As a key money center in Asia, Singapore’s financial services sector is continuously transforming and evolving. In the insurance space, we see the liberalization of the industry in the 1990s, to regulatory reforms such as the introduction of the Financial Advisers Act (FAA) in 2002 and the rise of fintech in recent years.
The insurance industry has also seen its fair share of developments in 2017. In the last series of our 2017 newsletter, we look at some of the key highlights in year 2017 for Singapore’s insurance industry and regulations, and what to expect in the coming year.
Technology and innovation
The second edition of Singapore’s FinTech Festival ended on 17 November 2017. The weeklong event is the largest fintech festival globally and saw more than 30,000 participants from over 100 countries. The government’s effort in establishing Singapore as a Smart Financial Center and a transformational fintech hub is clear, and technology and innovation will very likely remain a central theme in the year ahead.
The insurance industry should continue to see its transformation in the way business is conducted, products are delivered and consumers are served through technology and innovation. We have seen a few established examples and many in the pipeline.
Many established insurers in Singapore are already offering online purchase for life insurance products. Fully digital life insurers have also emerged in the past two years. One such example is Singapore Life, which obtained its license from the MAS this year and commenced operations in mid-2017 to offer life insurance products on its digital platform.
Singapore’s first FinTech Sandbox graduate (Policypal), which commenced operations under a full license in August 2017, offers insurance brokerage, advisory and management services to consumers though its mobile digital platform channel.
Digital platforms aside, artificial intelligence is used to improve productivity and customer service. For example, Prudential launched its industry-first chatbot that provides insurance agents with customer’s real-time data, which enables intermediaries to respond to their customers faster.
At the back end, technology also enables businesses to operate more efficiently. We already see this in the earlier use of cloud computing for efficient data storage and access. Insurers are now exploring the use of artificial intelligence and blockchain technology to automatically trigger and settle claims, and prevent duplicate of insurance claims, which will reduce the time required for claims settlement and minimize errors in the process.
Lastly, big data analytics has a huge potential in the insurance space as it enables the collection of relevant information from consumers (for example, medical history, lifestyle and dietary habits), which could result in better quantification of risks and pricing and potentially making insurance products cheaper for consumers. Data analytics also allow insurers to deliver more customized and innovative products and services to consumers.
In this regard, MAS has recently announced that it is launching a SGD 27 million Artificial Intelligence & Data Analytics Grant, which form part of the SGD 225 million Financial Sector Technology & Innovation Scheme. The new grant will support the adoption and integration of artificial intelligence and data analytics in financial institutions.
Cybersecurity and risk management
New innovation comes with new risks. MAS has repeatedly emphasized cybersecurity as a real threat with the increased utilization of technology.
In this regard, Singapore has introduced the long-awaited draft Cybersecurity Bill in July 2017. The draft bill seeks to provide and maintain an overarching framework for national cybersecurity as well as ensure that critical information infrastructure (CII) is protected against such threats. Going forward, CII owners are required to secure their infrastructure and report incidents. The Cyber Security Agency will also be empowered to manage cyber incidents and raise the standards of cybersecurity vendors in Singapore. The Bill is expected to be tabled in Parliament in 2018.
To build up global cybercapacity, the Financial Services Information Sharing and Analysis Centre (FS-ISAC) launched the Asia Pacific Regional Information & Analysis Centre in Singapore this year. The FS-ISAC is a global intelligence-gathering and sharing initiative for the financial sector, with over 7000 members worldwide. The new center in Singapore will facilitate the sharing of cyber threat information in a timely manner, and enable a rapid and coordinated response to emerging threats.
MAS has also announced that it will be reviewing its Technology Risk Management Guidelines. MAS has reviewed the guidelines in recent years. However, this time around, it appears that the review will be industry focused. For a start, MAS is partnering with the Association of Banks in Singapore to co-create guidelines to enhance cybersecurity testing. Over time, the review may extend to other industries in the financial sector, including the insurance industry.
Finally, regulatory framework needs to stay up to date and relevant. One such example is Singapore’s existing data privacy legislation. In July 2017, the Singapore’s Personal Data Protection Commission (PDPC) launched its first-ever public consultation on the review of the Singapore Personal Data Protection Act. On one hand, the PDPC recognizes that with the advent of digital economy and sheer volume of data transactions, it may not be practical or possible for businesses to seek consent at every instance of data collection or use. Therefore, the PDPC proposed to provide for the collection, use or disclosure of personal data without consent, in two situations where it is necessary for a legal or business purposes, and where an individual has been notified of the purposes for the collection, use and disclosure of personal data (subject to certain conditions). On the other hand, the heightened risks and impact of data breaches is real and can be severely damaging. Therefore, the PDPC is proposing to introduce a mandatory breach notification regime, where organizations are required to notify affected individuals and the PDPC of a data breach that poses any risk of impact or harm to the affected individuals. This would include data breach involving personal data such as identification details, health information, financial information or passwords. Data breach involving 500 or more affected individuals would also need to be notified, even if the breach does not pose any risk of impact or harm to any individual.
Supervision and enforcement in the financial advisory industry
Digitization aside, the insurance industry continues to rely on agents, financial advisers and other intermediaries (that is, human capital) to distribute products and provide tailored advice to clients.
In 2012, MAS launched the Financial Advisory Industry Review (FAIR), which was aimed at raising the standards of practice in the financial advisory (FA) industry and improving the efficiency in the distribution of life insurance and investment products in Singapore. Proposals from the review have been implemented in regulations that came into effect as early as 2014. These regulations include raising the minimum criteria and quality of FA firms, requiring FA firms to implement a balanced scorecard (BSC) framework, which takes into account non-sales-related key performance indicators in remunerating FA representatives and supervisors, restricting sales-based commission and short-term product-related incentives and enhanced rules to encourage fair dealing and practices.
Since the implementation of the FAIR proposals, MAS has carried out inspections and audits on FA firms, and have observed a mix of good and undesirable practices. On areas for improvement, MAS has observed that the implementation of the BSC framework can be further enhanced and more efforts can be put into reducing undesirable marketing practices at roadshows and public places.
MAS has indicated that supervisory focus for the FA industry will continue to be a priority for the year ahead. To this end, MAS will be conducting mystery shopping to identify conduct issues and stepping up their efforts to investigate misconduct in the FA industry, such as misrepresentation, misselling and inappropriate advice.
Alternative risk management
Lastly, with the advent of technology and innovation, one must not forget that we live in a world of natural catastrophe.
MAS has observed that in Asia, insurance protection against natural catastrophes has not kept pace with the increased frequency and severity of natural catastrophes hitting the region (for example, from the Indian Ocean Tsunami in 2004, the Tohoku Earthquake and the Thai floods in 2011 to the Super Typhoon Haiyan in 2013).
In an effort to close the gap, one of the strategies rolled out by MAS is to encourage alternative risk transfer mechanisms such as insurance linked securities (ILS) in disaster risk management. As a first step, MAS has created an ILS grant scheme in November 2017. To catalyze the development of Singapore’s ILS market, the MAS will fund 100% of the upfront costs incurred in issuing catastrophe bond out of Singapore. This grant will run from 1 January 2018 and will be applicable to ILS bonds covering all forms of risks beyond just natural catastrophe risks.
The objective of the grant is to encourage insurers and reinsurers to consider issuing catastrophe bond in Singapore.