The insurance industry must “take up the
challenge” to narrow the shortfall in protection coverage for
Singaporeans, according to Ravi Menon, managing director of the
Monetary Authority of Singapore (MAS).
Some progress has been made in recent years.
For example, insurance as a percentage of the total assets of
Singaporeans has nearly doubled from about 4% in 2000 to 7% in
2011, said Menon.
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Nevertheless, Menon believes
substantial progress remains to be achieved.
He highlighted a 2009 study by the Nanyang
Technological University that found that the existing life cover of
the average Singaporean is only about a third of what his
dependants will need in the event of his early death.
Menon noted: “Saving for the future, investing
for returns, and protecting against risk – these are the
fundamentals of managing our finances. Yet so few of us do it
well. We are far better at earning an income than investing
it and protecting against risk.”
Complex to understand
To make matters worse, Menon added that many life insurance and
investment products are often not easy to understand.
“Many people are not financially
savvy. And many of those who are do not have the time to review the
range of insurance and investment products available. Financial
advisers can help people identify their insurance and financial
planning needs and recommend suitable products,” he said.
Menon said financial planning has to go beyond advising on
investment products to evaluating the life cycle needs of an
individual, including for retirement.
Ravi Menon, MAS
As a result, he explained that MAS is
launching the Financial Advisory Industry Review (FAIR). As part of
FAIR, MAS will review the minimum level of qualifications expected
of financial advisory representatives.
It will examine whether the commission
structure works as an incentive for IFAs to sell products that pay
them higher commissions, and whether the tier commission structure
provides value for the customer or merely adds costs.
International
trends
Seemingly indicating that commissions
could be on their way out, Menon said: “The UK and Australia are
moving towards a fee-based model. They have, in fact, banned
commission payments from product manufacturers to financial
institutions except in the case of pure-protection products.”
Adding fuel to the anti-commission fire, the preliminary
findings of a mystery shopping
exercise conducted on MAS’ behalf
found that up to one-third of recommendations made by IFAs were
“clearly unsuitable.”
In addition it found that IFAs were
“not upfront in disclosing fees and charges”. FAIR will also review
the scope of financial advisory activities carried out in insurance
brokers. Menon said:
“Some insurance brokers advise on
group term life insurance to complement the suite of general
insurance products offered to their corporate customers. “However,
for some insurance brokers, FA activities and revenue from the
advisory business have eclipsed that of their core insurancebroking
business.”
Also on the FAIR agenda is raising the
competence level of IFAs. MAS will raise the minimum education
level required for and individual to become an IFA and has
introduced new examination modules. IFAs who do not pass these
examinations will be limited to selling only simple products.
Menon called on life insurers to find
innovative ways to lower costs to consumers. “The online channel is
one of the ways in which we can lower distribution costs,” he
said.
“We have seen the use of direct sales
via the internet for the distribution of general insurance products
such as travel insurance and motor insurance. Why not life
insurance?
Online distribution will, continued
Menon, mean that products will have to be simplified.
“Simple term life insurance via the
internet could be a good way to lower cost and make affordable
insurance protection more readily available,” Menon said.
“And simple term life insurance is
sometimes all that a person needs to protect themselves against
risk.”
