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Bulk of CPF insurance sales could drop as much as 40%
The Straits Times, 6 Feb 2008.

The insurance industry is bracing itself for a dramatic fall of up to 40 per cent in sales of all-important single-premium products - which require an initial lump sum payment.

This will cost insurers in Singapore many millions of dollars in sales of single-premium products which over-whelmingly dominate the indsutry.

The reason? New rules on investing Central Provident Fund (CPF) money which will take effect on April 1 will cut the sum available for private investments under the CPF investment scheme (CPFIS). The CPF has been a crucial market for these single-premium products, such as endowment policies and investment linked policies (ILPs).

The CPF sector accounted for 62% or $5.47 billion of single-premium sales last year, similar to that in 2006. CPF single-premium sales rose from $1.2 billion in the third quarter to $1.5 billion in the fourth quarter of last year.

Mr Mark O'Dell, president of the Life Insurance Association (LIA), said that come April 1, CPF funds available for investments are expected to plunge by about 50%. This would hit the industry hard, as overall single-premium business sales could fall by 30 to 40%. Insurers willhave to find non-CPF buyers, such as consumers using their own savings, to drive sales in future. They might also have to introduce various products that give "better returns" hopefully to attract more funding.

Under the new rules, which take effect on April 1, a CPF member will not be allowed to invest the first $20,000 of both his CPF Ordinary and Special Accounts savings under the CPFIS. Mr O'Dell told Straits Times that LIA has been asking the Government to allow his CPF Ordinary and Special Accounts to be invested in CPFIS products - but there has not been much progress yet.

Money already invested through the CPFIS will not be affected by the new rule, but there could be a rush to invest money in these instruments before the April 1 deadline. He won't be surprised at this stage that agents would be taking opportunity to talk to clients to invest before the funds are locked up, said Mr Mohamed Salim,chief executive of First Principal Financial. He reiterated, the new rules could affect the likes of AIA, Prudential, NTUC Income and Great Eastern Life more, as they tend to be "much more dependent" on CPF single-premium sales.

Some financial advisers say that ILPs for instance provide opportunities for higher returns versus rates offered under the CPF investment scheme. Mr O'Dell said that he is not ruling out a surge in sales this month and next, ahead of the rule change, though he noted that nobody he is talking to now is "seeing a big surge" yet.