Current Economy Takes Its Toll On Life Insurance Industry

The life insurance industry felt the impact of the current global economic recession with a 56 per cent quarter-on-quarter drop in sales for the first quarter in 2009. On a weighted basis*, it recorded $220 million of new business premiums.

The decline was most significant for single premium sales, which plunged 77 per cent from $2.76 billion in the corresponding quarter last year to $644 million this quarter. According to the Life Insurance Association (LIA), single premium products are sensitive to the market sentiments. Given the extremely difficult market conditions the industry is facing, the performance came as no surprise.

Regular premium sales were also affected, but to a lesser extent. Sales totaled $174 million, representing a drop of 27 per cent compared to the same period last year.

The CPF Investment Scheme (CPFIS) sector accounted for a small 17 per cent ($107 million) of total single premium sales.

The proportion of sales for non-linked products, popular with consumers, reached 78 per cent, up by 42 percentage points compared with the corresponding period in 2008.

Distribution Channels

The tied agency channel contributed to the bulk of new business, with tied representatives being responsible for 59 per cent of new weighted business sales for the first quarter of 2009.

The share of new business sold through the bank distribution channel accounted for 25 per cent of sales. Licensed Financial Advisers contributed 11 per cent whilst other channels, including direct sales, accounted for the remaining 5 per cent.

Claims Payout

The industry paid out a total of $1.31 billion to policyholders or beneficiaries in the first quarter of 2009. Of this figure, $92 million was in respect of death, critical illness or disability claims whilst the remaining $1.22 billion was on policies that matured. The average claims payout under the death benefit worked out to approximately $43,793 per policy.

Average Sum Insured

In the first quarter of 2009, the average sum insured worked out to approximately $38,684 for single premium and $41,638 for regular premium policies.

Fact-Find Experience

Sixty-one per cent of life insurance applications were received on the basis of a full fact-find or partial fact-find. The experience has been similar for the last five quarters.

Assets**

As at the fourth quarter of 2008, the life insurance industry was managing assets amounting to approximately $92.1 billion, a drop of 15 per cent compared with a year ago. Non-linked business accounted for assets of $74.8 billion, whilst the remaining $17.3 billion represented the funds held for investment-linked policies.

Manpower In The Industry

As at 31 March 2009, member companies of the LIA employed 5,107 office staff and thirteen thousand three hundred and twenty-four (13,324) representatives had exclusive agency contracts with companies that used this channel. A highlight for the industry is that both employee and agent numbers have been growing steadily over the past couple of years.

Outlook For 2009

Mr Darren Thomson, the President of LIA said that sales will continue to be affected by the current economic downturn. “Faced with a depressed job market, continued financial market volatility and uncertainty as to when a sustained global recovery will take place, we believe consumers are likely to continue to hold off any decisions to buy life insurance.”

“Nonetheless, we wish to assure consumers that all life insurers in Singapore are maintaining strong capital positions, with many holding a safety margin that exceeds the minimum threshold stipulated by the Monetary Authority of Singapore. As such, the industry is well placed to weather the economic storm and we are confident that business will bounce back once there is sight of recovery in the global financial markets and system,” said Mr Thomson.

Noting the higher forfeitures and surrenders, Mr Thomson urged Singaporeans to take advantage of the many options that life insurers have introduced to enable their customers to keep their policies in force. “Protection is of paramount importance and all the more so when income streams are at risk of being disrupted. Singaporeans should understand this and decide in these tough times not to surrender policies or even defer purchasing a policy for one’s protection needs. There are various ways to keep policies in force, which policyholders should take advantage of.”

“We urge policyholders to seek advice from their insurance representatives or their insurance companies before taking any action to surrender their policies.”

In Summary

New Business Sales

Note: DPS business is excluded

*   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.

**  Source: MAS