Singapore's potential as an insurance hub

Fifteen years ago, Singapore's current Prime Minister, Lee Hsein Loong, made a speech at the Pacific Insurance Conference. He put a stake in the ground for the country's designs on becoming an insurance hub for Asia.

In his position then as chairman of the Monetary Authority of Singapore, Lee set out a vision of Singapore as a regional insurance hub by 2003. With the emphasis on developing IT and technology infrastructure to achieve this goal, alongside education, product innovation and encouraging offshore business, Singapore was set on a path of attracting the big global insurance players.

In November 2013, Singapore's goal moved from becoming a regional insurance hub to a global one by 2020.

Speaking at the 12th Singapore International Insurance Conference, Ravi Menon, managing director of MAS, said: "At a time when questions are being raised globally as to whether the financial industry has grown too big no-one is asking the same of insurance. Much of the world remains under-insured."

He highlighted the need to increase supply-side capacity, in terms of volume and expertise, in addition to developing a market place for sellers and buyers to negotiate and trade risks.

He added: "The market has built up significant expertise in specialty insurance, namely marine, energy, catastrophe, credit and political risks. For example, Singapore is the second-largest market for structured credit and political risk worldwide after London."

It is anticipated that over the next decade, Asia's insurance business will grow by about 8% a year. By 2020, Asia is likely to account for almost 40% of the global market.

Global hub
Today, Singapore has already developed into a global hub that competes with London in many ways. In the latest World Economic Forum's Global Competitiveness Report, Singapore has kept hold of its number two spot, behind Switzerland and ahead of Finland.

The report considers indicators including institutions, education, market size and the macroeconomic environment, which has helped Singapore to develop its ambition as an international financial power epicentre to rival London and New York.

Singapore's geographical position means that markets in Malaysia, the Philippines and Thailand are just a short flight away, and Australasia and China are within easy reach. This is particularly important as 90% of insurance revenue is created by offshore markets.

According to a new report by Standard & Poor's, offshore premiums have grown dramatically from $1.5bn (S$1.91bn) in 2000 to $6.1bn (S$7.8bn) last year, due to the lifting of restrictions on foreign ownership of local insurers in 2000, in order to support Singapore's insurance hub goals.

S&P forecasts that offshore business measured by gross premiums could grow to $18bn (S$22.9bn) by 2023.

Growing Lloyd's
Lloyd's, which has 18 service companies operating from Singapore, has demonstrated growth from zero in 2000, when it started its underwriting base, to almost $600m in premiums today.

The wider Asica-Pacific region contributes about 12% towards Lloyd's global $40.7bn premium income last year. It is a market that is growing more rapidly than others.

Kent Chaplin, head of Asia-Pacific, and managing director for Lloyd's Asia, says: "Singapore is a wholesale market with a significant number of brokers and insurers. We are increasingly seeing markets starting to co-operate."

Managing an offshore business has its challenges, including cultural issues, and Chaplin points out that despite the geographic issues, it is still a relationship business, but with technology playing a huge role.

He comments: "There's an awful lot of opportunity to improve technology but we still need to conduct business face-to-face. Technology is an enabler, sharing information around the region efficiently."

Chaplin adds: "In London the brokers come to the underwriters, but for a lot of the business in Singapore the underwriters have to go out to find the business. There is a need to build relationships and understand the risks at a local level, so there is a necessity to travel."

Stability and risk
As a travel hub, Singapore is also a diverse cultural melting pot, and with this global expertise best practice can be redefined from different nations, alongside growing domestic excellence.

The success, however, is not solely based on infrastructure and geography, according to Rudi Spaan, head of broker distribution and client management at AIG, who put an emphasis on strict local regulations playing their part in building market confidence.

He argues: "There are three main steps to Singapore becoming a global hub, based on deregulation and the shift to a risk-based marketplace; location and infrastructure; and financial incentives, which ensure the region has a fully competitive portfolio of skills and products."

AIG services 14 countries from Singapore commercially, and with brokers such as Marsh, Willis, JLT and Aon having headquarters in Singapore, there is a need to be co-located.

Spaan adds: "Risk is the all-consuming topic with any management team, board of directors or regulator. A transparent and open market place, based on risk, rather than rules-based supervision, leads to real competitiveness."

Singapore's political and social stability has made it an attractive location, with strong guidance from regulatory bodies such as MAS, the General Insurance Association, Singapore Reinsurers' Association and Singapore College of Insurance.

By process of elimination Singapore also stands out from the crowd, which is full of strong contenders. Hong Kong is a travel hub, but confidence was shaken after the handover to China in 1997, and its focus has been towards the mainland.

Furthermore, there are concerns over China's slowing economy.

To make Singapore more attractive MAS moved to deregulate the market, by evolving from rules-based to risk-based supervision. However, by contrast Shanghai is still highly regulated and Hong Kong halfway in-between.

Japan is focused on its domestic microclimate. Dubai and Bahrain, while part of Asia, and more able to bridge the time gaps between London, the US and the Far East, have a huge question mark over their economic stability, coupled with cultural issues of takaful insurance, which operate within the rules and regulations of Islamic law.

Taking London's crown?
So with Singapore's dreams of becoming a global insurance hub becoming a reality, could it knock London off the number one spot?

Spaan comments: "Singapore will be able to compete with London because MAS is enabling Singapore to become a full service underwriting centre."

He adds: "It is addressing any apparent adjustments needed to its portfolio, in terms of skills and products. Competitiveness has been increased through the use of financial incentives, including tax breaks, for new business lines such as trade credit and aerospace."

Why would the markets in Asia and Australasia deal with London when Singapore could meet their requirements? There is a pattern that is starting to emerge: the development of a stable and skilled market with abundant capacity, which can no longer be ignored.

While there is a fine line between competitiveness and dominance, Chaplin reflects: "Singapore will continue to be a core market for APAC but the London market is more mature and has history built over hundreds of years. London is also a more diverse subscription-based market; it encourages competition, innovation and diversity. It is the only real subscription market in the world and that is what Singapore needs to achieve."

He adds: "It brings benefits to the market and policyholders. We could not get hundreds of years of experience in five minutes."