In many ways Singapore is similar to Hong Kong in the life insurance market. It too hosts a significant regional financial center and growth in its domestic market is driven by an expansion of wealth management and bancassurance.
The differences lie in the extent to which the government views Singapore insurance as an important national industry and actively supports it, compared to the more laissez-faire stance taken by Hong Kong regulators. For example, the insurance cooperative NTUC Income has strong ties with the government. In the 1980s, the government tried to adopt a closed-door policy in order to prevent "unhealthy" competition, favoring local players over foreign ones. However, the plan backfired; the policy only reduced the competitiveness of the market and benefitted the foreign insurers who were grandfathered in and able to leverage their know-how from other markets to beat the local players. Meanwhile, industry growth was stunted, as there was little motivation for players to develop new products and channels. Foreign-owned insurers ended up holding more than half the market share in both the life and general insurance business.
In 2000, the government reopened the industry to foreign ownership, with its new policy of developing Singapore as an insurance hub for the region. Incentives such as rent and training subsidies were established to attract foreign firms, and the Monetary Authority of Singapore (MAS) has confirmed that it intends to support training initiatives to build the talent pool. The impact of this policy, is so far unclear. Singapore faces a very formidable competitor in Hong Kong which is at a much more advanced stage of serving as a regional center. At present, the number of life and general insurers in Hong Kong still far outnumbers those in Singapore. In 2007, Singapore had 55 direct insurers, as opposed to Hong Kong's 178.
Besides its indirect involvement in NTUC Income, the government has played a central role in promoting insurance ownership. The Central Provident Fund (CPF), started in 1955, is a mandatory savings plan and social security scheme that helps working Singaporeans save for retirement, home ownership, healthcare expenses, life insurance, and wealth management. From 1997, citizens were allowed to put a portion of their CPF funds in specified unit trusts, insurance policies, and certain types of securities. The net effect of this was that insurance premiums increased as CPF funds could be used to pay for insurance premiums (as well as investment in certain approved products). Insurance Market In Singapore
The government has clearly signalled its continued support for the CPF scheme, which is a major driver of insurance premiums in Singapore. Approximately 64 percent of 2007 new business premiums were subscribed to CPF accounts. There was a premium surge in 2001 when the government allowed investment in "special CPF accounts." This resulted in a leap of first-year premiums from US$6.5 billion in 2000 to US$10.4 billion in 2001, an increase of US$3.8 billion. The government has also focused on public education. For example, the MAS hosts the MoneySense program, which includes a Web site, brochures, workshop, and even a game show to educate the public on financial matters.
In terms of the competitive landscape, similar to Hong Kong, the Singapore market is also highly mature. Although entry to the Singaporean market is open to any company, final approval of the central bank is required, and regulations frequently favor established players. Consequently, the top three players - AIA, Great Eastern, and Prudential(UK) - accounted for 60 percent of gross individual premium in 2007 and the top players have been in the market for an average of 71 years.
The Singaporean insurance market grew at a compound annual growth rate of 8 percent during 2002-07, driven by strong fundamentals. Government incentives and moderate penetration indicate that the Singapore market represents an attractive growth opportunity going forward. With life insurance premium accounting for 7.5 percent of GDR and a per capita life insurance premium of US$2,889 in 2007, Singapore has potential for further penetration. The population is projected to grow at 1.4 percent per annum from 2007 to 2012, mainly as a result of government-encouraged immigration. Real GDP growth is in line with that of other Asian Tigers; the economy is expected to expand by an average of 4.8 percent during this period.
In addition, insurance has been a beneficiary of the flow of capital to Singapore. The development of Singapore as a regional financial center has attracted significant flows of capital from across Southeast Asia and even from as far as India. Insurance is not the only financial services industry to benefit from these capital flows - the asset-management and private banking markets have grown at extraordinary rates of over 20 percent in the past few years.
The Future: Solid Growth with Increasing Professionalization and Sophistication
These four markets will remain some of the most important profit-generating markets in Asia in the short term, despite the vast attention paid to the rapidly growing markets of China and India. For many of the panAsia foreign players, these are some of the most important markets that fall in the "sweet spot" markets that have the necessary scale to generate meaningful profit numbers without significant regulatory restrictions.
The nature of the growth opportunity, going forward, will be quite different. Growth in the upcoming years will be in more sophisticated products through more professional channels. Most players are vying to launch newer, more competitive products to lure consumers - such as accident and health riders, interest-sensitive annuities, and more open-architecture type, investment-linked products. There is no turning back for these trends.
Investment-linked products will continue to be important, even though their popularity may be tested during down markets. For example, South Koreans today view investment-linked products as an alternative to mutual funds and often trade them as such. In Taiwan, investment-linked life insurance, first approved by the government in 2000, expanded to account for 36.8 percent of all premiums by 2007. Insurance Market In Singapore
The agents in these markets will also continue their path towards becoming professional financial advisors. This is most evident in Hong Kong and Singapore where there has been an ongoing trend towards professionalization through a financial advisory approach rather than product-pushing. Of course, this will take time as agents change their behavior - in fact, it is likely that the older generation of product-pushing agents will never be able to transform fully into financial advisors. But with a consistent churn in agents and an across-the-industry focus on quality, professionalization will happen sooner rather than later. While South Korea and Taiwan are a few years behind Hong Kong and Singapore in this development, the rapid displacement of the housewives sales force by the younger investment advisors is already underway.
Industry predictions of the demise of the agent channel are exaggerated. The life insurance agency force is still a unique channel in product distribution, where the sale takes place at the customer's home. As long as the agency force keeps up with the times, this lifeline of most of the large life insurers will remain intact. This not to say that innovation in other channels is not important. Some of these channel experiments in South Korea, as discussed earlier, indicate how such a strategy can lead to very promising penetration in certain segments.
Lastly, it is important to note the differences as well as similarities in these markets; the themes for each of these four markets are actually quite different.
- In South Korea, the ongoing theme will pit the foreign players and smaller attackers against the local incumbents. For the time being, the attackers are continuing to make inroads into the market share of the local incumbents.
- In Taiwan, a more homogeneous market of local incumbents and foreign players has led to stabilized competitive dynamics, but the challenge remains in overcoming legacy issues such as high guaranteed policies, navigating the difficult investment environment, and ongoing professionalization of the agent channel.
- In Hong Kong, the ongoing journey towards a much more financial advisory approach has begun, and this market, in many ways, serves as the harbinger of what is to come for the rest of Asia.
- In Singapore, the development of the city-state as a regional financial hub and government support have largely influenced, and will continue to support, the growth of the industry.
