More low-income Singaporeans to benefit from commission-free life insurance policy: Fitch

It’s also credit-positive for the life insurance sector.

The decision by the Monetary Authority of Singapore (MAS) to launch a commission-free life insurance sales programme will increase the accessibility of life insurance to low- and middle-income Singaporeans, Fitch Ratings revealed today.

Fitch also notes that the move is credit positive for the Singapore life insurance sector, as it is likely to boost the overall penetration rate of the life sector while also prompting a re-evaluation of strategies on distribution channels, which may enhance productivity.

“The new regulation will increase the accessibility of life insurance to low- and middle-income segments by eliminating commission costs and reducing the price of direct-sale products. This in turn should boost the overall penetration rate of the life sector in Singapore, which trails that of other high-income Asian economies,” stated the report.

Here’s more from Fitch:

Beginning in 2015, Singaporean retail insurance companies will be allowed to sell term and whole life products directly to consumers without the need for commission-based insurance agents.

The direct sales channel will be restricted to a maximum insured sum of SGD400,000 per person per insurer, which includes a sub-limit of SGD200,000 for whole life products.

Based on statistics from Swiss Re Sigma, life premiums as a percentage of GDP in Singapore amounted to just 4.4% in 2013 - behind Taiwan (14.5%), Hong Kong (11.7%), Japan (8.8%) and South Korea (7.5%).

Beyond the positive headline revenue impact, the new direct-sales channel will prompt Singapore life insurers to review their distribution channel strategies.

This may prompt companies to refocus their clientele base and shift the agent-channel toward more complex products and larger assured sums - and away from segments which are likely to only utilise the commission-free products.

All Singapore insurers will be required to sell commission-free products, so Fitch expects competition for these products to be intense.

As such, there could be an impact on profitability associated with a drop in premium rates. The potential impact on profitability will vary from company to company, and is likely to depend on the extent to which individual insurers choose to target a build-out of market share in the new direct sales segment. It is, however, premature to assess this in full.

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