Big Changes Are Coming To The Life Insurance Industry: How Might Great Eastern Holding Limited Be Affected?

The Monetary Authority of Singapore (MAS) has decided that the life insurance industry in Singapore is ready for a shakeup.

To that point, the MAS is planning to launch an online aggregator, compareFIRST, on 7 April 2015 to allow consumers to better compare more than 200 life insurance policies that are available in the market.

What this means is that consumers would soon be able to compare all the life insurance policies from different providers that they are interested in. Products such as term life insurance, whole life insurance, endowment policies, and other direct purchase insurance plans can also be easily compared with the online aggregator.

If this initiative by the MAS is successful, how might life insurance providers like Great Eastern Holding Limited  (SGX: G07) be affected?

Looking at past examples of how online companies have helped to make information more transparent and more easily accessible, we can expect consumers to gain an upper hand over Great Eastern Holding on pricing and key information about different policies.

And unlike commercial sites, compareFIRST is introduced by a regulator. This means that it has no profit agenda and its only objective is likely to be a better platform for consumers to gather information.

As the differences in pricing and features of a policy would be transparent to consumers, insurers would thus need to compete by offering even lower prices or by adding better features. This would likely lead to higher costs and lower profitability for life insurers such as Great Eastern Holding.

Foolish Summary

Over the past five years, Great Eastern Holding has been a very profitable enterprise judging from its ability to generate a return on equity of as high as 27%.

With the majority of Great Eastern’s business taking place in Singapore, investors might need to watch the compareFIRST platform’s effects on the insurer’s profitability going forward.

Great Eastern Holding is a majority-owned subsidiary of local banking giant Oversea-Chinese Banking Corp. Limited (SGX: O39). Given that the insurer represents a sizeable chunk of the bank’s total assets, investors in OCBC might also want to keep themselves abreast of this new development in the life insurance industry.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any company mentioned.