According to the rating agency, the Monetary Authority of Singapore’s initiative which begins in January next year is seen as "credit positive" for the country’s life insurance sector.
But, the rating agency said this might prompt companies to refocus their client base and shift the agent-channel toward more complex products and larger assured sums and away from segments, which are likely to only utilise the commission-free products.
The new regulation will increase the accessibility of life insurance to low- and middle-income customers by eliminating commission costs and reducing the price of direct-sale products.
“This in turn should boost the overall penetration rate of the life sector in Singapore, which trails that of other high-income Asian economies,” Fitch said, detailing statistics from Swiss Re Sigma that indicated life premiums as a percentage of GDP in Singapore amounted to just 4.4% in 2013 – behind Taiwan (14.5%), Hong Kong (11.7%), Japan (8.8%) and South Korea (7.5%).
Fitch expects competition for commission-free products to be intense and as such said there could be an impact on profitability associated with a drop in premium rates.
“The potential impact on profitability will vary from company to company, and is likely to depend on the extent to which individual insurers choose to target a build-out of market share in the new direct sales segment. It is, however, premature to assess this in full,” said Fitch.
Beginning 2015, Singaporean retail insurance companies will be allowed to sell term and whole life products directly to consumers without the need for commission-based insurance agents.
The direct sales channel, details of which were published last week, will be restricted to a maximum insured sum of SGD400,000 per person per insurer, which includes a sub-limit of SGD200,000 for whole life products.
