Life Lower Benefits

Consumers should brace themselves for life insurance products that will offer lower guaranteed benefits as insurers face upcoming tougher rules that may require some of them to set aside more reserves as a buffer. More offerings of less capital intensive products such as term, investment linked insurance policies (ILPs) and personal accident plans are also likely to go on the market.

That is because these products require insurers to set aside less capital - that is, cash - to ensure solvency, for example. The trend towards such products is emerging as more insurers are tweaking their product offerings in the face of upcoming stricter risk requirements for insurers, under a more robust capital framework for insurers.


One effect is that consumers who buy a life plan may see less of the traditional reversionary bonus structure and be offered a non-guaranteed dividend paying plan. A reversionary bonus is a non-guaranteed bonus usually added annually to the policy's sum assured or guaranteed benefit once it is declared.


While this is good news for the policyholder as it means they get more that is guaranteed, the insurer's liability is increased in the long-term which means the insurer has to set aside more cash to support the guarantee. On the other hand, cash dividends are non-guaranteed, but when given do not add to the sum assured.


And depending on the product design, they may be given annually only after the insured reaches a certain age or upon a claim or surrender. This is less capital intensive for the insurer. A revised risk-based capital framework, known as RBC 2, seeks to reflect the relevant risks insurers face. It is part of the Monetary Authority of Singapore's drive to make the industry more resilient. Introduced in 2004, the RBC framework adopts a risk-focused approach to assess capital adequacy and reflects the risks faced by insurers. RBC 2 is expected to be rolled out in 2017.


Tokio Marine Life Insurance Singapore and AIA Singapore said that as the RBC 2 calibration is still work in progress, it is premature to predict its industry impact. "However, based on the first quantitative impact study, we see that there will be an increase in risk requirements, compared to the existing RBC framework," said Lance Tay, chief executive of Tokio Marine Life Insurance Singapore.


" The emphasis on risk sensitivity may guide capital allocation towards safer assets with lower but more stable returns, such as bonds. Also, offering products with high guarantees will be more capital intensive."


In a bid to manage its product offerings, Tokio Marine has recently expanded its range of protection offerings to include a new whole-life-plan called TM Legacy LifeFlex and a new personal accident plan called TM Protect PA.


The former is a whole life protection-based plan which does away with giving annual reversionary bonuses. Instead, it offers a dividend paying plan with non-guaranteed annual dividends payable when the insured reaches 65 and a non-guaranteed terminal dividend upon a claim or surrender. The annual dividends cannot be deposited with the insurer.


When contacted, a Great Eastern spokesman said it has been offering a comprehensive suite of products to meet customers' needs - and the strategy is expected to continue. "Nonetheless, the potentially higher asset risk requirement may result in the some products lines being more capital intensive under the new regime," he said.


NTUC Income chief actuary Lau Sok Hoon said that in preparation for the stricter upcoming risk-based capital regime, it has been strengthening its capital adequacy ratio and managing its product mix, including growing its ILP business over the last few years.