Published Date: 20 August 2009

Luncheon Address by Mr Low Kwok Mun, Executive Director (Insurance Supervision), Monetary Authority of Singapore, at the Lift Protection Seminar, 20 August 2009, Intercontinental Hotel, Singapore

Distinguished Guests,
Ladies and Gentlemen,

1   Good afternoon. I would like to thank the Life Insurance Association and the Singapore Actuarial Society for inviting me to this seminar. I am told that this is the first time that the LIA and SAS have jointly organised a seminar on life insurance.  This is most encouraging. I hope this seminar has been a positive experience for both organisations and we can look forward to more of such collaborative efforts in future.  Indeed, both LIA and SAS have important roles to play in enhancing the knowledge and understanding of insurance amongst Singaporeans.

2   The global financial sector has just gone through one of its most difficult periods in history.  The resultant credit crunch led to a severe global economic downturn.  As an open economy, Singapore was not spared.  But there are encouraging signs that the worst may be over, though we are clearly not completely out of the woods yet.  LIA has just reported strong growth in life insurance sales in the second quarter.  Single premium sales rose 39% compared with the previous quarter while annual premium sales grew 37%.  Health insurance also recorded strong growth with premiums increasing by 40% in the first half of 2009 compared with the same period last year.

3   Besides the difficult global economic environment, we were also faced with a flu pandemic.  Fortunately, the impact of H1N1 has so far been mild, but it did cause much anxiety across the world.  It also brought questions into the minds of many about the sufficiency of their insurance coverage for such events. 

4   This seminar on life insurance protection is, therefore, most timely.  When I addressed the LIA at its annual luncheon last year, I highlighted the significant protection gap amongst Singaporeans and the need for the life insurance industry to help address this gap.  The recent events have made this even more urgent.  As a result of the deep economic recession, many faced the risk of being retrenched.  This was compounded with the risk of being infected with a deadly flu virus and incurring significant medical expenses.  It is, therefore, extremely important that Singaporeans appreciate the need to be prepared for such events and to be aware of the type of insurance products that can be used to manage these risks.  I believe the previous speaker has already provided sufficient statistics to highlight the significant protection gap in Singapore.

5   For most Singaporeans, life protection plans are thus a necessity and not an option.  They provide us with peace of mind that our dependents are protected from financial difficulties in the event of our untimely death, critical illness or physical disability.  However, consumers often put off their plans to get insurance protection due to ignorance, inertia or the belief that misfortunes would not befall them. Some also have the misguided impression that it is costly to purchase adequate insurance protection. Instead, they would rather purchase savings-type plans, such as participating or investment-linked products, that offer a rate of return for the money they have invested.  For those who need more insurance protection, such products may not be the most appropriate since they offer relatively lower protection for the same amount of premium. 

6   Term life insurance is the most common protection product sold currently.  But other types of protection products are also needed to meet the various protection needs of individuals depending on their particular circumstances.  Examples include medical insurance plans and disability income plans.  Insurers should consider developing more innovative protection plans so that consumers can have the full range of products to meet their particular needs. 

7   Having the suite of protection products available is, however, not sufficient if consumers are not well informed about the availability of such products to meet their specific needs.  Educating the consumer is, therefore, equally important.  Over the past few years, LIA has been actively involved in organising educational activities for the public to deepen their understanding of insurance products. I understand that LIA has recently launched a radio campaign and invited industry experts to share on financial protection, health insurance, savings and investments, etc. LIA has also been partnering MoneySENSE to organise insurance seminars, contribute educational articles and provide speakers for insurance talks.  LIA should be commended for these efforts.  But consumer education is a long-term effort and it will not yield the intended results immediately.  I would, therefore, encourage LIA to continue with these efforts and I urge all life insurers to support LIA in this area.  The SAS, being a body representing the actuarial profession, can also play an important role as an independent source of advice for consumers on the benefits and risks of various insurance products. This will also enable the SAS to raise its profile and visibility among the public.

8   While consumer education is important and necessary, the role of the insurance adviser in the insurance sales process is perhaps even more important.  They are the ones who are in contact with consumers and wield the most influence on what consumers purchase.  It is, therefore, imperative that insurance advisers maintain the highest level of professional standards in giving consumers the right financial advice.  It is the responsibility of every insurer to ensure that their advisers are adequately trained and have the necessary competence to perform their roles professionally.  This is indeed a significant challenge given the large number of advisers engaged by the industry.  Insurers should commit sufficient resources to meet the training needs of their advisers as well as monitor the performance of their advisers to ensure that high standards are maintained at all times.

9   But, perhaps the factor that has the greatest influence on what consumers purchase is the incentive structure for insurance advisers.  This is, however, one of the most controversial and difficult issues the industry has to address.  The incentive structures currently tend to encourage advisers to push the sales of products that generate the most commissions to the advisers rather than products that meet the needs of the consumer.  Many of the commission structures are front-loaded and, therefore, they do not give sufficient incentive for advisers to consider the long-term relationship with the consumer.  This does not align with the nature of life insurance, which is primarily intended to provide long-term protection to policyholders.  LIA and the life insurers should seriously consider how to address this controversial and difficult issue to ensure that incentive structures do not skew insurance advisers to recommend products based on any reason other than to meet the needs of the individual consumer.   

10   So, to conclude, I would like to urge the LIA and SAS to continue to work together to address the insurance protection gap in Singapore.  This is not going to be an easy task, but a necessary one if the life insurance industry is to fulfil its role in society.

11   Thank you.