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Singapore: consumers empowered to directly purchase and compare some life insurance products
Following the Financial Advisory Industry Review (FAIR) of the financial advisory market in 2013, it was accepted by the Monetary Authority of Singapore (MAS) that improvements should be made to the level of professionalism of financial advisors and to the efficiency from consumers' perspective of the life insurance and investment product market.
This year has seen the implementation of initiatives emerging from the FAIR review.
Key initiatives now in operation
- Direct Purchase Insurance (DPI)
A new DPI system was introduced in April 2015, meaning that life insurers in Singapore are now required to offer certain of their products free of commission and without advice. Insurers may only charge a small administrative fee.
Given that insurers will not provide any advice to consumers to inform any purchase, the products have broadly standardised features, allowing consumers to compare different insurers' offerings without the need for professional advice. DPI covers simple term and whole life insurance with total and permanent disability cover and an optional critical illness rider.
- Web aggregator for life insurance products
An interactive website allowing consumers to compare life insurance products was also launched in April 2015 (www.comparefirst.sg). The aim of this website is to allow consumers to get the best deal by comparing a variety of insurance products from different insurers, leading to increased transparency and market efficiency. The products featured on the website are:
- direct purchase insurance (DPI);
- term life insurance;
- whole life insurance;
- endowment policies; and
- investment-linked products.
The MAS will regulate the website, and licensed insurers must provide accurate information and pay a fee to the MAS to have their products included. The following products will be excluded from the aggregator:
- standalone critical illness products; and
- products of Defined Market Segment insurers.
Impact on insurers
Premiums will be lower for consumers because of the commission-free nature of the products offered, which may make the products more attractive and create a greater economy of scale. Insurers should bear in mind that they are obliged to make adequate provisions to address consumer queries, for example by giving contact information so that consumers can ask questions. It will be important to manage consumers' service expectations and insurers' reputations in this regard, as the level of service provided will inevitably be lower than for non-DPI products.
Insurers who have experience of operating in countries where such comparison websites are already common will have an advantage. Generally, insurers operating in the Singapore market should:
- ensure that they have sufficient internal infrastructure to feed into the aggregator and satisfy MAS's requirements;
- consider what effect an increased focus on the pricing of premiums will have on their competitiveness, which will be especially important where, for example, customers have historically been attracted by reputation or cross-sold insurance products by other business divisions; and
- ensure their websites are easy to use, so that when customers select a product and are transferred to the insurer's website, the follow-through to purchase that product is smooth.
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