Ong Chong Tee: Life insurance industry - riding the technology
wave
Address by Mr Ong Chong Tee, Deputy Managing Director (Financial Supervision) of the
Monetary Authority of Singapore, at the LIA Annual Luncheon, Singapore, 7 March 2018.
* * *
Mr Patrick Teow, President of LIA Singapore
Distinguished Guests
Ladies and gentlemen
Thank you for inviting me to join the 2018 LIA Annual Luncheon. Allow me to first congratulate the
new LIA Management Committee.
I last spoke at this event in 2015 on a theme of confidence and resilience of the industry. Last
year, my Assistant Managing Director Lee Boon Ngiap spoke on the importance of strong culture
and ethics as key drivers of good conduct.
Today, I like to build on these themes with the backdrop of the technological wave sweeping our
shores.
For those of you who have visited London and taken its underground trains, you will be familiar
with the rather famous broadcast in the Tube stations repeatedly telling commuters to "mind the
gap".
In an analogous way, as technology innovation and business model disruptions impact various
economic areas including the insurance sector, it is worthwhile to remind ourselves to "mind the
gap" as we ride the technology wave.
Let me elaborate.
My remarks will cover three aspects:
(a) Bridging the protection gap;
(b) Leveraging FinTech (or more specifically, InsurTech); and
(c) Doing more to eliminate 'conduct gaps'.
Protection gap
Many studies have found sizeable insurance protection gaps across countries. This can be
described as the difference between what a family will need to maintain its level of consumption
should a breadwinner, or one of the breadwinners, passes away, versus the amount of financial
resources including life insurance coverage.
1
A Geneva Association report in 2014 estimated that for the US alone, the life protection gap was
a staggering US$20 trillion. In 2012, the LIA estimated the gap in Singapore to be about S$460
2
billion . Patrick mentioned this as one of the priorities for LIA and highlighted that a follow-up
"attitudinal study" will be conducted. I understand that LIA's 2017 Protection Gap Study will be
released later this month. The case for adequate life insurance protection is a strong one. So
why is there such a large protection gap?
Let me highlight a few possible reasons.
(1) One factor is that life insurance involves the rather unpleasant topic of death, a morbid
subject that many avoid.
(2) Another common feedback is that many people find it difficult to properly ascertain their
insurance coverage, given the difficulties in projecting long-term financial needs.
(3) Yet another perception is that life insurance policies are both expensive and complex.
There is also a belief that agents would rather sell more lucrative investment-linked policies
compared to term life policies.
3
Swiss Re reported that in Asia :
(a) more than half of non-buyers dropped out of insurance purchase after conducting initial
research or after making their first enquiry; and
(b) another one-third dropped out after receiving specific pricing and product details.
(4) There is also the view that insurance processes and services, say medical underwriting
and claims processing, are non-transparent, onerous and time-consuming.
FinTech and InsurTech
This brings me to the potential for FinTech, or more specifically InsurTech, to help reduce the
protection gap. Technology solutions offer exciting possibilities to alleviate many pain-points
associated with the understanding, buying and servicing of life insurance products.
To be sure, the insurance sector has always employed technology tools and is a large user of
data. This is also part of the problem. A recent McKinsey report stated that 90% of insurers
identified complex legacy systems as the key barrier to digitisation. It is only in the more recent
one to two years that InsurTech has been recognised as a change driver.
Let me cite a few examples of transformations.
The move to automation can potentially replace a number of repetitive human processes in the
insurance sector. Robotic process automation (or RPA) will enable quick, automatic and 24/7
gathering and processing of data.
There will be other technologies that both collude and collide with how things are currently done.
Consider the pricing of life insurance premiums. With the increasing insights enabled by
telematics and wearables through the internet-of-things and our smart devices, insurers are not
just getting Big Data but more importantly, Rich Data. In addition, an insurer need not just rely on
fixed data fields in policy application forms. Some have used social media inputs with the
4
customer's consent. A Morgan Stanley and BCG study showed that customers are willing to
share personal data to get cheaper or better coverage. These developments have allowed highly
personalised assessment of risk profiles and hence, customised insurance products and
premiums.
These can also lead to better outcomes for consumers. Take for example, an ex-cancer patient
who has beaten the illness into remission. Normally, this person will find it very difficult to renew
or take on new insurance. Through better health data insights and more sophisticated
underwriting capabilities, new products could be developed to bridge the insurability gap for this
group of consumers. Hence data science will have an even more important place for risk
underwriters and actuaries. Another potential innovation is in the use of blockchain or distributed
ledgers to collect information or health records by linking the insurance provider with the
customer and other intermediaries. These can also be used to minimise fraud risks and the need
for back-and-forth information verifications.
Apps in our smart devices can also change the ongoing relationship between an insurer and the
insured. Purchasing an insurance policy has traditionally resulted in a transactional relationship.
After client on-boarding, the ongoing contact between the insurer and the insured is limited to
premium payment and processing of claims. Many people do not see a need to meet their
insurance agents regularly to review their coverage. Some, I am told, even shun calls from their
agents. New insurance apps can transform the insurer-policyholder relationship into a broader
partnership. The insured person can benefit from various lifestyle information, healthy living tips
and other information, emerging trends, advisories on new products and various service options.
These can include transactional services such as the option to buy additional insurance based
on new needs - all done digitally. Claims can also be an automated self-service process, with
expedited settlement based on digital submissions of proofs. The use of Chatbots can also
support a customer by providing on-demand standard reports or for other procedural or contract
information.
I read that in some countries, new InsurTech players now offer universal all-in-one "plug and use"
insurance cover. They use AI-enabled insurance platforms that allow a person to key in his
details - like his health statistics, occupation, business and personal travels, his car, family,
home and home possessions, pets and so on - and get all the insurance that he needs under
one policy that can be flexibly adjusted across the difference risk coverage over his life cycle.
What this does is to make the customer experience more pleasant and fuss-free.
It should be evident that insurers can and must leverage data and digitisation to strengthen your
value proposition to the customer. As one FinTech firm tells me, the battle is won by whoever
can provide a more delightful customer experience.
At the same time, we should not forget to 'mind the gap', or gaps.
As insurers delve deeper into the realm of smart tools powered by complex algorithms, artificial
intelligence and machine learning, there is also a need to identify and address potential pitfalls of
such capabilities. For instance, one particular concern in deep learning models is that the
"learning" by the machine is a black box, which could lead to biased "data truths". This in turn
may produce decisions or outcomes that are unexplainable, non- transparent or even unfair.
Also, while Big Data enables finer segregation of risk, the concept of insurance is always
premised on risk pooling. A careful balance has to be struck between segmentation versus the
sharing of risk among policyholders, for insurance to retain its long term societal relevance. We
should guard against automatic or blanket financial exclusion or embedded selection bias.
There is also a need to safeguard individuals' right to privacy in the use of personal data.
Therefore, an emerging area of focus for MAS will concern the ethical use of data by financial
institutions. We will look to provide more guidance on the issues of fairness, ethics,
accountability and transparency amidst this technology revolution.
Insurers are custodians of very large data sets, including personal information. We expect all
insurers to have cybersecurity practices and controls that are aligned with our Technology Risk
guidance and requirements. It is equally important for firms to have in place good cyber hygiene
standards, and ensure that such good practices not just feature prominently in your IT systems
and policies, but are also embedded in day-to-day work processes.
More broadly, how will MAS, as a regulator, partner the industry in this transformation journey?
Let me first set out a few principles that guide our approach:
Firstly, MAS is technology-neutral and will not seek to favour one technology over another.
Secondly, we take on a more principles-based approach where the focus is on outcomes -
whether a new business model or adopted technology will threaten financial institutions' safety
and soundness, or the fairness in their dealings with the public.
Thirdly, we believe that regulations should support and not stifle innovation.
Innovations by their inherent nature will move ahead of rules. What we want to guard against
is regulatory arbitrage camouflaged by a supposed innovative business model.
Another consideration is whether a new business model or adopted technology will create
inconsistency and incoherence with our existing rules.
It follows that as a regulator, MAS will need to:
First, keep abreast with technological developments by engaging closely with the
industry to exchange views and garner fresh insights.
Second, assess and adopt our regulatory response based on careful review. For
instance, MAS has set up our regulatory sandbox regime to facilitate testing and
experimentation of cutting edge technology or innovative business models within
defined parameters and duration. Certain sandbox participants benefit from
caseby-case regulatory exemptions following our review. We are exploring the feasibility
and scope for a more nimble and flexible regulatory approach; one that is modular
and risk-appropriate or even an activities-based regulatory approach towards certain
innovative business models, as opposed to a strictly entity-based regulatory
framework.
We are also devoting resources in our work on "SupTech" or Supervisory Technology.
MAS has been beefing up our surveillance and analytical capabilities, including the setting up of a
dedicated unit for SupTech within our Data Analytics Group. The aim is to transform our
supervisory and market surveillance work to be more digital and effective, This will also allow
MAS to be more effective in our supervisory engagement with each of your firms. In addition, we
will be employing more advanced techniques such as network analysis, or text and voice
analytics to support our investigation and enforcement actions.
Conduct gaps
Let me now cover my final remarks around conduct gaps.
In an increasingly digital environment and as more Singaporeans become technology savvy,
financial advisers should evolve to provide more holistic wealth and risk management advice.
A successful transition will require maintaining a deep level of consumer trust that
representatives will act in the best interest of their clients.
On the issue of trust, recent episodes of large-scale movement of representatives have cast the
industry in an unfavourable light. Such mass recruitment of representatives by one firm gives rise
to heightened market conduct risks, with respect to aggressive sales tactics and improper
switching.
MAS has worked closely with LIA on measures to address these risks and we will be issuing a
public consultation soon to promote responsible recruitment practices in the financial advisory
industry. Meanwhile, LIA members have agreed that they, as well as their Financial Advisory (FA)
subsidiaries will go ahead to adopt a number of these measures. This is a positive step.
Briefly, these measures include:
(a) Capping a representative's sales targets and sign-on incentives in the first year after the
representative joins the new FA firm. This reduces the pressure on representatives to engage in
aggressive sales tactics to meet inflated sales targets;
(b) Spreading sign-on incentives over a minimum period of 6 years, to create longer- term
alignment between the representative and his new FA firm. This will foster better quality
aftersales services to customers;
(c) Reducing the entitlement to sign-on incentives if the persistency of the policies serviced by
the representative at his previous firm falls below industry norms, to deter improper switching;
and
(d) Requiring the FA firm to undertake enhanced monitoring of its representative's sales
transactions to verify that the sales and advisory process has been properly conducted, which
will include customer call-backs conducted by an independent external party.
Within the industry, revenues and growth must be driven by strong value propositions to your
customers and not by sheer aggressive recruitment and sales tactics.
More fundamentally, an insurance company's long-term success must be built upon a strong risk
culture and good corporate governance. An emphasis on ethical behaviour must permeate
dayto-day practices. Boards and Management should set the appropriate tone from the top, and
demonstrate a collective determination to walk that talk. Recognition and reward systems should
match the espoused values of the firm.
Conclusion
Let me conclude. The insurance sector will not be immune to the innovations and disruptions
around us. At the World Economic Forum, present times have been described as the Fourth
Industrial Revolution. This will bring both opportunities and challenges. I have described some of
these in my remarks.
I know that all your firms are putting in place IT and business strategies to ride the technology
wave including those aimed at up-skilling your people. In progressing, we must be reminded that
insurance is a social good and not a mere financial or economic activity. Apart from the
imperative for doing well, it is important for the industry to be guided by a moral compass pointing
firmly to doing right and doing good.
May I wish one and all a belated Happy New Year of the Dog.
1
The Global Insurance Protection Gap, The Geneva Association, 2014
2
2012 Protection Gap Study - Singapore, Life Insurance Association of Singapore, 2012
3
Spotlight on Distribution in Asia, Swiss Re - LIMRA, 2015
4
Insurance and Technology: Evolution and Revolution in a Digital World, Morgan Stanley and BCG, 2014