Insurers should hone their skills in these new areas and take advantage of emerging opportunities. One important opportunity is in health insurance, especially financing the health care needs of the aged. This is a challenge that is facing governments around the world. It is no different in Singapore where the population is aging rapidly. Health insurance can play a greater role in financing old age medical care than it now does. MAS plans to introduce in 2003, a regulatory framework for this specialized area of insurance. We will be seeking feedback from local industry on this. The government recently announced the launch of Eldershield, a national long-term care insurance scheme to be underwritten by private insurance companies. Eldershield provides a basic level of benefits, which many Singaporeans will wish to supplement. This will create opportunities for insurers to structure and market appropriate Long-Term Care policies. Credit insurance and political risk insurance are two other promising areas. Globalisation and lower barriers to cross-border trade will spur continued internationalization of trade and support strong demand for credit and political risk insurance. Being located in Asia, a region that has traditionally witnessed strong trade flows, Singapore is wellplaced to develop further as a hub for such activity. Several new specialist insurers and brokers have in recent months set up a presence in Singapore, including financial guarantee insurers and trade credit insurers and brokers. Another growing area of business is bancassurance activity. Life insurance products sold through the bancassurance channel now account for 25% of new life insurance business.

All insurance industry professionals need to become more astute at assessing risks, and competency needs to be upgraded at all levels in the company. Regulators must also keep pace. In supervising individual insurers, regulators need to look beyond insurance risks and protecting policy-holders. From a broader systemic perspective, greater engagement of insurers in financial markets raises important questions concerning their impact on financial stability. How well are insurers managing this new portfolio of risks? What are the spillover effects of an insurance company failure in this environment of inter-linkages? Traditionally, regulators associate systemic risk with the failure of large banks. The events of Sep 11 have turned the spotlight onto the importance of the insurance industry as a whole, and even of individual insurance players. A number of recent failures and near failures of insurance companies have revealed just how wide an economic impact insurers have. The high-profile collapse of a few major insurers such as HIH and Independent, left businesses without essential insurance cover, and critical services without professional indemnity coverage. Economic activity in these sectors might have ground to a halt, had the government not stepped in. But by stepping in, the governments created a new source of moral hazard. These issues have been extensively debated. The IMF has concluded that the insurance industry, while not systemically critical, has taken up a definite systemic relevance. We need to understand better the nature of insurance companies' financial activities and their possible impact on global financial stability.