insured against. I understand that in some of the more advanced markets, even pet insurance has become a new and thriving class of business with protection coverage not only on the life of the pet itself, but all the related activities involved in the supply of pets and their proper maintenance throughout their lives. These examples highlight the complexity and multiplier effects of risks that corporations and individuals undertaking particular sets of activities would face,
and therefore the need for insurance coverage.
7 As the economies of individual Asian countries expand, cross border activities within Asia, and between Asia and the rest of the world will multiply. Air travel will grow, while Asia’s busy navigation channels will see increased cargo volumes. Fifty percent of the global shipbuilding industry is in Asia today. Moreover, parts of Asia sit within the Pacific Rim of Fire and are prone to earthquakes. Asia is also not immune to the impact of global climate change.
8 In short, Asia’s geography, as well as the growing wealth and increasing sophistication of economic activities will lead to a sharp growth in the volume and complexity of risks. Investors and individuals will be more conscious of managing these risks, as the stakes related to losses through contingent events grow bigger. Simply put, there is more to lose. Yet, today, many activities in Asia are not insured or under-insured. Going forward, having appropriate insurance coverage will be a significant way that individuals and corporations manage their risks. The range of insurance products will grow – from life insurance to all forms of general insurance, as well as specialist insurance and reinsurance – so will associated activities such as insurance broking and advisory.
Positioning for Growth
9 Singapore has the strong fundamentals to meet the growing demands for insurance in Asia. We have an established base of local and international insurers, a sound legal and regulatory framework and a nimble labour force. Indeed, the growing range of activities of our insurers here, and the growing number of global and new players into Singapore attest to the vibrancy of the industry. In 2007, the general insurers in Singapore underwrote premiums of S$6.1 billion while new business premiums underwritten by the life insurance sector amounted to S$10.5 billion.
10 Going forward, I believe there are two broad approaches that our insurers should adopt to improve their profitability and seize the growing opportunities in Asia.
11 First, for businesses where competition is intense and products are easily commoditised, such as in motor and workmen's compensation, insurers will need to focus on cost efficiency. Individual firms are already deploying a range of IT and other solutions to address this. There could be scope to explore ways of improving the efficiency of the underwriting, as well as claims assessment and processing for the entire industry. This will benefit both insurers and consumers.
12 The second approach is to explore differentiation and innovation. For instance, insurers here can upgrade to other commercial specialised lines of business, which provide good long-term opportunities. Insurers can also offer innovative products that will address not just the client’s asset risks but also its financial and business risks. By offering value-adding activities such as risk management consultancy, firms can help companies analyse, assess and manage risks. Such advice may also help to reduce claims cost subsequently. Other new value-added services include catastrophe modeling and claims consultancy.
Rewarding and Challenging Careers in Insurance
13 I am pleased that GIA has recently launched the Regional Development Committee (RDC), which will focus on regional opportunities and developments. The ability of insurers to offer high value-added solutions and services, and to seize regional opportunities, depends critically on our expertise in understanding and pricing these risks. The expertise will need to span the value chain from product development to underwriting and claims processing. I am glad that one of the first initiatives of the Regional Development Committee (RDC) is to attract and develop talent.
14 In attracting talent, we need to correct the wrong perceptions that many have of the insurance industry. Although insurance is one of the three key pillars of the financial industry, alongside banking and capital markets, it is often given less priority as a career choice. Most students, parents and job seekers associate the industry with front-line sales, and conclude wrongly that career options are limited. There is insufficient awareness that the insurance industry can offer challenging and rewarding career options in Singapore. Let me touch on a few.
15 First, behind every insurance product is a team of specialists that perform underwriting, actuarial analysis and risk modeling. These core elements demand strong quantitative and analytical skills, which are currently in short-supply globally.
16 Second, in the wholesale and specialised insurance lines, where risks involve multi-million dollars, putting a price to the coverage requires extensive technical knowledge and skills. For instance, an underwriter of catastrophic risks needs to understand the science of the catastrophe, the probability of the event occurring, the structure of the building and the lay of the land, as well as the quantitative models to estimate potential economic losses. The skill sets are wide ranging, highly technical and quantitative.
17 In fact, it is fascinating to look at how risks are priced in many specialised areas. The Lloyds market, for instance, is renowned for insuring unusual risks such as the faces and voices of movie stars and singers, the fingers of world class concert pianists and the limbs of athletes. In many cutting edge areas, reinsurance companies partner research organisations to understand the latest development in technology such as nanotechnology and genetic engineering. Breakthroughs in these areas have significant implications for human society, and bring new and diverse sets of risks.
18 These examples also illustrate that the insurance industry is very multi-disciplinary. Apart from actuarial science, engineering, medicine, science and technology are all useful background disciplines for the profession.
19 Third, the insurance industry in Singapore has a strong regional and international profile, given our position as an established insurance and reinsurance centre in Asia. Offshore business makes up over 50% of the total gross premiums written out of Singapore, and we are one of the largest reinsurance centres in Asia. Students aspiring to work in areas with strong global dimension will value this aspect of our industry.
Attracting and Developing Fresh Talent - Three Initiatives
20 In short, our insurance industry offers challenging and rewarding careers. In turn, the vibrancy of the industry depends on our ability to attract and develop talent. There is much scope for GIA, IBF and MAS to work together with the media, the universities and professional bodies to enhance the training of insurance professionals, and to profile the varied and challenging career options. In this regard, I am pleased to highlight three important initiatives.
21 First, GIA and RDC have launched a Talent Outreach Project or TOP, to look holistically at drawing in talent into the industry. It is encouraging that the series of talks at NTU, NUS and SMU have been very well received by students. GIA intends to continue the talks in the year ahead. I would also suggest that we explore ways to work with the local media to bring the message across to job seekers and parents.
22 Second, the Nanyang Business School of NTU is planning to introduce a new Risk Management and Insurance minor programme for their undergraduates. This new minor will provide students from diverse faculties within the university the ability to combine strong domain knowledge in fields like engineering, IT and science, finance and accountancy, with the exciting and specialist areas of risk management and insurance. I would like to encourage the industry to work jointly with NTU to develop this programme.
23 Third, GIA and RDC are launching a key initiative - the Global Internship Programme (GIP). MAS is pleased to support this, and will provide significant funding support for it under the FSDF. The GIP aims to offer 200 top undergraduates and selected postgraduates internships in the industry over the next five years.
24. The programme will give promising candidates the opportunity
to experience the diversity of the general insurance industry through rotations across the different sectors such as direct insurer, reinsurer and intermediaries. The internship will include an overseas stint at the offices of top insurance companies. The programme structure is very thoughtful, and will certainly give interns a good exposure to the varied, complex and global challenges of the insurance and broking industries. More than 10 companies have confirmed their participation. I applaud your commitment, and hope that you will also have the chance to assess these talents for suitable positions.
Developing Existing Professionals
25 Apart from drawing in fresh talent, we must upgrade the expertise of our professions in the industry.
26 The Financial Industry Competency Standards (FICS) framework was introduced in 2005 to benchmark professional standards with international practices across a whole variety of financial activities. Training and certification roadmaps have been established for insurance such as underwriting and claims management.
27 Last year, 11 individuals in the financial sector were conferred the title of Financial Industry Certified Professionals (FICP), the highest certification mark under the FICS framework. Recipients were selected by a panel of their peers and academia for their professional competence and commitment to excellence. I am pleased to note that the recipient from the general insurance industry is Dr Michael Goodwin, CEO of QBE Insurance, who is also the Chairman of the RDC.
28 I hope that the industry will support the FICS as Dr Goodwin has. The Singapore College of Insurance (SCI), which is the appointed lead provider for FICS programmes for insurance, has recently tied up with the UK-based Chartered Insurance Institute to offer professional certification courses. I hope that with industry support, we would see an accelerated roll-out of the many programmes that SCI has proposed.
29 In summary, the insurance industry faces important challenges in the current environment. However, the growth prospects for the industry are very positive. To seize these opportunities, insurers will need to move up the value chain by providing innovative products, value-added services and holistic risk management. Attracting and development talent will be critical to our success in the next phase of growth. The programmes being launched by the GIA, the RDC and other key participants are exciting and significant initiatives, and MAS is committed to supporting these. Working together, we can scale new heights.
On that note, I wish you success ahead.