"Resilience Amidst Change" - Speech by Mr Daniel Wang, Executive Director, Monetary Authority of Singapore, at the General Insurance Association of Singapore Annual General Meeting Luncheon on 16 March 2018
Mr Karl Hamann, President of the GIA
Ladies and gentlemen,
1 A very good afternoon. It is my pleasure to be here at the GIA Annual Luncheon.
2 Let me begin by congratulating Mr Karl Hamann for being elected the new President of GIA, and Ms Stella Tan as Vice-President for another term. This is a vote of confidence in your capabilities and recognition of your continued sterling contributions to the general insurance industry. I am confident that Karl and Stella will be well supported by the capable Management Committee (MC), including outgoing President Mr A.K Cher. Mr Cher is a veteran leader in the industry, and I am gratified that he will continue to serve the MC in a different capacity. I look forward to continuing the longstanding partnership between MAS and the GIA.
3 GIA has played an influential role in shaping Singapore’s general insurance sector, helping to drive important industry initiatives while retaining a key role in voicing industry concerns and interests. In recent years, under its stewardship, several milestones such as the Motor Claims Framework and improvements in fraud detection were achieved. The GIA has also partnered your members in several talent development and consumer education programmes.
Ride Out Current Challenges
4 The recently announced 2017 results are indicative of the challenging period the industry is in. While general insurers continued to make overall underwriting profits, the motor and health business lines have not performed as hoped.
5 This sector has weathered challenging business environments before. Even as you review your business strategies in light of the 2017 performance, it is vital that insurers practice sound underwriting and pricing discipline. The pursuit of lower premium rates to gain market share is not sustainable. Instead, an insurer should ensure that the underwriting and pricing of risks adhere with Board-approved risk appetites, taking into account the firm’s capital strength.
6 For the health portfolio, I urge the industry to improve its cost containment efforts. The Health Insurance Task Force (HITF) had put forth recommendations to moderate premiums for integrated shield plans, as part of a broader strategy to manage escalation in healthcare costs. This includes using preferred healthcare provider panels and designing product features to incentivise responsible medical consumption. It is worthwhile for general insurers to study these recommendations and apply them to short-term health insurance business.
7 John F. Kennedy once noted, "Change is the law of life. And those who look only to the past or the present are certain to miss the future”. Even as the general insurance sector deals with ongoing business challenges, the industry should be cognisant of structural developments impacting the insurance landscape.
8 There are two key forces to be attuned to. The first is already here and can be a vital enabler – Technological Change. The other is Climate Change, which is inevitable unless much more is done to abate the impact of environmental risks.
Embrace Technological Change
9 An Accenture report1 revealed that 86% of insurance executives feel their organisation must innovate at an increasing pace to keep a competitive edge. Customers are seeking more digital touch points for convenience and are looking for more personalised services. There are significant opportunities for general insurers to embrace technology as benefits can be reaped across the value chain.
10 How would the future of general insurance look like in a tech-enabled world? Let’s imagine together ….
- Customer A’s motor policy is due for renewal in 2 months. Using Robotic Process Automation, the system pulls customer information from various sources – claims and payment histories, driving behavior and past enquiries, to determine the renewal terms.
- The real-time data obtained through the telematic device installed in his vehicle reveals that he is a safe driver who clocks relatively low mileage.
- The pricing and underwriting systems rely on artificial intelligence to determine the appropriate premium rate and terms to quote, and this is communicated to the customer by the insurer’s “smart agent” via a smartphone app.
- That’s not all. Through data visualization, the customer obtains intuitive graphics and feedback on his driving habits, and gets his premiums adjusted based on mileage. That is, usage-based insurance.
- And there is opportunity for cross-selling. The smart agent offers him a home insurance policy as his billing address was recently updated.
11 What does this entail for the customer? It represents:
- Not a ‘transaction’ but an ‘interaction’.
- Convenience, customisation and choice as he is promptly offered a customised policy and solutions for unmet insurance needs.
- Incentives that reward ‘right’ behaviour. Here, safe driving is encouraged with premium discounts.
12 Let me continue the illustration.
- Unfortunately, Customer A’s vehicle suffers some damages due to adverse weather conditions. He takes a picture of the damaged vehicle, describes the incident through voice recording, and lodges the claim through the app. Natural language processing is used to interpret the customer’s message.
- At the backend, satellite weather data of the location at time of incident is gathered and analysed. Big data analytics confirms that the claim does not display any fraud patterns or anomalies that require further investigation.
- Within minutes, this straightforward claim is verified. The customer is informed that a tow-truck has been dispatched to bring the vehicle to the workshop.
- Blockchain technology is used to share and verify information on the actual repair cost with the workshop. Once verified, an automated claims pay-out is triggered from the insurer’s bank account. A message is simultaneously sent to the customer to inform that his claim has been paid and that his vehicle is ready for collection.
13 What does this mean for the insurer?
- Better risk assessment, precise underwriting, and accurate pricing due to direct customer relationships.
- Operational efficiency and customer satisfaction from being able to pay claims promptly.
- Smart Labour. Employees can now focus on complex cases that require human judgment, reasoning and interaction.
14 I earlier called this the future of insurance. I stand corrected. All the technologies I referred to already exist. They are there to be exploited, further innovated upon and applied to different areas of general insurance.
15 There is a memorable line from the 80s movie ‘Back to the Future’ – “Your future is whatever you make of it; so make it a good one.” It is heartening to see GIA embarking on this technology journey, making use of big data and machine learning capabilities in your new fraud management system. Several general insurers have already actively used telematics and mobile applications. I strongly encourage insurers to seize the opportunities afforded by technology to shape a good future for both your customers and your organisation.
16 MAS is embracing technology and big data analytics too. We recently unveiled a roadmap to transform the way we collect data from financial institutions and we look forward to working closely with the industry on this. The roadmap includes measures to progressively reduce duplication and automate data submission by financial institutions. There are two objectives. Firstly, to make it more efficient for MAS to process and analyse the data collected. Secondly, to help financial institutions reduce the resources and preparation time needed to produce the requested data.
17 As we embrace these opportunities, we should also be mindful of the potential threats.
18 First, Cyber Security. As insurers and customers become more digitally integrated, the amount of policyholder information collected by insurers increases. The exposure to cyber risks also rises, which can lead to greater operational, financial and reputational risks. In this regard, MAS is reviewing our Technology Risk Management Guidelines to provide more guidance on cyber security operations, surveillance, assessment and exercises. We also intend to introduce basic cyber hygiene requirements to further strengthen the cyber resilience of financial institutions.
19 Secondly, there is a need to have deeper conversations about ethics and accountability. The ability to access customer information should not lead to breaches of privacy and crossing of personal boundaries, but is the line to be drawn clear to all stakeholders? Given greater mining of publicly available data, will those with light digital footprints be unfairly excluded or charged higher premiums? Who should be responsible for algorithm-driven decisions and pricing mechanisms found in data models? How much of such information should be made transparent to consumers? MAS will engage the industry to come up with meaningful guidance on these issues in the coming weeks.
Manage Environmental Risks
20 Let me now deal with the need to address environmental risks.
21 Climate and weather disasters affected almost every continent in 2017, ranging from hurricanes in North America to severe flooding in China, Sierra Leone and Peru. Globally, 2017 was the costliest year on record for weather disasters with total economic losses at US$344bn, 93% above the 2000 to 2016 average2. In Singapore, we have not been spared from flash floods. Many of these natural disasters and weather anomalies are at least partly attributable to climate change. The consequent risks to the insurance industry are real.
22 Managing climate change and promoting sustainability requires collective action by all stakeholders across the eco-system - policymakers, regulators, corporates, investors and civic organisations. As you may be aware, Singapore is committed to the Paris Agreement to reduce carbon emission intensity by 36% by 20303. The Government is introducing a carbon tax on large direct emitters of greenhouse gases from 2019. In the insurance space, GIA and LIA have both pledged support for global standards such as the UN Principles for Sustainable Insurance; and have begun conducting masterclasses on sustainable insurance for their members. It is time to move from awareness to action.
23 General insurers are arguably at the forefront of environmental issues as you wear three hats – that of ‘environmental’ risk carrier, risk manager and investor. Given these roles, insurers should comprehensively consider environmental risks and the impact of climate change in your underwriting and investment decisions.
24 To this end, MAS is adopting a multi-pronged approach to ensure this area is adequately supervised, and to help encourage the development of sustainable insurance.
a) Risk identification and assessment:
MAS published an information paper in June 2017 on insurers’ Own Risk and Solvency Assessments, which emphasised that insurers should give greater attention to emerging risks such as environmental risks. As part of our overall supervision, we will engage insurers closely on your assessment of environmental risks and mitigating actions. We are also planning to assess the impact of climate change on significant insurers by including climate-related scenarios as part of this year’s industry wide stress testing exercise.
b) Enhancing disclosure:
We encourage insurers to enhance climate-related risk disclosures by adopting the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
c) Building a sustainable insurance eco-system:
MAS intends to work with insurers to anchor sustainability specialist teams here to undertake sustainability strategy development, risk screenings, environmental underwriting and product development. We are also partnering with research institutes to factor in long-term climate and environmental risks into risk models.
Able Leadership is Key
25 I started the afternoon acknowledging the new GIA leadership team, and so would like to end with the importance of strong risk governance and able leadership.
26 Regulation can promote sound risk management but it alone cannot achieve the desired corporate culture. This must be clearly articulated by the board and senior management, reflected in the corporate values, and practised by employees. MAS is stepping up our engagement this year with insurers to understand how you embed the desired culture and conduct in day-to-day decision-making and operations.
27 2017 has not been smooth sailing for the sector. Such times test the mettle of all involved, especially the leaders. Fortunately, through different periods of challenge, GIA has had able leaders who were committed to uphold the standards of the general insurance industry. Outgoing president Mr Cher is a prime example. In his tenure, he has been at the forefront of numerous key industry initiatives to raise the professional standards of the industry. I would like to take this opportunity to once again thank Mr Cher for his effective and committed leadership of the GIA.
28 Let me conclude. I was once told that ‘the mind is like a parachute, it doesn’t work unless it’s open’. On that note, I encourage the industry to remain vigilant of the risks posed by the current challenging business environment and climate change, and be open-minded to embrace technological change.
29 Thank you. Please enjoy your lunch.
1 Insurance Technology Vision 2017, Accenture
2 Aon Benfield’s 2017 Report on Weather, Climate & Catastrophe Insight
3 From 2005 levels