Thailand OIC - Amending Health Insurance Law

The Office of Insurance Commission (OIC) will propose a new law overseeing health insurers in light of rapidly growing health concerns surrounding the pandemic. The health insurance law is being studied by Chulalongkorn University and is expected to be drafted and proposed to related parties this year. The law will regulate voluntary-based health protection insurance.

OIC secretary-general said health insurance grew 7% in the first half while life insurance shrank 3.3%, driven by raised health protection awareness caused by Covid-19 and the higher expenses of health and medicine. Health protection is a high-growth product. Thailand should have a mechanism to shape the future to grow in the right direction like in many countries.

Focusing on protection products can also help insurers survive under low-interest rates. Many new international standards require capital reserves based on risk and long-term obligations such as endowment and products that guarantee a return rate.

Today, non-life insurers can sell critical illness protection as a standalone product, while life insurers are required to include a major life insurance policy in the package. Therefore, the overall premium value is typically expensive relative to the standalone.

The difference is due to the law stating that life insurance is based on the "viability of the insured".

AXA Mulls Selling Greek Operation

Axa is in talks to sell its Greek operations to Italian insurer Assicurazioni Generali, according to people familiar with the matter, as part of its plans to ditch business lines deemed surplus to requirements.

The two companies and their advisers are in discussions about a deal for the unit, which offers life and general insurance products and could be valued at around 150 million euros. No final decisions have been taken, according to the people, who asked not to be identified as the matter is private.

Axa currently sells insurance products in Greece through a long-term distribution agreement with Alpha Bank. The business serves 576,000 customers in the country and generates revenue of more than 160 million euros, according to its website.

Axa is seeking to raise funds by divesting peripheral operations and to focus on property and casualty insurance following a US$15.3 billion purchase of XL Group in 2018. Paris-listed Axa is considering the sale of its business in Singapore and a general insurance venture in Malaysia.

The company is also exploring ways to shore up its finances amid the pressures of the coronavirus crisis. Profit at Axa sank in the first half as it booked a 1.5 billion-euro charge for claims related to Covid-19. It warned of further shocks from the pandemic, scrapped growth targets and cancelled a payout to shareholders. Axa's shares were down 30 per cent this year through Thursday, giving it a market value of around 43 billion euros.

Generali had as much as 3 billion euros earmarked for acquisitions and would consider mid-size deals in the insurance and asset management sectors. Generali last month abandoned exploratory talks about an acquisition of US asset manager BrightSphere Investment Group because of differing opinions on valuation.

Smoothing Of Returns On Par Policies

Despite strong returns among life insurers' participating funds in 2019, three insurers have opted to cut bonuses or dividends for some policyholders. The bonus cuts by AIA, AXA and Tokio Marine Life Insurance Singapore (TMLS) illustrate the mechanism of "smoothing'' of returns that applies to par policies. That is, bonus payouts may be maintained in a poor year, but may be cut following a year of good returns.

Most insurers achieved double-digit returns for their par funds in 2019, but were mostly negative in 2018.

Par policies share in the investment experience of the life fund. The total return for par policies comprises guaranteed and non-guaranteed components. Bonuses are part of the non-guaranteed return. But once declared, bonuses form part of a policy's guaranteed benefits.

Tokio Marine - The cuts mark a first for TMLS (formerly Asia Life) which had proudly maintained a history of no bonus cuts. Two products are affected - Asia Hi-Saver and Asia Education plan - comprising around 2,000 policies, which had "weak trends of performance''. The firm said in a statement in June that after the bonus revision, the projected annual maturity yields remain attractive in today's low-rate environment. This revision affects less than 2 per cent of our par portfolio, it is also the first time TMLS has taken to revise the bonus rate.

AIA - in its par fund update said it is revising the bonus and dividend rates for a "small block of policies'', while the majority of policies are maintained "at the same scale'' as the previous year. Overall, AIA expects to pay out S$527 million in par fund bonuses for 2020, the same level as 2019. Its net investment return for its par fund has averaged 5.4 per cent over 10 years to end-2019. AIA last bonus/dividend cut was in 2009 during the global financial crisis. In 2010 the bonus/dividend scales for most plans were partially raised. In 2018 it also increased the bonus scale for some products, and the increased scale was higher than illustrated at point of sale. This affected 4 per cent of par policyholders, but were maintained for the "vast majority'' of clients.

Life Insurance Association (LIA) - is reviewing the standard illustration rates for par policies of 3.25 and 4.75 per cent, to "ensure their relevance and appropriateness''. The review is an annual exercise, but sources believe it is increasingly warranted against the backdrop of a lower-for-longer interest rate environment. Global central banks have unleashed unprecedented monetary and fiscal stimulus in efforts to cushion the deeply recessionary impact of the Covid-19 pandemic. The crisis has deepened risk aversion among investors and spurred the pursuit of yield, driving the yields of higher quality bonds ever lower.

Capital raised for par policies is pooled together in the life fund for investment and insurers are hard pressed to find high-quality Singapore dollar fixed income assets with attractive yields to meet longer term liabilities.

LIA determines a benchmark asset portfolio for the year, taking into account the industry's average allocation into each asset class in the past year and the future market outlook. The benchmark asset return under the negative scenario forms the basis for the benefit illustration's lower assumed rate of return of 3.25 per cent, and the central scenario is used for the higher assumed return of 4.75 per cent.

Over the past few years, Income's portfolios have seen a shift from sovereign to corporate bonds, while at the same time we have also been more active in our investment strategies. The recent market volatility also brought out the importance of selecting the right active managers.''

Indonesian Millennials Low Savings - Poor Financial Literacy

Fintech industry participants in Indonesia have noted that the nation’s residents have been slow when it comes to adopting the latest technologies in the finance sector. This may be due to relatively lower levels of financial literacy in the country, according to researchers and analysts.

Indonesia’s Financial Services Authority (OJK), a government agency that regulates and supervises the financial services sector, states that a financially literate person must have knowledge of financial institutions and related products such as the main features of financial platforms.

They should also be aware of the potential benefits and risks involved with using these products, the OJK recommends. They should have the basic skills needed to use these services as well, the agency states.

Bank UOB Indonesia 2019 survey reveals that Indonesian Millennials (aged between 21 and 39) are spending half or 50 percent of their earnings on maintaining the “4S lifestyle,” which stands for sugar (like food items and beverages), skin (beauty products), sun (travel and entertainment) and screen (digital screen consumption). Indonesian Millennials are only saving 10% of their earnings. Millennials or younger Indonesian residents prefer to spend most of their income, instead of saving it.

Indonesian residents have been scoring low on financial literacy tests, according to a 2019 survey by the OJK. There have also been various scams targeting unsuspecting investors.

Financial advisory company PT Jouska Financial Indonesia, which had managed to gain many social media followers, was shut down by authorities as it was accused of engaging in illegal activities and mismanaging customers’ funds.

Reviving Lapsed Policy

Life Insurers are actively encouraging policyholders to revive their lapsed policies albeit current high-risk circumstances. Some Insurers are offering policies of eligible products that can be revived within five years from the date of the first unpaid premium. In addition, insurers are also offering a concession in the late fee for a few policies, except term assurance, health insurance, multiple risk policies and those that are high-risk in nature.

How to revive lapsed policies - an insurance policy lapses when premium are not paid on the due date and during the 30 days of grace period. Depending on the nature of the policy, it could either lapse automatically or allow a window for revival. Typically, insurers are required to offer a revival period of two years for policyholders to reinstate their policies. For the same, policyholders have to pay the due amount with interest or penalty.

Pure risk covers - in case of pure risk covers like term plans, the policy lapses if premiums are not paid even during the grace period. Policyholder may have to let go of the premiums as well as the assured benefit. For term plans, revival means that within three months the policy is reinstated with a health declaration form but beyond six months, the proposer will be asked to take the medical tests all over again. The need for medical tests may also change based on underwriting rules for specific products.

Unit-linked insurance plans (Ulips) - in the case of Ulips, you can revive the policy up to two years from the date premiums are not paid. If you skip paying the premium in the first five years or during the lock-in period, the policy is considered lapsed after a 90-day period and the insurer moves the fund value to the discontinuance fund and levies a discontinuance charge. If policyholder skips paying the premiums after the lock-in period, the insurer will give policyholder an option to revive the policy.

Traditional plans - if premiums are not paid for traditional plans before it acquire a surrender value (paid-up), then policyholder may lose all the premiums paid. But if the policy becomes paid-up, it doesn’t lapse and continues with a reduced sum assured. Traditional policies acquire surrender value after two to three annual premiums are paid. If it’s been more than two to three years since the policy lapsed, the only time a policyholder can revive it is if insurance company to offer a special campaign. 

Prudential Sold Taiwan Operation

Taiwan's Taishin Financial Holdings Co. Ltd. announced Tuesday that it will purchase Prudential Life Insurance Company of Taiwan Inc. for NT$5.5 billion (US$187 million).

Taishin President Welch Lin (林維俊) made the announcement at a press conference held at 7:30 p.m. in Taipei, noting that the acquisition still requires the approval of the Cabinet-level Financial Supervisory Commission.

In its statement, Taishin, one of major financial holding companies in Taiwan, said the deal will help the company integrate its financial business in the areas of banking, securities and insurance, and offer clients more service options.

Taishin also said it will retain all Prudential Life Insurance staff because "employees are always the most important assets."

According to news reports from the United States, the New Jersey-headquartered Prudential Financial, Inc. said Tuesday it has entered into a definitive agreement to sell its entire life insurance business in Taiwan.

The company said that the transaction is consistent with its strategic focus internationally on Japan and higher-growth emerging markets around the world, the reports said.

UK Insurers Covid-19 Claims

British life insurers paid 90 million pounds ($117.18 million) in claims related to deaths from the COVID-19 pandemic in the three months to end-May (the Association of British Insurers (ABI).

Insurers received 7,000 life insurance claims from families of people who died from COVID-19 and 83% have been paid so far. Every life insurance claim has been accepted. The average payout is expected to be 63,000 pounds for an individual policy and 137,000 for a group policy.

Life insurers have been hit by the pandemic but their losses are seen as limited. Although they are paying life insurance claims, worsening life expectancy will mean pensions, often the bulk of their business, are paid for a shorter period.

The ABI has said it expected its members to pay 1.2 billion pounds in pandemic-related claims this year, in sectors such as business interruption and event cancellation.

Industry sources say that figure could reach billions if the Financial Conduct Authority wins a test case against insurers over business interruption policy wordings. A decision is expected in mid-September.