Address by Mr Lee Boon Ngiap, Assistant Managing Director, Monetary Authority of Singapore, at the General Insurance Association of Singapore Annual General Meeting Luncheon, 21 March 2013, M Hotel, Singapore
Mr Derek Teo, GIA President,
Ladies and gentlemen,
Good afternoon and thank you for inviting me to speak today.
1 The global economy and financial sector have endured several years of unprecedented stress following the collapse of Lehman Brothers some four years ago. In this more difficult environment, the general insurance industry in Singapore has done well, reporting good underwriting profits in 2012.
2 While the industry has proven its resilience to emerge relatively unscathed from the global financial crisis, we should not become too comfortable and let our guard down. We started 2013 with more optimism compared to the previous 4 years but recent events in Cyprus and its impact on global financial markets showed that the environment is still fraught with uncertainties. We need to remain vigilant and push ahead with efforts to enhance the resilience of the industry in this more volatile financial landscape. On MAS’ part, we will continue to work closely with the industry to update our regulatory framework to keep pace with market changes and as new risks emerge. For insurers, efforts to enhance risk management and business practices must continue apace. Let me touch on two areas that MAS and the industry can collaborate on in the coming months to achieve our common objectives. These are in the areas of strengthening risk governance and enhancing service standards.
3 First, risk governance. Risk governance is often defined as a framework through which the Board and senior management of a firm articulate and monitor adherence to risk appetite and risk limits; and identify, measure and manage risks. Globally, supervisory expectations of risk governance frameworks have increased, as this was an area that exhibited significant weaknesses during the financial crisis. Last month, the Financial Stability Board published a report1 which takes stock of risk governance practices at both national authorities and banks, and sets out a list of sound risk governance practices. While the report focuses on banks, many of the recommended sound practices are equally applicable to insurance companies, and I will urge GIA members to read the report.
4 In Singapore, MAS first issued a set of risk management guidelines for insurance companies in 2007. This year, we consulted the industry on an Enterprise Risk Management, or ERM, Notice, which goes beyond addressing individual risks to cover MAS’ expectations on how insurers identify and manage interdependencies between key risks. ERM will require the board and senior management of an insurer to clearly articulate an explicit risk tolerance level for the firm. An insurer will be expected to perform regular assessments of the adequacy of its risk management and solvency position in a forward looking manner. A desired outcome of ERM is that decisions regarding risk management and capital allocation can be coordinated for maximum financial efficiency, without endangering the capacity of the insurer to meet its commitment to policyholders.
5 Many of you provided constructive comments to MAS’ consultation on ERM and we thank you for your active participation. We will be issuing our consultation response soon but let me take a moment here to briefly address two of the more common feedback.
6 Some insurers felt that the implementation of the whole set of ERM requirements was not necessary given their simpler business models. In this regard, I would like to assure you that MAS will not adopt a one-size-fits-all approach in assessing ERM frameworks of insurers. MAS will be guided by the principle of proportionality, and an insurer will only be expected to have in place an ERM framework that is appropriate to the nature, scale and complexity of its risks.
7 Another common feedback was that the proposed timeline for implementation is too short. Here, I would like to emphasise that MAS does not view the implementation of an ERM framework as a one-off compliance exercise. The process to build a good and sustainable ERM framework will be a dynamic and iterative one, and we recognise that inculcating the right risk culture in an organisation will take time. Realistically, MAS is not expecting all insurers to have a “perfect” ERM framework from day one. But we do expect to see honest endeavours made by all insurers to achieve significant progress in enhancing their ERM frameworks by the deadline for the implementation of the Notice. From our observations, many insurers already have elements of a good risk management framework in place, with a number of insurers having implemented ERM frameworks that are close to what we expect to see. MAS will work closely with individual insurers in the months ahead to clarify our supervisory expectations, which as I mentioned earlier, will take into consideration the nature, scale and complexity of the risks undertaken by each individual insurer.
8 I urge all insurers to make improvements in risk governance a priority in their firms. A recent survey by Towers Watson2 noted that insurers that persist and make progress in key areas of ERM are more likely to see the benefits of ERM. For example, insurers which have risk appetite statements in place and have established a framework to demonstrate the consistency of risk limits with risk appetite are twice as likely to see improvements in their business performance. The report also noted an increasing number of executives who shared that ERM has led to positive changes in their management decision-making process and product pricing. So, a good ERM framework not only enhances the resilience of insurers but can be a powerful strategic tool.
9 Next, I would like to touch on the issue of enhancing service standards, which Derek also mentioned briefly in his speech. We are all aware of the initiatives that are being taken to raise the standard of practice and quality of advice in the financial advisory sector. The need for transparency, fair treatment and clear communication in dealing with general insurance customers is just as important. Customers seeking to purchase a general insurance policy will consider not just the features of the product, but also the quality of the insurer’s service. This includes not just the front-end sales process, but also how prompt the insurer is in handling claims and complaints. An insurer which is able to differentiate itself with a reputation for good service is more likely to win the trust of customers, giving it a competitive edge in growing its business.
10 I would like to commend GIA for its efforts in fostering fair treatment of customers and high service standards among its members. Through its Code of Practice, GIA has set out the commitment of its members to act fairly and reasonably when dealing with customers, making sure that information provided is clear and not misleading. The Code also commits GIA members to handling customer claims and complaints fairly and promptly. MAS has also lent weight to the Code by stating clearly that the manner and extent to which an insurer implements the Code will be an important consideration in our risk assessment of the insurer. This hybrid self-regulatory arrangement has generally worked well.
11 Indeed, MAS has seen some commendable examples of good customer service in the general insurance industry, with responses to valid customer feedback demonstrating fairness and empathy for the customer. On the other hand, the number of customer complaints filed against direct general insurers has not declined. Based on our observations, many of these complaints are due to misunderstanding or poor service standards, and could have been avoided if an insurer regularly conducts a self-assessment of its advisory and service standards, including its claims and complaints handling processes. Insurers must up their game in these areas with consumers becoming more sophisticated and demanding. MAS will be working closely with GIA and its members to improve insurers’ operations in these aspects in the coming months.
12 To sum up, GIA is a key partner for MAS. The association and its members have made valuable contributions to MAS’ efforts to enhance the regulatory and supervisory framework for general insurers in Singapore. GIA has also spearheaded important initiatives to raise the competency and professional standards of the industry, to provide consumers with better quality advice and higher service standards. I thank GIA for these efforts. MAS looks forward to strengthening our collaboration with GIA to promote a sound and dynamic general insurance industry in Singapore in the years ahead.
13 With that, I thank you.