"GIA AT 50 – Embracing New Opportunities, Technology and Talent" - Speech by Mr Lawrence Wong, Minister for National Development & Second Minister for Finance, at the General Insurance Association 50th Anniversary Dinner on 26 October
Mr A K Cher
President, General Insurance Association of Singapore (GIA)
To our guests from overseas,
Ladies and Gentlemen,
A very good evening to all of you. Thank you very much for inviting me to join all of you to celebrate GIA’s golden jubilee – your 50th anniversary.
GIA’s Role in a Progressive General Insurance Industry
2 You all know GIA was formed one year after Singapore’s independence. You are one year younger than Singapore, but it’s about the same time, so you have experienced the growth of Singapore together. You have been part of Singapore’s success story. You can see– from the video earlier, from the panels outside – the remarkable transformation that has taken place both in our country and also in the general insurance industry.
3 Indeed, the general insurance industry is the one that not only has grown with Singapore’s economy, but you’ve enabled Singapore’s economy. By providing insurance solutions, by risk-pooling and helping to reduce risk, you’ve enabled our businesses and our economy to function effectively. So all of you have played a big part in Singapore’s success. Tonight is also a night to thank and appreciate all your contributions. We should give a big round of applause to all of you.
4 The general insurance industry in Singapore has been led many years by the GIA, since its formation. As you saw just now, we had many pioneers in the industry, who have led the GIA for many years. The past presidents are here. You have past and present management, and council members as well. All of you have been involved in contributing to the GIA, contributing to the industry, and also giving back to the society with your CSR projects. We should also acknowledge of the contributions of all the pioneers, founding members, past and present presidents, GIA members. Let’s give them another big round of applause.
5 The pioneers are the ones who literally helped to transform Singapore with our founding generation of Singaporeans independence, building and making Singapore to what it is today. We are very grateful to them, and it is important that we acknowledge them and their presence too.
Taking the General Insurance Industry Higher
6 We know that we are meeting at a challenging time in the global economy. We are meeting at a time when worldwide interest rates are low but global growth rate have also been sluggish, despite significant monetary easing. So it is a situation where, for many years since global financial crisis till to date, we have low interest rates, we have low GDP growth, and the situation is unlikely to change in the near future. We feel the impact on Singapore as well. But despite these challenging circumstances, the general insurance industry in Singapore has continued to experience relatively healthy growth.
7 Over the past 5 years, total onshore and offshore premiums have grown at around 7%1 per annum, to reach close to S$ 7 billion in 2015.
8 Looking ahead, the outlook for the general insurance market continues to be supported by strong fundamentals. Firstly, the trend of globalisation and growing infrastructure needs will continue both in Singapore, and also in Southeast Asia and Asia at large. There is continued urbanisation. New infrastructure is being built. So there will be demand for more insurance services. Even within Asia, there will be closer trade linkages, closer trade flow, more trade flow. All that will also increase demand in insurance services. There is also much potential for market growth because insurance penetration in Asia remains a fraction of what it is globally. If you look at insurance penetration rates, Asia’s insurance rates are much lower than many other developed markets. So Asia continues to grow with the increase in business, with the increase in economic activities, and the demand for insurance services growing, we expect that there will be scope for insurers to step up and provide more services in many of these areas.
9 As we celebrate our past and celebrate 50 years of achievements, we also can look forward with some confidence and optimism that the general insurance industry, both for Singapore and Asia, is optimistic, and there are many growth opportunities ahead.
10 Tonight I would just like to elaborate on some of the areas where I think the general insurance sector can strive towards even greater heights. I would like to share three areas.
Incubate insurance solutions for New and Emerging Risks
11 First, how can we develop insurance solutions for new and emerging risks? As I mentioned, the Asian insurance market is growing rapidly. It is also changing rapidly. The demand for protection against new risks will increase. The new risks are in various areas, because there are changing patterns of economic production as you move towards higher-end manufacturing and services, and we see more and more risks emerging – risk in reputation, environmental risk, cyber risk, supply chain interruptions. These are all new risks that are emerging in a more complex and more interdependent supply chain systems in South-east Asia.
12 Take manufacturing, for example. We know that Southeast Asia is an important manufacturing hub. The major economies in Southeast Asia collectively attracted more foreign direct investments combined than China alone. That has been the case since 2013.
13 Within Southeast Asia, as we grow our manufacturing centre, we see that the supply chains have become more interdependent and more complex. That means that there is more vulnerability in the supply chain and that there is a higher risk of disruption, be it due to natural catastrophes, political instability, cyber-attacks, or even logistics and port delays. So all these means that there is a growing need for insurance to mitigate the economic impact of disruption in key manufacturing centres.
14 Another example is the case of cyber insurance. With widespread use of digital and mobile applications, the risk and costs of cyber-attacks against businesses and consumers have risen exponentially.
15 Cyber-attacks are real and they cost the global economy more than $400 billion a year2. It is not just because of technical interruptions. Just last Friday, there were DDoS attacks on major websites, and they were all shut down. These are very real risks.
16 Not surprisingly, demand for cyber insurance has increased. Cyber insurance premiums globally have grown at an annual growth rate of 38% over the last 5 years. It is projected to continue to increase at a very robust rate over the next 5 years to reach US$7.5 billion by 20203. This is just in cyber insurance, one segment of general insurance.
17 For the most part, these new risks are still not well understood by businesses, and they remain a challenge for insurers to quantify. In many cases, these risks are currently uninsured or they are inadequately covered by traditional insurance. So it really presents a significant market opportunity for the insurance industry.
18 We have to start building up these capabilities to tap on these opportunities. That is why MAS is partnering the industry and also our tertiary institutions and our academics to deepen our knowledge and expertise to underwrite specialist risks. We have a Cyber Risk Management Project (CyRiM) which conducts research and builds databases, models, and data analytics to support the growth of a cyber-insurance marketplace.
19 Work has also begun to standardise policy definitions, gather cyber loss data, and develop cyber loss scenarios to better understand insurers’ exposure to cyber risk to better understand insurers’ exposure to cyber risks, as well as enhance the relevance of insurance coverage. This is one example of a new area, where we have to build new capability, but the opportunities are significant. MAS can step in to work with GIA, and work with all of you, to develop capabilities and to position us well to take advantage of the opportunities ahead. So that is my first broad area about developing new insurance solutions for new risk areas.
Embrace Technology and Innovation
20 Second, is to embrace technology and innovation. Technology will be a key driver of innovation in the financial industry. We see this cutting across all areas of finance. If you talk to the banks, they will tell you that, aside from a lot of new rules that are being imposed on them internationally and within Singapore for good reasons, the biggest challenge that they face is FinTech.
21 FinTech is disrupting their businesses in all areas - in payment, in lending, in advisory. Now, you also have robo-advisory. You do not need to do it through a human. You can do it through automation. FinTech is disrupting finance in all areas.
22 At the same time, FinTech also promises significant improvements and opportunities. It can provide many improvement and benefits across the entire value chain of many finance services. That is also the case for insurance industry. That’s why worldwide, insurers are already embracing the advent of FinTech, or for the insurance industry, I suppose it is InsurTech. You see the growth of InsurTech happening worldwide. The annual investment in InsurTech start-ups have risen five-fold over the last three years. More and more companies are entering this space in insurance, embracing technology.
23 I am glad that in Singapore, our insurance industry is not stopping this tide of technology, but you are also embracing technology within your industry. Several insurers in Singapore, including AIA, Aviva, AXA, Allianz, have set up innovation labs here or are collaborating with FinTech companies to tap into their technologies and their expertise. So that is already happening in many of our insurance companies.
24 I believe GIA can take a lead in exploring the opportunities and changes that these new technologies can bring for our local insurance industry. One example could be in the area of autonomous vehicles, or driverless cars. Automated vehicles may seem like a far-fetched idea. But if you look at the technology, this may not be too far-fetched. You may well see more of these in in the not-so-distant future. Perhaps not completely driverless, but certainly assisted driving. A lot more of that would come into place. In fact, for us in Singapore this year, just recently, we have become the first country in the world to test-run on-demand driverless taxis on public roads. So we are seeing this happen, not just in Singapore, but around the world. You will not see this happen overnight but you will see the trend moving in this direction.
25 But with driverless vehicles, there are new questions for underwriting, policy wording and claims management for motor insurance. For example, would the breakthroughs in driverless technology make driving safer and would that contribute to lower motor insurance premiums? Or would driverless technology lead to new liabilities? Perhaps now the liabilities do not lie with the drivers since there are no drivers, maybe it is with the manufacturer or technology providers? Would it lead to demands for new forms of insurance coverage? These are complex issues that we would need to think through, that we would need to discuss carefully. It is very good that GIA has taken the lead to start engaging stakeholders, including autonomous vehicle manufacturers on the opportunities and challenges that these new technologies pose for motor insurance. So this just one example in the motor insurance side of the house.
26 But there are disruptions taken place across many other areas. It is useful for the industry to start thinking ahead. How would technology change your business, and how can you be better prepared for this. So that is the second priority for technology and innovations.
Build Strong Pipeline of Insurance Talent
27 Thirdly, we will need to build a strong pipeline of insurance professionals. Even though it is a world of automation, I don’t think robots will replace humans any time in the foreseeable future. We will still need the human touch in many areas. Ultimately, the insurance business is a people business. We will need to have the people in place in order to drive the growth of the general insurance sector.
28 MAS did a survey recently and found that the general insurance sector continues to register healthy growth in manpower needs. In other words, your sector is still creating new jobs, particularly in areas like actuarial science, compliance, risk modelling and data analytics. So more and more people are still needed in general insurance.
29 Singapore itself continues to be an attractive location for insurance players. For example, we have new players such as FWD Singapore and Brit Global Specialty. These are the latest entities that are setting up operations here.
30 Existing players are also projecting expansion in their operations. For example, FM Global is locating its regional hub office here. This will include a $80million investment in training, research and operations. Their centre will be based here. FM Global also expects to double its Singaporean headcount by 2025. The headcount needs cover across a range of functions including underwriting, loss adjusting and claims.
31 The industry is growing, and we will need more people in this industry. That’s why MAS will be doing more to build a strong Singaporean core of professionals and insurance leaders to prepare ourselves for this future.
32 We are starting with our young in our tertiary institutions. MAS is now collaborating with NTU to roll out new Risk Management and Insurance majors in August this year. The new programme has started. This will produce 50 new graduates every year from 2018 onwards when the current batch of students graduate. This is just a start, and potentially grow more if the demands are there. That is for new entrants coming into the workforce.
33 For people in the workforce, people like yourselves, MAS has set up a Financial Sector Tripartite Committee (FSTC) comprising our union, MAS and the financial industry to ensure that our financial workforce, including the insurance workforce, is equipped with the necessary skills and competencies for the changing financial landscape.
34 So there are programmes offered under our national SkillsFuture programme. We encourage all of you to take advantage of these programmes to upgrade your skills, and to look at how you can pick up new skills for a changing future.
35 MAS is also working with Singapore College of Insurance and with various financial institutions, including insurance companies, to look at how they can provide better career progression pathways to develop and nurture Singaporeans for leadership positions in our various institutions.
36 I am glad that the GIA itself has also launched several programmes to foster a pipeline of young talents into the general insurance industry. It is targeted at junior colleges, universities, tertiary institutions, and we hope to see more young professionals entering the general insurance industry because our needs are growing and we will need more talents and more people in this area.
Strengthening Trust in the Insurance Industry
37 Even as we build up our workforce, even as we attract more people in the industry, and we provide skills upgrading, it is important ultimately to fall back on what is important in this industry. It is not just about skills, but ultimately the insurance industry is built on trust. So you may have the most competent people but ultimately the insurance industry has to be built on people who are of integrity, who are of the right values and who can promote trust. You are not just selling a policy, you are making a promise - a promise to be there for your customers for good times and bad times. That is an important part of what makes the industry works and what creates values and what gets customers to buy insurance from you. That must never be eroded. That value, that ethos must always be there.
38 We have all read news of a growing trust deficit in the financial sector. If you read internationally, you see this in many countries, particularly after the global financial crisis. That trust deficit is created when ethics are compromised, when there is unfair dealing, when there is non-transparency, when there is a lack of integrity.
39 We don’t face this yet in Singapore, and we must not allow such behaviours to creep into our financial sector and our insurance sector. All of us in the finance sector, all our insurance professionals, must work harder to enhance customer confidence, to build trust - be it through consumers’ education, through fair and proper disclosure, through fair dealings with our customers. That is of critical importance in the insurance sector and we hope all of you will help us to continue to uphold this reputation that we have in Singapore.
40 To conclude, the Singapore insurance industry made enormous strides over the last 50 years. Today we are, in many ways, an important insurance hub in Asia.
41 Going forward, Asia’s economic transformation will continue, and new technologies will also continue to proliferate and present new opportunities for our insurance sector.
42 With sustained commitment and partnership between the MAS, GIA and all our partners here, I am confident that Singapore will become an even more vibrant and innovative insurance hub in the next 50 years.
43 Thank you very much, and have a very pleasant evening.1 This is based on the Compound Annual Growth Rate (CAGR)
2 McAffee Report on CyberCrime June 2014
3 Insurance 2020 & Beyond: Reaping the dividends of cyber resilience, PWC, Sep 2015