In a bid to enhance insurance coverage, regulators in Singapore are introducing reforms that will require insurers to sell basic products directly to consumers without charging commissions.
Following a review that focused on ways to enhance financial industry fairness, the Monetary Authority of Singapore (MAS) announced a new regime to require direct sales of certain basic life insurance products. The MAS will require all insurance companies that serve the retail market to offer several products for direct purchase: term life and whole life products with disability coverage, and optional critical illness (CI) coverage. The MAS says that the features of these products will be largely standardized to make them easier for consumers to understand and purchase without advice.
“When direct purchase products are introduced in early 2015, they will provide consumers who do not require advice with cheaper access to selected life insurance products. Consumers will benefit from the greater price competition that will be introduced between the direct and commission-based channels,” said Lee Boon Ngiap, assistant managing director for capital markets at the MAS.
The regulator also set a $400,000 coverage maximum for direct purchase products (Singaporean dollars), with a $200,000 sub-limit for whole life products, on a ‘per person per insurer’ basis.
Fitch Ratings says that the move to launch a commission-free life insurance sales regime will be credit positive for the life insurance sector in Singapore. “The decision is likely to boost the overall penetration rate of the life sector while also prompting a re-evaluation of strategies on distribution channels, which may enhance productivity,” it says.
“The new regulation will increase the accessibility of life insurance to low- and middle-income segments by eliminating commission costs and reducing the price of direct-sale products. This in turn should boost the overall penetration rate of the life sector in Singapore, which trails that of other high-income Asian economies,” the rating agency says.
Fitch says that it expects competition in the new direct segment to be intense, given that all insurers will be required to sell commission-free products. “As such, there could be an impact on profitability associated with a drop in premium rates,” it says. “The potential impact on profitability will vary from company to company, and is likely to depend on the extent to which individual insurers choose to target a build-out of market share in the new direct sales segment.”
Beyond the positive headline revenue impact, the new direct-sales channel will likely also prompt insurers to review their distribution channel strategies, Fitch adds. “This may prompt companies to refocus their clientele base and shift the agent-channel toward more complex products and larger assured sums – and away from segments which are likely to only utilise the commission-free products,” it says.