Filling insurance gaps

WHEN Tokio Marine Life Insurance Singapore (TMLS) launched its retirement savings plan TM Retirement Life in May, CEO Lance Tay was the first to buy the policy. "I'm a true advocate of it, so I sat [in my office], issuing the contract to myself," he laughs.

The plan ensures guaranteed cash benefits from a selected payout age, payable yearly for as long as the person is alive. It also offers a joint-life basis option, which provides guaranteed cash benefits to the last surviving spouse until death. While Tay admits the plan is not enough for him to retire, it sets a nice guaranteed base upon his retirement. The 51-year-old notes that, with the low interest-rate environment, it is hard for insurers to come up with plans that give high returns. "That's why in Singapore, you don't see annuities except for government-mandated ones because you can't price them," he laments.

Tay took over the helm at TMLS in May and has 27 years' experience in the life-insurance industry. He has held various senior positions in Singapore and the region, including deputy CEO and COO of John Hancock Singapore, chief marketing officer of AIA Singapore and, most recently, head of partnership distribution at TMLS.

The life-insurance company started out as The Asia Life Assurance Society in 1948 and changed its name to TM Asia Life Singapore when Tokio Marine took over. It was renamed TMLS in 2010 to enhance synergy with the group. The company is a subsidiary of Tokio Marine & Nichido Fire Insurance and a member of Tokio Marine Holdings, which has total assets exceeding US$200 billion (S$243.7 billion) and a presence in more than 400 cities globally. It is the only life insurer in Singapore that has honoured all of its bonus payments on all its participating policies since it was established.

While it has been only six months since Tay took charge, TMLS has achieved all its 2012 business targets as at Nov 8. Its new business increased 44% year-to-date over the last year and its market share rose to 3.6% from 2.9% last year. Tay attributes this growth to the foundation that was put in place in the company and the distributing efforts of its business partners.

Not one to rest on his laurels, Tay has already started identifying the challenges and opportunities in the coming year. He observes that the low interest-rate environment is just one of the many challenges the industry faces. Top on the list is regulatory risk. "Singapore is known for its efficiency. Countries take 10 years to change things, but we take one year, so adapting to regulatory changes has always been a challenge for us," he says.

Adapting to regulatory changes

The unveiling of the Financial Advisory Industry Review (FAIR) by the Monetary Authority of Singapore (MAS) on March 26 took the industry by surprise. The main objectives of the review are to enhance the professional standing and competence of financial advisers (FAs) as well as to create­ a more competitive and efficient system for the distribution of life-insurance and investment products. One of the review's key proposals is to put an end to a commission system that may be incentivising FAs to sell customers products they don't really need.

Singapore's insurance companies and large FA firms operate under a multi-tier distribution structure that some industry watchers say has been a key driver of costs. FAs can earn a basic commission of 50% of the policy's annual premium in the first year, and another 40% of the annual premium during the following five years. On top of that, supervisors of FAs earn overriding commissions throughout the first six years. Typically, there is also another tier of overriding commissions paid to the agency managers.

The total overrides during the first six years can amount to 70% of a policy's annual premium. In all, the total commissions and overrides earned by FAs and their supervisors could be as much as 160% of an insurance policy's annual premium. Most major jurisdictions have long moved away from the tiered structure. The UK and Australia, for instance, are moving towards a fee-based model and have banned commission payments from product manufacturers to financial institutions except in the case of pure-protection products.

"FAIR was much scarier to us when it was first announced because there were so many changes — we thought the whole world was going to collapse," Tay says. Of the proposed changes, he highlights that the banning of commissions would have the most significant impact. If the industry operates on a fee basis, that would be quite chaotic, he points out, adding that regulating the tier structure of a sales force would be destructive because it would be hard to implement this change on a large sales force. If it comes to pass, Tay reckons that the industry will have to re-evaluate its compensation and pricing of products to align with best practices. While the FAIR recommendations are not finalised, Tay believes that the final changes may not be that drastic, as the changes will be implemented in phases.

As he sees it, FAIR will have the biggest impact on large agency companies. TMLS distributes its products mainly through banks and independent FAs (IFAs). Currently, 64% of its business comes from IFAs, 24% from banks and 12% from its agency force. Regardless, Tay believes that the industry will be affected by the disclosure requirements.

In addition to FAIR, Tay believes that the industry will be affected by the Risk-Based Capital 2 review, which aims to improve the risk coverage and sensitivity of the current framework for insurers in Singapore. The review will also specify the MAS' supervisory intervention threshold. "The review will affect how we develop our products and how we price them because it involves capital. Hence, product development will be impacted by this new risk-based capital regime," says Tay.

Hiring good people

Despite the potential changes that regulatory requirements may bring, Tay plans to expand TMLS's agency force. This is no easy task as it is very difficult to attract good people to the industry, he says, adding that it takes a lot to train and build up a good professional sales force. Its agency force currently has 100 agents. "It's probably the smallest agency force in town, but the level of productivity this year versus last year increased by 50%," says Tay.

One of the key steps towards the fee-based model proposed by FAIR is ensuring that FAs are well qualified. The MAS will soon review the minimum level of qualifications for FAs. New examination modules have been introduced to ensure that FAs have sufficient knowledge of the wide and complex range of investment and insurance products available in the market. It will also be reviewing the minimum level of qualifications for FAs. The current entry requirement is four GCE "O" level passes. In the UK, the minimum requirement for representatives serving retail customers will be raised to tertiary-level qualification by year-end. This is defined as at least a diploma. In Australia, the level of entry is a diploma equivalent.

Tay believes that raising the minimum qualification will shrink the FA population, but at the same time, the existing cohort may become more productive and professional. He observes that the industry has always had difficulties recruiting quality advisers. "If you look at the total agent population in Singapore, it has been 12,000 to 13,000 for the last five years, and it can't increase," he says. "Companies are trying their best to woo talent with all kinds of schemes, financing, career propositions, but the population remains the same." To expand TMLS's agency force, Tay encourages and motivates his existing agency leaders to bring in more of their friends and colleagues that they think will meet the stringent requirements. He is also exploring the option of bringing in advisers from banks and other insurance companies.

At the same time, Tay is focusing on developing the company's human resource. "I'm spending a lot of time on human-resource issues, including things like employee engagement," he says. One of the first things Tay did when he took over was to appoint a consultant to do an employee engagement survey to spot areas for improvement. He had initially expected low scores, as is usually the case when there is a change in leadership and management because of the uncertainties. However, TMLS ended up with a score of 62%, higher than the industry average of 56%.

Tay says the insurance industry is also limited by Singapore's small population. "Singapore may have a high GDP, high per-capita income, but you are still limited by a population of around five million, and a good two million are expatriates and foreigners." Unlike emerging markets, which will see growth for at least 50 years, Tay notes that in the local insurance industry, life insurance is a relatively mature market and its potential for growth isn't high.

Suitability of products

Despite the market's maturity, Tay notes that Singaporeans are underinsured by about 50%. The typical guideline is to have 10 times of your annual income or salary as death coverage. According to him, Singaporeans are too preoccupied with saving for big-ticket items such as car, property and children's education to think about saving for retirement and death. "Most consumers in Singapore understand the value of insurance, but they may not find it urgent enough for them to take action," he says. This is why he believes that FAIR will have a positive impact on consumers overall. "You will have more professionalism, better-organised firms and a higher level of transparency and fair dealing with customers," he says. This will result in consumers being better educated on allocating their assets according to their immediate and longer-term needs.

As he sees it, buying the full range of term products and investing the rest of one's savings will work in theory and only for a small segment of the population. "What we have to understand is that there are different types of term policies. They can cover you for five, 10, 15 years and some have terms to the age of 99, so it's almost a whole-life term," he says. "The benefit of term policies is that they can be packaged with dread diseases and hospitalisation and medical benefits."

However, in reality, most consumers are not well educated about their investments and lack the discipline to keep track of their money. Most of the time, the money gets spent instead, notes Tay. "This is why traditional endowment products are popular in Asia, where there is a savings culture," he says. Such products are also popular in emerging markets because of their convenience. "If you are hard-nosed and very scientific, you will think factors like convenience do not make sense in your savings and investment plan, but in reality, they are very important because most people lack the knowledge," he adds.

According to Tay, consumers who lack discipline generally favour insurance that is tied to a savings plan as there is a smaller chance of that policy lapsing because of the insurance coverage. For TMLS, its most popular product is a whole-life regular-premium-participating plan called the TM Legacy, which provides insurance protection for a policyholder's entire life. In the event of death or total and permanent disability, the sum assured plus any attaching bonus will be payable in one lump sum. Apart from the TM Legacy, the TM Retirement Life is the fastest-growing product at TMLS. "The retirement plan is very focused. There is very little protection element and it is one of the very few plans in Singapore that you can outlive," Tay says.

When considering one's insurance coverage, Tay points out that there is no one-size-fits-all plan. "Every good adviser will tell you that your needs are different from the next person," he says. This is usually dependent on one's background, location, dependents and family situation. For Tay, his key concerns are health and medical and a comfortable retirement. "I have been in the life insurance business for 27 years and you can imagine that I would certainly have more life insurance than the average person," he says. "I have a small family. There's me, my wife and my 16-year-old son, so we are quite well taken care of." He has life insurance policies with every insurance company that he has worked with.

Next year, Tay will be steering the company towards increasing its protection business by introducing more riders and being more aggressive with its term-insurance products. "I call it the shift to risk by writing more risk premiums," he says. At the same time, he will be strengthening the company's investment-linked business.

In addition, he will be looking at introducing products that cater to the needs of expatriates, such as a medical plan for high-net-worth individuals. While Tay has no concrete plans to target the high-net-worth segment, the company's flagship high-net-worth product TM Legacy VIP, a single-premium whole-life plan for legacy planning, has attracted the attention of high-net-worth insurance brokers such as Charles Monat Associates and Jardine Lloyd Thompson.

This story first appeared in The Edge Singapore weekly edition of Dec 10-16, 2012.


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