Published Date: 26 March 2015

Address by Mr Chua Kim Leng, Assistant Managing Director, Monetary Authority of Singapore, at the General Insurance Association of Singapore Annual Luncheon, 25 March 2015, Pan Pacific Hotel, Singapore

Mr A.K Cher, President of the General Insurance Association,

Distinguished Guests,

Ladies and Gentlemen,

1              Good afternoon. Thank you for inviting my colleagues and me to the Association’s annual luncheon.

2              Before we begin, I would like to just say a few words to honour Mr Lee Kuan Yew, who passed away on Monday.  Mr Lee was a visionary, one who saw Singapore ‘s potential to become what he described as “a First World oasis in a Third World region”. Under his astute leadership, he transformed Singapore into a prosperous country and gave Singaporeans a better life. Mr Lee’s unwavering dedication and passion in serving the people of Singapore are values that will continue to guide us.

3              The GIA has, over the years, served Singapore by promoting the benefits of general insurance and enhancing industry standards to better serve the economic and social needs of Singapore. The establishment of the Agents’ Registration Board is one strong testament to GIA’s pro-activeness in setting industry standards, where its continued commitment for an orderly and professional agency framework has improved service standards to consumers. Other key initiatives include the setting up of a Fraud Committee and a Fraud Hotline to tackle rising concerns on fraudulent claims; as well as the useful consumer education pieces in the Sunday Times to raise consumer awareness on general insurance products. On the international front, GIA has also been active in its participation in the ASEAN Insurance Council to promote regional cooperation. 

Looking ahead into 2015 and beyond

4              The insurance operating environment is continually evolving; insurers and regulators need to remain vigilant and continue efforts to enhance the industry’s resilience and foster public confidence. This is not only to deal with emerging threats, but also to better position ourselves to pursue growth opportunities. 

5              Let me share my observations on two key trends that will shape the business environment for the Singapore general insurance industry.

Rising Need for Insurance Services in ASEAN

6              First, I am sure many of you here are familiar with the Asian growth story. Rapid economic development, population growth and urbanisation are promoting greater flow of business activities and investments in Asia. According to IMF estimates, emerging Asian economies will grow by about 6.5% per annum for the next five years, as compared to the 2.4% forecast for advanced economies[1]. With a population of over 600 million people and a combined GDP of over US$2.4 trillion, the ASEAN region is expected to contribute a sizeable proportion of the growth. McKinsey Global Institute estimated that if ASEAN were a single country, it would already be the 7th largest economy in the world, and by 2050 it will be the 4th largest[2]. As ASEAN economies develop, the need for insurance services in the region will rise, as individuals and corporates seek to manage their growing risk exposures. This is further exacerbated by the increasing frequency and severity of natural catastrophes in the region.

7              In spite of this, non-life insurance penetration rates in emerging ASEAN countries remain well below the global average[3]. This insurance gap is especially prevalent for commercial and specialty risks in emerging markets, where the portfolio mix of non-life insurance is highly skewed towards personal lines such as automobile or health insurance, in comparison with commercial lines such as energy, fire and engineering[4].

8              Insurers in the region, including Singapore, are playing an increasingly important role to promote stronger and more sustainable economic growth, by providing a platform for effective risk transfer and pooling. Under the ASEAN Economic Community, Singapore is working together with its ASEAN counterparts to advocate an open insurance market within ASEAN so as to maximise the benefits of insurance services in the region. Liberalisation can bring in the necessary expertise, data analytics and capital in facing increasingly large and complex risk exposures, such as agriculture, catastrophe and weather risks. Singapore sees strong benefits in prioritising 3 broad lines of insurance for liberalisation:

    • Marine, Aviation and Goods in International Transit (MAT) Insurance, due to its importance in safeguarding regional and international trade flows;
    • Catastrophe Insurance, so as to strengthen the region’s financial resilience against the growing frequency and severity of natural catastrophes; and
    • Reinsurance and Retrocession, to assist insurers in creating a sustainable risk financing strategy through the transfer of residual risks to the commercial reinsurance markets.

9              I am pleased to say that the joint ASEAN Finance Ministers and Central Bank Governors Meeting held in Kuala Lumpur last week affirmed cross-border supply of Marine, Aviation and Goods in International Transit (MAT) insurance as a priority area for insurance liberalisation. We invite the industry to work together with us on this important initiative. 

Evolving Business Practices from Technological Advancements

10             Second, advancements in technology have spurred innovation and revolutionised the way insurers conduct business globally. For instance, the use of big data applications makes it easier for insurers to assess risks more accurately and at an earlier stage, resulting in better pricing and underwriting experience for consumers. For example, insurers in the US and Europe have taken the step forward to use vehicle telematics devices to collect real time driving data. This allows for motor insurance policies that are priced according to individuals’ driving behaviour and patterns. Here’s another example. Thanks to various digital platforms, there are now more channels available to insurers for engaging consumers while keeping distribution costs low.

11            The many options made available by technological advancements provides insurers with opportunities to differentiate your business and give you a competitive edge. MAS encourages insurer’s use of technology to stay ahead of the game by providing better insurance coverage and solutions as well as service standards.

Strengthening the Foundations for Stable Growth

12            The 2 key trends I just highlighted offer insurers ample opportunities for growth in the region, but insurers need to remain resilient and financially sound to seize these opportunities. Insurers need to ensure they have a deeper understanding of the underlying risks in this increasingly complex environment.   MAS will continue working together with the industry to strengthen its foundations through two main areas; (i) enhancing risk management capabilities and (ii) developing talent.

Enhancing Risk Management Capabilities

13            Let me now touch briefly on two key initiatives that we are undertaking to enhance risk management capabilities.

Strengthening Solvency Requirements

14            First, risk based capital standards. Many jurisdictions around the world have recognised the need to review their capital frameworks to ensure that solvency requirements remain relevant in today’s risk environment, and effective in helping insurers weather different crises. The regulatory landscape in Asia is no different, with some of our counterparts in the region either moving towards a risk based solvency regime, or enhancing existing frameworks.

15            In Singapore, we too are reviewing our risk based capital framework, RBC in short, to make it more risk sensitive and robust. For instance, a new feature under the RBC 2 framework is the inclusion of a risk charge for catastrophe risk. Some might question the need since Singapore is, fortunately so, not particularly prone to natural catastrophes. However, we cannot discount the risk of man-made disasters occurring within our shores. In addition, the growing offshore business of Singapore direct general insurers and the rising occurrence of natural catastrophes in the region have shown that we remain particularly vulnerable to insurance catastrophe risks. It is hence timely that RBC 2 moves to address this.

16            In the absence of defined international standards and the varied risk profiles of our general insurers here, we need to calibrate this carefully and appropriately. At the last GIA Luncheon, we announced the formation of a Natural Catastrophe Work Group to look into the calibration of the catastrophe risk requirements for general insurance. The Work Group has come up with its preliminary recommendations and it would be consulting the industry associations shortly to further fine-tune its proposals.

17            We launched the first quantitative impact study (QIS) last year to assess the potential impact of the other RBC changes on the industry. Almost 90% of the direct general insurers participated in the impact study. From the results, most of our insurers are able to maintain capital adequacy ratio or CAR of well above 100% under the first set of RBC 2 proposals. I would like to thank the GIA and its members for the active participation as well as the constructive feedback on our consultation paper.

18            In addition, we are studying the feedback relating to the calibration of risk charges for equities, corporate bonds, counterparty default and operational risk, and the possibility of allowing some simplified approach for calculating the interest rate mismatch and credit spread risk requirements. We are also engaging insurers on the safeguards or conditions that could be put in place to allow some recognition of reinsurance arrangements with head offices and downstream entities.

19            We will conduct another round of consultation and quantitative impact studying the second quarter this year after we’ve fine-tuned the framework. We are committed to ensuring that RBC 2 is “fit for purpose” and will only implement it after we have done a proper calibration and thorough assessment, and are satisfied that the framework will promote sustainable, long term growth of the insurance sector.

Developing Robust Technology Risk Management Framework

20            Second, technology risk management. The increased use of technology to transact business has resulted in more data and privacy breaches around the world. According to an Ernst and Young survey[5], cyber risk and data security are among the top ten risks faced by global insurance organisations in 2015. The consequences of data and security breaches, particularly where customer data is concerned, goes far beyond financial loss and can be devastating to an insurer’s reputation.

21            MAS expects insurers to continually strengthen their cyber security capabilities and ensure that control measures are robust and up-to-date, to minimise the occurrence of such incidents. Insurers can refer to the MAS guidelines on technology risk management, issued in June 2013, for guidance on how controls can be strengthened.

22            We have seen more insurers engaging service providers to tap on their technological expertise and infrastructure. Outsourcing tends to be more cost effective and efficient. Nevertheless, responsibilities for due diligence and oversight of such arrangements continue to rest with the insurer, its board and senior management. As part of MAS’ efforts to raise the standards of risk management practices for outsourced activities, we will be revising our guidelines on outsourcing to include additional best practices. We will also issue a new notice that sets out the minimum standards on outsourcing management we expect of financial institutions.

Developing Talent

23            Finally, on talent development. With technology and innovation increasingly taking on a bigger role in the insurance industry, the nature of jobs and the competencies required will also evolve. Jobs may shift away from being paper-intensive and face-to-face, and certain functions could be commoditised, and eventually automated. Insurers need to attract, develop and retain people with the necessary expertise and skill sets to stay relevant and competitive in this changing environment. 

24            We will be investing in strengthening the technological architecture and innovative culture in the financial sector so as to equip Singapore insurance professionals with the relevant competencies to remain competitive in the new economy. Details on these initiatives will be announced at a later date. We will also continue to work closely with the industry to proactively review and anticipate future resource demands under the SkillsFuture initiative.

25            We strongly encourage GIA members to continue investing in talent development, and to actively participate in industry-wide manpower development programs.


26            As we work to enhance our risk management capabilities and develop talent for the industry, we must not forget the most important stakeholder in the business – the consumers. We must continue to foster and strengthen consumer’s trust in the industry; fairness and transparency must underscore your relationship with consumers. This is in line with GIA’s missions to ‘foster public confidence in, and respect for, the insurance industry.’ I note that both GIA as well as individual insurers have been boosting efforts to better engage consumers, and promoting greater transparency and clearer communication.

27            I thank the GIA for its efforts, not only in promoting consumer education and engagement, but also in its partnership with MAS to promote a sound and sustainable insurance industry. I look forward to our continued partnership.

28            Thank you.   

[1] World Economic Outlook Database, International Monetary Fund, October 2014

[2] “Understanding ASEAN: Seven things you need to know”, Mckinsey Global Institute, May 2014

[3] “World Insurance in 2013: Steering towards Recovery, Swiss Re Sigma, May 2014

[4] “Theme Chapter – Insuring against Asia’s Natural Catastrophes”, Asian Economic Integration Monitor, April 2014

[5] “Insurance Business Pulse 2013 – 2015, Exploring the top ten risks and opportunities faced by global insurance organisations”, Ernst & Young