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.

However, the task is complex and banking supervision in itself is too important to present solutions under time pressure that will not work in practice. We should therefore take the time it takes to get it right. Financial stability and monetary policy Having reviewed the additional tasks that central banks are asked to take over, a question regards the implications for the practice of monetary policy. I will hence explain in the following how the two responsibilities will complement each other. The crisis has clearly demonstrated how essential financial stability is for the effective conduct of monetary policy. Financial market developments have always been an integral part of our monetary policy considerations and have influenced the design of our non-standard measures. Nonetheless, in my view and looking forward, monetary analysis and financial market analysis should play an even greater role for the conduct of monetary policy – particularly with regard to financial imbalances and financial fragilities. Here I would see three main areas in which further work is needed to incorporate the lessons from the crisis. First, we are faced with the fact that the smooth functioning of the financial sector is key for macroeconomic outcomes and monetary policy transmission. We saw that adverse financial conditions can have strong and impairing effects on the effectiveness of monetary policy. Academia and central banks have already taken up this research agenda and  BIS central bankers’ speeches  7  macroeconomic models and monetary policy assessments are refined in that regard.