Earlier today, the Life Insurance Association Singapore (LIA Singapore) announced industry-wide results for the period of January 2016 to September 2016. As with all reports, there are tons of information to sieve through.
Here are 4 interesting insurance trends that we observed from the latest set of results shared.
# 1 Premiums From Investment Linked Policies (ILPs) Are Declining
Despite recording a year-to-date 2016 (YTD Q3’16) growth in new total weighted premiums, new business premiums arising from ILPs dropped.
|New Business – Total Weighted Premiums||New Business – ILPs|
|YTD Q3, 2015||$2.166 billion||$434 million|
|YTD Q3, 2016||$2,331billion||$322 million|
In total, new premiums from ILPs declined by 26% from the year before. At the same time, premiums from non-participating life insurance (i.e. term life insurance) increased by 30%, offsetting the drop in premiums from ILPs.
What this tells us is that while Singaporeans are not spending any lesser on insurances, the type of products that they are going for have changed, with people preferring pure life insurance protection, rather than ILPs.
Another reason for this shift could be the muted expectation of the financial markets over the past year. With uncertainties in the investment climate, people could be less receptive to investment related plans.
Moving forward, we will continue to observe with interest to see if the trend of moving away from ILPs persists, or if this was simple a one-off, given the poor economic climate.
# 2 Forfeiture Rates Declining
Forfeiture policies refer to policies that are terminated before any cash value has been accumulated in them. It’s usually the outcome of the combination of bad advice given by agents, and poor self-education from the consumers.
The good news here is that for the past 7 quarters, forfeiture rate has been declining consistently, and is now 1.35%. This means that fewer people are buying policies that they end up cancelling shortly after. It suggests that people are either better informed these days, or that the insurance companies have taken the right steps to ensure agents are giving appropriate advice to clients.
# 3 Independent Financial Advisors (IFAs) Are A Bigger Part Of The Market
IFAs, who are financial advisors that can advise on the products of several life insurers, are increasingly contributing a larger share of the total new business brought in by the insurance industry. In YTD Q3,16, IFA brought in a total of 20% of business, compared to 17% in YTD Q3, 14.
In contrast, the number of new business brought in by agents that represent a single insurance company, also known as tied representatives, have seen a steep decline. In YTD Q3,14, they contributed 43% of all new business. This year, the figure is down to 36%.
In terms of absolute figure, tied representatives are also bringing in fewer sales today, despite the overall growth in the industry.
|YTD Q3, 14||YTD Q3, 16|
|*Tied Representatives||$866 million||$828 million|
|** Independent Financial Advisors||$347 million||$460 million|
* A person who represents one life insurer, and can advise on the products of the insurer
** A person who represents one Financial Advisor (FA) firm, and can advise on the products of several life insurers which the FA firm has distribution agreement with
# 4 Less Agents From Insurance Companies
In line with the decline of sales brought in by tied representatives, or perhaps as a result of it, the number of tied representatives from insurance companies have declined compared to last year.
In September 2015, we had 14,797 agents in Singapore. Today, we have 14,275. This represents a drop of 3.5%, right in line with the declining sales (- 4.3%) brought in by these agents from 2014.
Going forward, we are observing if the market for insurance agents, especially tied representatives is indeed saturated.
If sales generated from these agents do not increase in the next couple of years, then it’s likely that we will continue to see a decline in the number of agents from insurance companies.
In addition, with disruptive technologies in the Financial Technology (FinTech) insurance space, we might see the number of agents continue dropping, unless they are able to embrace these new changes soon and to skill up their knowledge.
How can you choose winning stocks in Singapore? Join us on 16 November in our next 90-minute series: Guide To Choosing Winning Stocks, as we discuss some of the key elements to look at when choosing stocks to invest in. Subscribe to our free e-newsletter to receive exclusive content and promotions that are not available on our website. Follow us on Instagram @DNSsingapore to get daily dose of finance inspirations through photos.