Published Date: 18 March 2009

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, 18 March 2009, Amara Hotel, Singapore

GIA President, Mr Derek Teo,
Distinguished Guests,
Ladies and Gentlemen,

Good afternoon. It is a pleasure to join all of you at your Annual General Meeting Luncheon once again.

2   I would first like to congratulate Mr Derek Teo for being re-elected as GIA President for another year.  Indeed, I must thank Mr Teo for all his hard work over the past years, and for once again agreeing to lead the GIA for one more year.  Under the leadership of Mr Teo and GIA’s Management Committee, GIA has achieved much in the past few years.  Many of you in the Management Committee have also served for several years and I thank you for your commitment.  There is much more to be done and this year, it is going to be even more challenging given the difficult economic and financial environment.

Lessons from the Financial Crisis

3   The last time I addressed you was around this time in 2007.  At that time, the economy was growing strongly and the outlook for the insurance market in Singapore was generally positive.  Since then, global financial markets have gone through very turbulent times.  We are in the midst of our worst economic recession since independence.  In the past, there was a real possibility that investment gains could sufficiently offset potential underwriting losses.  However, investment markets have largely collapsed.  This underlines the importance for insurers to focus on sound underwriting and pricing discipline instead of relying on investment income for profits.

4   The financial crisis is also a timely reminder to the boards and senior management of insurers that they need to continually improve and strengthen their risk management systems.  We cannot be sure where the next financial stress will come from.  MAS has been emphasising the importance of sound risk management with the issuance of risk management guidelines to all financial institutions in February 2006.  In November 2007, we issued additional guidelines for insurance business covering areas such as product development, pricing, underwriting and claims handling.  The guidelines emphasise the importance of stress testing and scenario analysis to assess the likely impact of probable adverse events on the financial soundness of the insurer.  Stress testing is not a new requirement for insurers carrying on life insurance business.  MAS is considering requiring general insurers to also carry out regular stress testing exercises as part of their risk management processes.  This will formalise a useful tool for general insurers to assess potential risks to their financial soundness and take the necessary preemptive measures to enhance their resilience.

5   Much has already been said about other lessons we have learnt from the current financial crisis.  The need for financial institutions to focus on their core expertise and the importance of sound risk management have been repeatedly emphasised.  All of these reminders are relevant to insurers and you would do well to pay heed to them.

Motor Insurance

6   There is one area in particular which I would like to touch on.  When I addressed you at your Annual Luncheon in 2007, you had managed to turn the unprofitable motor business around two years earlier.  However, stiff competition had set in and if you recall, I had cautioned you against compromising on underwriting discipline for the sake of building market share.  We noted instances of insurers merely matching or giving fixed discounts off the premium quotations of their competitors without giving due regard to their own underwriting standards.  At that time, signs of poor underwriting results in the motor business were already beginning to show.  Last week, you announced record underwriting losses of $214m for the motor insurance business in 2008.  I understand that of the 25 insurers engaging in motor insurance business, only three managed to make underwriting profits.  This is a concern to MAS because motor insurance is the largest business line for the Singapore general insurance industry.  At the same time, motorists are clearly unhappy with the significant rise in motor insurance premiums and a number have written to the newspapers to question the rationale for such large increases.

7   I hope the industry has learnt the difficult lessons of the past year.  I recognise that the motor losses were not all due to poor underwriting standards.  The problem of inflated claims continues to plague the industry.  To address the problem of inflated claims, GIA implemented the new Motor Claims Framework (MCF) in June 2008.  MAS supports the thrust of the MCF, which is to ensure that motorists report all motor accidents to their insurers within 24 hours of the accident, regardless of whether they are claiming from their insurer or the third party’s insurer.  The objective is to give the insurer the opportunity to conduct a survey of the damaged vehicle and to estimate the cost of repairs before it is repaired.  This is an important and necessary step to minimise the possibility of inflated claims.  In fact, working together with the Subordinate Courts and FIDReC, we have introduced the FIDReC-NIMA protocol where motor claims below $1000 have to be arbitrated by FIDReC first before they can be brought before the courts.  In the protocol, it is clearly stated that the insurer has to be given the right to inspect the damaged vehicle within 48 hours of being notified of the accident and before the vehicle is repaired.  Otherwise, the motorist’s claim could be prejudiced if he subsequently decides to bring his case to court.

8   We have heard of many instances where motorists were shocked to learn about the amount claimed by the third party just for minor dents or scratches.  If the motorist notifies his insurer immediately upon being involved in an accident, giving the insurer a chance to conduct a pre-repair inspection, this scenario is much less likely to occur.  I note that GIA has also recently launched the next phase of the MCF, whereby motorists are encouraged to take photographs of the accident vehicles at the accident site.  I support this initiative as it provides the insurer with clear evidence of the extent of the damage to the third party’s vehicle.  Without such evidence and the prompt reporting of the accident to the insurer, it is difficult for the insurer to challenge inflated third party claims.

9   While the cooperation of motorists is certainly crucial in controlling claims costs, insurers should also ensure that there are adequate incentives for motorists to cooperate.  One of the aims of the MCF is to ensure that motor claims are processed and the damaged vehicle repaired promptly without requiring the motorist to spend considerable amount of time negotiating through various hurdles and roadblocks.  Insurers should provide a hassle free process for motorists to have their claims paid and their vehicles repaired, regardless of who is at fault in the accident.  In addition, insurers would have to do more to assure motorists that they have been treated fairly. 

10   I have heard of instances where insurers proceeded to settle third party claims against their insured without further consulting their insured.  This happened even though the insured had provided his account of the incident to explain why the claims were unjustified.  I understand that in many of these cases, there was insufficient documentary evidence, such as photographs of the accident, to substantiate the insured’s account.  Hence, the insurer had to rely on the verbal accounts of the insured.  Based on past experience, the insurer assessed that it would be more costly to argue the case in court and could not be sure of achieving a successful resolution for their insured.  Hopefully, with prompt accident reporting under the MCF, coupled with photographic evidence of the accident, such situations would be minimised.  But it would also be helpful for insurers to liaise closely with their insured before settling the claims against them.  In any case, insurers should not settle a claim against their insured just to avoid the potentially high legal costs but should seek to protect the interests of their insured.  If there are strong grounds to believe that the third party claims have been inflated, insurers should, with the consent of their insured, aggressively pursue such cases through legitimate means.

11   The MCF, however, would not eliminate all possibilities for inflated claims.  While it goes some way in helping to reduce inflated non-injury third party claims, inflated injury claims are much more difficult to address.  GIA, in its press conference last week, illustrated this difficulty with some examples of possible inflated injury claims.  I note that GIA is continuing to look at other initiatives to address this problem.  MAS will be happy to provide our support to the industry in this regard.  I would also urge the motoring public to cooperate with the insurers.  As articulated by many who have written to the press, it is difficult to understand why those who have been driving responsibly should shoulder the costs of higher premiums because of the unscrupulous activities of others.  However, as we all know, insurance is the pooling of risks and if the insurance pool incurs losses, each policyholder in the pool will have to bear some part of the loss even if he was not responsible for the loss.  Therefore, every motorist has a part to play to ensure that their insurance premiums do not continue to rise because of the cost of inflated claims.  Hopefully, with the cooperation of all stakeholders, we can successfully address the problem of inflated claims.

Talent Development

12   The insurance industry has significant challenges ahead as it needs to find ways to continue to grow its business amidst a challenging economic environment and the need to address the difficult issue of controlling claims cost in motor insurance.  However, the industry should not lose sight of the need to continue to invest in developing the necessary expertise and skills of its staff.  Having the necessary skills and pool of talent is critical for the industry to emerge more competitive when the market recovers.  I am glad that GIA has been very proactive in helping to build the talent pipeline for the general insurance industry through its Talent Outreach Programme (TOP) and Global Internship Programme (GIP).  In particular, the GIP aims to provide deserving undergraduates with exposure to the wider insurance industry both locally and overseas.  I understand that the first run of the GIP in 2008 received very positive feedback from both the participating companies and the interns.  The second run of the GIP will commence in May this year and I would strongly encourage all GIA members to participate actively in this programme.

13   MAS continues to place significant focus on talent development for the financial industry.  As you may be aware, MAS has recently enhanced its training support for the industry.  These include increases in the co-funding amounts by MAS from 50% to 70% under the Financial Training Scheme (FTS), and from 70% to 90% for training programmes which are accredited under the Financial Industry Competency Standards (FICS) framework.  In addition, the range of Masters programmes that can qualify for support under the Finance Scholarship Programme (FSP) has also been broadened beyond the current areas of financial engineering, risk management and actuarial science.  They now include programmes in the areas of finance, applied finance and financial economics.  MAS will also be setting aside S$15 million in funding support under the new Finance Graduate Immersion Programme to provide fresh local university graduates with meaningful industry attachment opportunities over the next one to two years.  I strongly urge the insurance sector to tap this programme to invest in training fresh graduates as part of its efforts to develop talent for the industry.  MAS will hold a manpower briefing session for the insurance sector next month to provide more details on these initiatives.


14   To conclude, insurers need to be vigilant in these difficult times, whilst preparing themselves to capture opportunities in the horizon.  Whatever the future state of the financial and economic sectors would be, there will always be a need for insurance.  As economies progress and business structures evolve, insurers must also innovate with products that will meet the needs of individuals and businesses.  But in doing so, they should not lose sight of the need to maintain strong underwriting and pricing discipline and a good understanding of the risks they are assuming.  MAS will continue to work closely with GIA to promote a sound and competitive insurance industry in Singapore, including developing the necessary expertise that is needed to raise the professionalism of the insurance sector further.

15   GIA has an important role to play in this regard.  It can bring together all the different interests within the industry to collectively seek to enhance the profile of the industry.  This requires every member of GIA, and not only those who are represented on its Management Committee, to play their part in advancing the interests of the industry.  GIA is also a key partner of MAS in enhancing the prudential and professional standards of the general insurance industry.  We have enjoyed a very good working relationship over the years and I am confident that this will continue for many more years to come.

16   Thank you.