Published Date: 31 March 2011

Address by Ms Luz Foo, Executive Director (Insurance), Monetary Authority of Singapore, at the General Insurance Association of Singapore Annual General Meeting Luncheon, 31 March 2011, Amara Hotel, Singapore


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

1.    Good afternoon. It is my pleasure to be here at the GIA Annual Luncheon, and thank you for inviting me to speak. First of all, I would like to congratulate Mr Derek Teo, on your re-election as President of the GIA. It is good to see many experienced hands involved in the Executive Committee as well.  In addition, with a dedicated GIA Secretariat, GIA has been able to move forward quickly in many areas.

Development of the General Insurance Industry
2.    We have to-date around 160 licensed insurers comprising life and general direct, reinsurers and captives. The number of general insurers has remained largely constant over the last ten years, but the gross premiums from general direct and reinsurance have doubled from S$3.8 billion in 2001 to S$7.7 billion last year. The profile of the industry has also changed. First, there are more insurers offering specialized lines such as credit insurance, aviation, energy, terrorism & political risk, professional indemnity, and marine hull & liability.   Second, the size of the general offshore insurance business underwritten from Singapore is now bigger than the domestic business.  The offshore insurance fund accounts for about 57% of the total premiums. It has been growing much faster, with a 115% growth over the last 10 years compared to 78% for the domestic business. This is aligned with our strategy to develop Singapore as a regional insurance hub. Nonetheless, the Singapore insurance business continues to be important to us because it supports the fabric of Singapore’s economic growth and society.

Maintaining Underwriting Discipline
3.    Insurance markets globally are currently soft and Singapore is no different.  Insurers must continue to exercise discipline in their underwriting, and give sufficient due care and attention to their pricing and reserving practices. Studies on insurance insolvencies have shown that deficient loss reserves and inadequate pricing are key factors for failure.  

4.    The strategy of cross subsidizing insurance lines is not a prudent one. The correlation of insurance risks within a portfolio can increase quickly with a large shock event, and simultaneous hits across various business lines can occur. Insurers should also not rely on investment income to compensate for weak underwriting. The investment environment is more challenging than before. The  substantial divergence in the level of economic activity globally and the differing policy responses  the ongoing euro sovereign debt problem, political instability in the MENA region and rising crude oil prices have increased the level of complexity and uncertainty in financial markets. Investment performance is likely to be more volatile.

5.    Therefore, insurers should focus on their core competence, ie the underwriting of insurance risks, and do that properly. Insurers need to be alert and quick to identify or anticipate changes in trends which can bring about new risks or have an adverse impact on the risks assumed or in the accumulation of risks.

GIA’s Contributions
6.    GIA has accomplished much last year. You can be proud of your achievements and the high score of the industry in the survey of service excellence. This is indeed a good recognition of the effort and commitment made to deliver fair and good quality service to consumers.   Let me also comment on two other areas, the Motor Insurance Taskforce, and developing talent, where GIA has made important contributions.

Motor & Fraud Prevention
7.    Motor insurance is the largest class of business in Singapore. So it was the right for GIA to actively support and participate in the Motor Insurance Taskforce formed by the Consumer Association of Singapore and the Automobile Association of Singapore (AA).  The Taskforce had raised nine recommendations in March 2010 to tackle some problems relating to motor insurance. Many relate to minimising fraudulent and inflated claims and ensuring greater transparency and control on claims cost. Some of the recommendations have been put up to the Government to consider because they involve broader policy considerations, while the insurance industry and other stakeholders will follow up on the rest.

8.    GIA had also supported the Motor Education Seminar organised by CASE and AA in January this year to educate the public on the motor claims framework.  Building public awareness is important because the public can play a role in keeping a check on the claims costs, and helping to prevent fraud.

9.    GIA may want to consider how insurers here can share information on fraudulent or suspicious claims. In jurisdictions such as the US, UK, Canada and Australia, insurers have worked together to build a central database with such information. This has enhanced their understanding of the fraudsters’ modus operandi and their ability to detect fraudulent claims. 

Building Industry Capacity
10.   The other area where GIA and its members have made an impact is in attracting and grooming talent for the industry. I am glad to hear that the Global Internship Programme (GIP), which is running for the third consecutive year, has helped to attract bright new talent into the industry. The number of intern applications totaling 800 this year, as well as the creation of more intern positions within the industry is encouraging.

11.    Based on the results of our manpower survey conducted last year with regulated FIs, the employment in the insurance industry was expected to growth by 7% over the period of 18 months ending 2011. The general insurance and reinsurance industry employ approximately 3,500 staff. They account for about 4.3% of the total financial sector workforce, as at June 2010. The industry plans to recruit another 375 staff by Dec 2011. Brokers and underwriters are expected to form 80% of the near term hiring needs. While mid-career hires remain the preferred choice, I encourage the industry to take in new entrants to grow the talent pool for its long term needs.

12.   I would also encourage GIA to work closely with the Singapore College of Insurance to fulfill the continual training needs of the industry. The insurance industry in Singapore is evolving. And as we become a bigger hub for regional business and the more specialized insurance lines, staff will need to continually enhance their technical knowledge and underwriting skills, improve their ability to handle more complicated claims, and remain at the forefront of risk management.

Supervisory Focus
13.   Let me now share with you what we are doing on the supervisory front. Many lessons and observations were made during the global financial turmoil. The international regulatory community across banking, securities and insurance have been actively discussing the necessary regulatory reforms.  The objectives are to enhance the resiliency of the financial industry, and to protect depositors, retail investors and policyholders. Many of these have been or are being incorporated into international regulatory principles, standards and guidance within the respective industry sectors. For insurance, the International Association of Insurance Supervisors’ (IAIS) Insurance Core Principles (ICPs) are being reviewed and are currently undergoing public consultation. These will be finalised and adopted by insurance regulators globally by October this year. Let me touch on a couple of areas where we will actively engage GIA members on for the year ahead.

Corporate Governance & Risk Management
14.   Having an effective corporate governance and risk management framework in place is critical. A study done in 2001 by a group of European insurance supervisors on the failure or near failures of insurance companies showed that weak management or governance was ultimately the cause in every case. Poor corporate governance and risk management standards were also at the root of the global financial crisis. 

15.   MAS enhanced our corporate governance (CG) regulations last year. The role of the Board of Directors is critical and we now require an independent majority on the Board. This will strengthen the robustness of Board discussions and help members exercise better judgment, independent from management. There is also a requirement to establish a Risk Management Committee. This will help strengthen the risk governance and risk management responsibilities of the Board. With respect to insurers, the CG regulations are currently mandatory only for the significant locally-incorporated direct life insurers. But we strongly urge all insurers to adopt the high standards of CG practices as promoted in the guidelines.

16.    The financial crisis also underscored the importance of having an enterprise risk management (ERM) framework. In fact, the International Association of Insurance Supervisors Insurance Core Principles and Solvency II will further promote the adoption of ERM amongst insurers. Insurers should not underestimate the potential interdependencies of various risks especially during periods of stress. MAS will supplement its risk management guidelines on core insurance activities with additional guidelines on ERM.

17.   Stress testing and scenario analysis have also gained greater prominence as a useful risk management tool which many are embedding into their overall risk management and governance process.  MAS had required the General Insurance industry to undergo a stress testing exercise in 2010. We hope that the insurers have gained a better appreciation of the objectives of the exercise. The senior management and Board should ensure that the process is robust and effective to better understand the vulnerabilities of the company, as well as help improve strategic decision making, and the development of better risk control, mitigation and contingency plans. 

Group Supervision
18.   We are also reviewing our approach to group supervision as the activities of a non-regulated entity within the group, can have a big impact on the regulated entity. Regulators around the world agree that it is important to have a holistic view of the activities and risk of entities within the group. MAS is therefore reviewing its regulatory framework to ensure that, where MAS is the home supervisor of an insurance group, we will have the required legal authority and supervisory powers to conduct consolidated group supervision, and impose group capital and solvency requirements.

Risk Based Capital Regime
19.   MAS had introduced the risk based capital (RBC) regime in 2005. Since then, there have been further developments around the world in terms of regulatory capital and solvency framework. Other than the EU’s impending Solvency II, countries like the US, Switzerland and Australia have also undertaken or are in the process of refining their capital frameworks to accommodate insurance groups.

20.   We will embark on a review of our RBC framework to assess the risks that are not currently captured under our regime. We will also consider some of the best practices that would be meaningful to adopt. We will work closely and consult the industry in many of these areas to ensure that the framework is both practical and robust.

Macro-surveillance Framework
21.   With globalization, financial market liberalization and financial innovation, financial markets and real economies have become much more intertwined and interconnected.  As such, we have seen the failure of a financial institution like Lehman, catalyzing a contagion which spread rapidly to the financial markets and economies globally.

22.   Internationally, regulators therefore now pay equal attention to safeguarding the financial system as a whole, along with the traditional approach of mitigating the risk of distress at individual financial institutions. In macroprudential surveillance, the objective is to monitor and identify risks or the build up of risks that might increase the vulnerability of the financial system to shocks and instability. Supervisory actions may then be taken to reduce the likelihood of systemic risk, and to mitigate spillover effects within the financial system and into the real economy.

23.   Like many other regulators, we are working on establishing a macroprudential surveillance framework for insurance. This entails building up a better understanding of how our insurance industry is interlinked and connected with other financial sectors and the economy. With this, there would be a better appreciation of the potential systemic risks and vulnerabilities of the industry. We would also be more prepared in terms of the supervisory actions that may be needed to mitigate such risks. As you can imagine, we will need more granular data submission from insurers to establish an effective macroprudential surveillance framework.   

24.   We have come a long way in our efforts to develop Singapore into a regional insurance and reinsurance hub, and in advancing the prudential standards for the industry. The industry’s involvement and participation in this journey has been important and we hope to continue this close partnership. GIA has provided us with an effective platform to reach out to the general industry. There are some direct insurers who are not yet members, and we encourage GIA bring them in. We look forward to working with GIA and its members in the year ahead.  Thank you.