New Business Premiums in Life Industry Dropped by 38% in First Quarter of 2002

Singapore, 06 May 2002

Total new business premiums (weighted*) for the first quarter of 2002 registered a drop of 38% to $260 million, when compared with the first quarter of 2001. On a quarter-on-quarter basis, there was a small growth of 3% compared with the preceding quarter with $252 million.

New Business Sales in Absolute Terms

In absolute terms, total premiums totalled $1,774 million, a drop of almost 50% from $3,481 million in the first quarter last year. Annual and Limited Premiums increased by 13% from $87 million to $98 million. As a percentage of the total premium sales, Annual and Limited Premiums increased from 2% to 6%. Non-linked products increased from 52% to 59%, at the expense of Linked products.

For this year, some $886 million of Single Premium sales came from the non-CPF sector, an increase of 23% over the $720 million a year ago when the CPF rules were liberalised. These non-CPF sales showed a substantial increase from 21% to 53% in terms of their proportion of total Single Premium sales.

The growth is new business sales in Annuities has been good. The increase over the first quarter a year ago was nearly 77%. Mr Tan Beng Lee, President of the LIA said, "The growth reflects the increasing awareness among Singaporeans to have regular cash income in their retirement years. It is also an indication of the rising number of post-war "baby-boomers" who are now reaching retirement age."

Distribution Channels

Although the bulk of new business continued to come from the traditional tied agency which was responsible for about 72% of the new business, bancassurance is rapidly gaining a foothold in the life insurance industry. Its share grew from 10% a year ago to 26%. Mr Tan said, "This augers well for the industry, especially as banks have a huge cache of bank deposits which can be tapped."

Implementation of CEDLI Recommendations

In the first quarter of 2002, the limits on the agency commission and cost have been removed wef 1 Jan 2002, with little impact on the industry. With effect from 1 March 2002, all new advisers are required to pass their Health Insurance exams before they are allowed to sell Health Insurance and Critical Illness products.

Increased Professionalism in the Industry

In the first quarter of this year, about 15% of the total number of applications were submitted with Full Advice in the Fact Find forms, an increase over the 11% a year ago. Partial or Product Advice accounted for 80% of the applications, while those where the clients have declined any advice accounted for only 5%. Mr Tan said, " LIA is pleased with the increase in the Full Advice applications. LIA plans to undertake a survey of policyholders to ascertain how and to what degree the increased transparency in information and the needs-based selling have impacted them. The results will help us refine the practices so as to better achieve the objectives of the CEDLI recommendations."

Challenges for the Year

Mr Tan said, "The year will see a slower growth in the life industry, compared with the extra-ordinary year in 2001. However, it will still be positive when compared with the preceding year. The industry is expected to see further changes with the eventual implementation of the Financial Advisers Act, which will see a level playing field among all financial institutions and advisers in Singapore. For example, all financial institutions will have to undertake a Fact-Find analysis among their clients before selling financial products. We can also expect more tie-ups and alliances among financial institutions in the area of products and distribution. Insurers, for instance, will be permitted to sell non-insurance financial products such as unit trusts."

In Summary

Summary of Statistics: 1st Quarter 2002 vs 1st Quarter 2001

Actual New Business Sales 1st Qtr 2002 1st Qtr 2001 Change
Single Premiums $1,675.9 million $3,394.6 million -51%
Annual Premiums $88.6 million $79.9 million 11%
Limited Period Premiums $9.8 million $7.0 million 40%
Total Premium $1,774.3 million $3,481.5 million -49%
Total Premium (Weighted) $260.1 million $421.6 million -38%

*   The weighted new business premium figure is calculated as follows:
    10% SPI + 100% API with adjustment for premium payment terms of less than 10 years.