Seth’s Blog on Finance

Insurance Industry Statistics Q2 2011

LIA has released its quarterly report on the life insurance industry for the second quarter of 2011. Sales for the industry is once again booming, but does that mean that Singaporeans are becoming more well insured?

Participating products and investment-linked products made up 77% of policies sold. This easily explains why people perceive insurance to cost more than the actual price. Most policies are sold with large portions of the premium going towards wealth accumulation that incidentally does not perform well because of the large upfront charges involved with insurance policies. The lion’s share of the remaining 23% going to non-participating products are probably riders to sweeten the deal to sell expensive policies.

The report also attributes a major factor behind the industry’s growth to the sales of mainly savings-oriented products by banks:

“The first half year’s performance was buoyed by growth in bancassurance, mostly from sales of savings-oriented products. Growth through other channels maintained a healthy 20 per cent,” said Mr Tan Hak Leh, the President of the Life Insurance Association (LIA).

Clearly, the robust sales of supposedly life insurance products does not translate into better coverage for the man on the street as most of their money are actually expended on non-insurance purposes. In fact, if everyone turned towards cost-effective policies offering proper coverage, there will be a report on how sales has taken a downturn.

The growth of bancassurance is also worrying. I suspect that most people, jaded by a lack of choice and proper advice from their tied agents, have turned to banks instead. They will find that the problems of tied agents such as sales quotas, limited solutions and lack of objective advice are entirely present – perhaps worse – in banks.

One good news is that tied agency perpetuated what I thought was a freak result in the last quarter, maintaining a 48% of new sales which is a sharp drop from the previous year. A far cry from their almost complete dominance of the industry less than ten years ago, I think that they are moving towards extinction soon, a natural evolution of the financial services industry as witnessed in the UK and Australia. I believe it will be a very quick demise once their share of the market goes below 40%. The product pushers have nothing to fear though, as I am sure they will find their dubious practices useful even when they hop over to banks or even other financial adviser firms.