Speech by Mr Low Kwok Mun, Executive Director (Insurance Supervision), Monetary Authority of Singapore, 1st Llyod's Asia Underwriters and Brokers Froum, 28 Aug 2008
Good afternoon ladies and gentlemen.
1 It gives me great pleasure to address you today at this 1st Lloyd’s Asia Underwriters and Brokers Forum. I would like thank the organisers, the Singapore College of Insurance (“SCI”) and The Chartered Insurance Institute (“CII”), and the sponsor, Lloyd’s Asia, for putting together this forum. I am pleased to note the many industry specialists who have taken time off to share their wealth of experience at this forum. I am sure all of you will benefit greatly from your interactions with them.
The Importance of Specialist Insurance
2 As insurance professionals, we don’t need to be reminded about the importance of insurance to the smooth functioning of any economy. The concept of insurance has been in existence since the early civilisations and grew in importance with economic modernisation and globalisation.
3 With the increasing complexity of modern day economic activities, sophisticated insurance solutions are needed to support the continued growth of the economy. Specialist marine insurance is a good example. Complex supply chains and alternative production sites require ships to sail into waters or call at ports which may present a variety of risks. The threat of terrorism or the stronger emphasis on environmental protection are factors that have assumed greater importance nowadays. In addition to the traditional marine cover, there is an increasing need for specialist marine products with tailored policy clauses, for example, against wars and strikes.
4 At the same time, new business strategies employed by multinational corporations, for example, Just-In-Time production schedules, have led to changes in shipping patterns and risk exposures with higher potential liabilities if there are delays in shipment. As a result, specialised marine liability coverage has now become a necessary insurance for multinational businesses, including many in Asia. According to a recent survey by a business intelligence consultancy firm, Asia is now home to about half of the world’s merchant fleet, 14 of the world’s top 20 ports, and three of the world’s largest shipbuilding nations.
5 Besides marine and marine-related insurance, other specialised lines of insurance will also be needed. For example, with higher standards of corporate governance, directors and officers’ liability insurance will grow in importance. As Asia continues its modernisation and transformation, the level and diversity of risks will multiply. We will clearly see an increased demand for specialist insurance.
The Need for Skilled Professionals
6 To support the demand for such specialist solutions, insurers have to be able to make sound assessments of the risk exposures. Underwriters and brokers will require in-depth and sometimes, even esoteric knowledge in order to assess the risks comprehensively. Should there be claims subsequently, claims handlers will require specialised knowledge to manage and quantify claims accurately.
7 These skills cannot be developed merely by reading books or attending classes. They can only be honed with real life experience, supplemented with interactions with seasoned professionals who understand the peculiarities of their specialised fields. It is only through experience that one can develop the skill to look beyond the information provided in template submissions to understand the underlying risks of a particular transaction. In the context of specialist insurance, this is even more pertinent because insurers cannot merely rely on standard or run-of-the-mill models to make judgments. They have to be able to understand what actually takes place on-site, and probably even suggest some risk mitigating measures for their clients.
8 A simple example related to me by a seasoned underwriter clearly illustrates this point. He said that he was once approached to insure some barges. I cannot remember where these barges were being towed to or how many barges there were. He told me that he only agreed to insure the first barge immediately behind the tug boat but declined the rest. Having no underwriting experience whatsoever, or of piloting a tug boat for that matter, I could not understand why. He explained that the tug boat pilot would be able to clearly observe the barge immediately behind him, but not the other barges further behind. So, he felt that the risk of insuring the first barge was acceptable, but not the others. Perhaps, some may argue that he was overly conservative. Nevertheless, he could make that decision because of the experience he has built up over the years.
9 Having underwriters with the requisite skills and experience is thus crucial for insurers to succeed, more so for those focusing on specialised risks. According to a recent CII survey of its members, 76% indicated that there is currently a shortage of technical skilled professionals and 80% anticipated that the demand for technical skills over the next five years would increase. The challenge is therefore significant. We have to redouble our efforts to build a sufficiently large pool of expertise, with the relevant technical skills and the right intuitions.
Initiatives to Build Insurance Expertise
10 I am heartened to note that the insurance industry in Singapore has already launched some initiatives to further develop expertise amongst insurance professionals here. You may already be familiar with the Financial Industry Competency Standards (“FICS”) framework which was set up by the financial industry to benchmark competency standards of financial professionals to international best practices. The SCI is currently playing a key role as a lead provider for FICS-accredited training and assessment programmes, including for general insurance.
11 To encourage the industry to build up its specialist skill-sets, MAS introduced a Financial Training Scheme (“FTS”) which provides financial support to cover part of the costs of locally-based as well as overseas executive programmes and attachments in specialised areas. In addition, MAS launched the Finance Scholarship Programme (“FSP”) that will co-fund masters programmes in risk management, financial engineering and actuarial science. I encourage the insurance industry to tap these schemes to enhance the capabilities of their professional staff.
12 I am also pleased to note that SCI has developed diploma and advanced diploma programmes which are fully accredited by the CII. These programmes will provide candidates with in-depth knowledge of insurance risks and the different aspects of an insurance operation. SCI will also be launching a new International Marine Insurance Qualification soon.
13 While it is important to upgrade the expertise of insurance professionals currently in the industry, it is equally important and necessary to focus our efforts on building the talent pipeline as well. The formation of the Regional Development Committee (“RDC”) by the General Insurance Association is an effort by the industry to address this. One of the first initiatives of the RDC is the Global Internship Programme which aims to offer internships to 200 top undergraduates and selected postgraduates over the next five years. These internships involve rotations across the different areas such as direct insurance, reinsurance and insurance broking. The exposure will provide opportunities for young individuals to gain experience and contribute to the industry in the future. This is a very commendable initiative and the industry should offer its full support by participating actively in the programme.
14 It is clear that steps are being taken to train skilled insurance professionals in Singapore. This forum is another good initiative to offer young professionals in the region an avenue to enhance their technical expertise and competencies. The support of Lloyd’s Asia in drawing the experts from the various syndicates to speak at this forum is a significant contribution. I look forward to the continued support and leadership from members of the insurance industry to promote professional education and upgrading of specialist competencies among insurance professionals here and in the region.
15 Thank you and I wish all of you a fruitful conference.