Innovation shakeup hits Singapore's life insurance industry

The industry is grappling with increasing healthcare costs and outdated regulation.

When FWD launched a fully direct and digital approach to life insurance in Singapore, it was a response to the gaping hole it saw in the traditionalagency model predominant in the island. Disruption is rising as a strategy amongst insurance players as Singaporeans become more connected and mobile, and become better equipped to purchase insurance products online and directly from providers.

Financial technology firms are also cranking out new tools and business models to improve online insurance products, although the government is rolling out regulation to make sure consumers are better protected as the industry continues to post steady growth. The boom in life insurance also comes with worries over escalating health insurance claims.

“We see a general trend that in more developed markets, there is an increasing appetite amongst consumers to purchase directly, and we are therefore reflecting that in Singapore,” says Abhishek Bhatia, CEO at FWD Insurance Singapore. “With the increased connectivity and mobility that Singaporeans have, combined with their growing preference for online commerce, it seemed like a natural decision for us to choose a direct-to-consumer model.”

Bhatia cited a recent FWD research that the insurance industry lags the banking, travel, and retail industries in terms of adapting to the digital world, with only 52% of 600 Singaporeans surveyed thinking that insurance is well adapted compared to banking (100%), travel (92%), and retail (77%).

“The local insurance market is predominantly made up of players with traditional agency channel. Whilst this model might have worked for them, we studied local market trends and identified opportunities we felt we could address better,” says Bhatia of their decision to go with a digital and direct-to-consumer approach.

“Singapore is one of the most digitally and mobile connected countries in the world, and we know Singaporeans will continue to appreciate the choice of being able to buy what they need online,” he adds.

FWD is planning to invest S$500m to grow its presence in Singapore over the next five years and introduce other insurance policies that reflect the needs of modern Singapore, which Bhatia says will be defined by a growing middle class that increasingly understands the value of insurance and financial technology (fintech) firms. “Fintech has helped to drive innovation and digital transformation in the insurance industry,” says Bhatia.

“The fintech story in recent years has concentrated on leveraging new technologies and disruptive business models to enable the development of new products and services for previously underserved markets. The same dynamics have been driving change in the insurance industry.”

Direct purchase insurance
The concept of directly buying insurance has been gaining steam since April last year when the Monetary Authority of Singapore (MAS) also introduced the direct purchase insurance (DPI), a class of simple life insurance products sold by companies without commissions andfinancial advice. “The introduction of DPI by the MAS is an excellent initiative, offering simple, effective, easy to understand products that are perfect for most Singaporeans, especially those purchasing life cover for the first time,” says Bhatia.

MAS, in collaboration with insurance industry and consumer groups, also launched the compareFIRST web service (www.comparefirst.sg) which lets Singaporeans compare various life insurance products, including premiums and benefits, to make a better decision before their purchase.

Despite the positive developments to enable Singaporeans to purchase insurance products online and direct from providers, many still find the process difficult and daunting. “While the DPI product is simple, the application process is not which has put many people off,” says Bhatia.

DPI and the move towards online insurance products is part of a larger trend of virtual healthcare, especially in Asia where both life insurance demand and technology use are firmly growing. “The increase in virtual healthcare is another interesting trend, with increasing demand for digital technology to deliver healthcare at the click of a button,” says Derek Goldberg, managing director, Southeast Asia at Aetna International.

“This is of particular interest for Singapore and other Asian markets, due to the availability and extensive use of technology across the region,as well as the need to meet the challenges of access to care for a rapidly developing and demanding population.”

The life insurance industry in Singapore continues to report steady growth with an 8% increase in total weighted new business premiums for year-to-date third quarter 2016 (YTD 3Q16) compared with the same period in 2015, according to the Life Insurance Association Singapore (LIA Singapore).

Total weighted new business premiums amounted to S$2,33m for the first three quarters of the year. In the YTD 3Q16, the industry also recorded an 11% increase to S$730.8m in weighted single premiums, with more than threefourths (78%) comprising of single premium par and non-par products, while less than one-fourth (22%) were single premium linked products. YTD 3Q16 also saw a 6% increase to S$1,600.1m in weighted annual premium.

Approximately 10,000 more Singapore residents obtained additional health insurance coverage, mostly through Integrated Shield Plans (IP) and/or riders, andapproximately one in two individuals  in Singapore (2.87m lives) are covered by health insurance with total premiums amounting to S$1,367m,as at 30 September 2016. 

“The continuing increase in the number of lives covered by IPs and IP riders show Singapore residents’ growing appreciation of the necessity for health insurance and the choice of additional benefits provided by IP plans and IP riders,” says Dr Khoo Kah Siang, president of LIA Singapore.

Skyrocketing healthcare costs
With life insurance coverage climbing in Singapore and a barrage of disruptions that are changing how the industry operates, the challenges of skyrocketing healthcare costs and regulatory changes loom over the near-term horizon.

“In as much as life insurers need to play their part, unless collective and specific efforts are made by all the different parties, Singapore will notbe able to effectively tackle escalating healthcare costs that are beyond the usual incremental increase, and therefore escalating health insurance claims,” says Khoo.

The industry-led Health Insurance Task Force has forwarded some key recommendations to reduce healthcare costs while maintaining the quality of care like including the publication of medical fee benchmark. It has also been proposed to include pre-authorisation to provide clarity to the policyholderpatient on the level of coverage they have for treatments before they proceed with any medical procedures.

“The purpose of these recommendations is to curb overtreatment and/or over-consumption which, in turn, are expected to mitigate the inflation of healthcare claims,” says Khoo.

Goldberg argues that the rising cost of claims and over-utilisation of medical treatment are one of the significant challenges for health insurers in the region at present. “Coupled with the increased emphasis that regulators are placing on market stability and integrity, insurers will need to look to innovative solutions to build a sustainable future,” he says.

Goldberg cites the MAS making significant enhancements to its insurance regulatory framework, leading to proposed amendments to the Insurance Act of 2012. Meanwhile, Bhatia reckons the regulatory framework in Singapore is very robust, but he points out that some of the regulations need to be  amended to accommodate the wave of disruption sweeping the industry.

“Current industry guidelines were framed for a face-to-face business model and might not be fully appropriate for an online or direct distribution model,” says Bhatia.