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Nov 7, 2007
Insurance industry to be hit by new CPF rules
Significant effects on sales of single-premium products seen;
players lobby to lessen impact
By Grace Ng, FINANCE REPORTER

THE insurance industry is expected to be hit hard by new Central
Provident Fund (CPF) rules on investing that will kick in next
April.

Mr Mark O’Dell, president of the Life Insurance Association (LIA),
told reporters yesterday ’significant effects’ are likely on sales
of single-premium products in the second quarter of next year.

Under the new rules, a CPF member will not be allowed to invest the
first $20,000 of his CPF Ordinary and Special Accounts savings under
the CPF Investment Scheme (CPFIS).

To mitigate this feared drying up of investment in insurance
products, industry players are now informally lobbying the
Government to allow money parked in the Special Account to be
invested in products under the CPFIS.

This may mean reversing the rule barring investment of the first
$20,000 in a CPF member’s Special Account.

Mr O’Dell was speaking at a press conference to announce a 31 per
cent year-on-year surge in new business premiums to $1.18 million
for the nine months ended Sept 30.

He warned that while strong growth may continue for the next six
months, the industry may take a hit in April.

‘It is estimated that half of the CPF funds will not be eligible for
CPFIS products. Some $4 billion, or 63 per cent, of the single-
premium business in Singapore are bought with CPF funds,’ noted Mr
O’Dell.

‘It is not easy to analyse the exact impact on sales of single-
premiums, as we do not know how much of the CPF funds available may
potentially be invested in the CPFIS. However, we anticipate a
significant impact,’ he said.

To mitigate this blow, industry players will have to seek more non-
CPF sources, such as cash, to drive sales in the same way that
banks, which already attract more cash investments in bancassurance
products, do.

The industry has also been making efforts to ‘demonstrate that
investment-linked products provide opportunities for superior
returns, compared to the rates offered under the CPFIS’, Mr O’Dell
said.

As a further step, the LIA has been ‘engaging the Government in a
dialogue’ to allow money in Special Accounts to be invested in CPFIS
products. The Straits Times understands that this dialogue is
currently in its preliminary stages.

Mr O’Dell argued that ‘it is counter-intuitive to keep retirement
savings at a risk-free rate, especially if you are relatively
young’, since those funds can be held in equities in the long-term
to earn higher returns.

In the third-quarter, regular premium sales grew 27 per cent to $226
million, while single-premium sales rose 28 per cent to $1.99
billion compared with the previous year.

Sales were affected by the ‘volatility in the equity and capital
markets’, which may have prompted some Singaporeans to postpone
investment decisions, said Mr O’Dell.

The robust economy and greater awareness among Singaporeans about
the need for life insurance and investment, however, are likely to
support growth in the industry, whose assets crossed the $100
billion mark in the third quarter. Annuities sales for the first
nine months of the year reached $316 million from $172 million a
year earlier.

‘While there is a heightened awareness of the need for annuities,
there are not many products on the market, with only eight companies
offering eight rather standard products,’ said Mr O’Dell.