Life Insurance Industry Reports Growth of 152% in the First Quarter of 2001

CPF Funds Provide Mainstay for Growth
Singapore, 10 May 2001

In the first quarter of this year, total new business premiums (weighted*) jumped significantly by 152% to $422 million, up from $167 million in the first quarter of last year. The increase was primarily due to the liberalization of the use of CPF members' Ordinary and Special Accounts since the beginning of this year.

Actual New Business Sales

Single Premium

A record of $3,395 million of new business single premium sales was registered for the first quarter of 2001 - almost a five-fold increase over last year's corresponding figure of $616 million. About 49% of these premiums went into investment-linked insurance products while 51% went into non-linked products. The bulk of the new business sales, about 79%, were from CPF members' accounts - $1,232 million from their Ordinary Accounts and $1,443 million from their Special Accounts.

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

Said Mr Tan Beng Lee, President of the Life Insurance Association (LIA), "This record growth in single premium sales is not unexpected by the insurance industry. The Government's new initiative to further liberalize the use of CPF funds for various investment purposes will release a potential pool of $64 billion. CPF members are now able to use all their funds in their Ordinary Accounts, including the Minimum Sum, as well as their Special Accounts, to invest in various financial and insurance-related products. We expect the growth to continue in the next few years, although at a reduced pace compared to the first quarter results, as the public becomes more aware of the need to plan for future requirements and their children's education as well as for their own retirement."

Annual Premium

New annual premium sales dropped by 15% from $94 million in the first quarter of 2000 to $80 million this quarter, while new limited premium sales (less than 10 years) dropped by 85%, from $46 million last year to $7 million this year. This is due mainly to the fact that CPF funds can no longer be used for annual insurance premiums.

Increased Transparency and Professionalism Have Helped the Industry

Mr Tan added, "The implementation of the recommendations by the Committee on Efficient Distribution of Life Insurance (CEDLI) has improved the transparency and efficiency in the distribution of life insurance products. With improved information flow, there has been a greater market discipline in the advisory and delivery processes of insurance products to the public. The use of the fact find form has been fully accepted by insurance agents who are able now to give enhanced advisory services. Customers also more readily welcome these higher professional standards of fact finding and needs analysis."

Of the total number of applications in the first quarter of this year, the bulk (ie 81%) are submitted with Product Advice or Partial Advice. Those with Full Advice accounted for 11%. Applications where clients are comfortable with and knowledgeable about what they wish to purchase and hence have declined any advice, accounted for 8% of the total applications. Mr Tan said, "LIA is pleased with the smooth implementation of this requirement."

Distribution Channels

In terms of the new business written, the bulk of the business continued to come from the traditional channel, i.e. tied agents. Agency force brought in nearly 88% of all new individual business sales. All agents have in this quarter undergone increased hours of training and competency requirements.

Bancassurance continues to be an increasingly important distribution channel. It was responsible for 10% of new business sales, while brokers handled the remaining 2%. Banks in Singapore will continue to work with insurance companies to offer convenient and easy-to-understand products through their banking network. The penetration by bancassurance is expected to increase in the coming years.

Disclosure of Distribution Costs

As recommended by CEDLI, the public will soon be able to have more information on the total distribution costs of their insurance products, including agents' commission, bonuses, and other costs of services, with effect from 1 July 2001. This disclosure requirement will apply to life insurance policies sold through all channels, including agents, brokers, bancassurance distributors and other intermediaries. Mr Tan said that he is pleased that Singapore has raised the level of disclosure to one that is on par with some of the best practices worldwide. He added that the LIA sub-committee is finalizing the forms and details for this new disclosure standard. Details of these new disclosure requirements will be announced in the later part of June.

New LIA President and Deputy President

Mr Tan Beng Lee, Director and Chief Executive Officer of Great Eastern Life Assurance Co Ltd, is the President of the LIA with effect from 20 April 2001. Mr Raymond Kwok, Mananging Director of UOB Life Assurance Ltd is the Deputy President of the LIA with effect from 5 Sept 2001.

In Summary

Actual New Business Sales

  1st Qtr 2001 1st Qtr 2000 Change
Single Premiums $3,395 million $616 million 451%
Annual Premiums $80 million $94 million -15%
Limited Period Premiums $7 million $46 million -85%
Total Premium $3,482 million $756 million 361%
Total Premium (Weighted) $422 million $167 million 152%

For more information, please contact:

Mrs Pauline Lim
Executive Secretary, Life Insurance Association