Silver lining in insurance buyers’ shift towards investment-linked plans
[SINGAPORE] Insurance participating funds, which provide investment returns for long-term whole life and endowment plans had a good year in 2024. The par funds managed by nine insurers delivered a positive return, based on my compilation for a column this week. That shouldn’t be a surprise. Equity markets were in bull territory last year and continued to soar this year.
Two things stood out in my research. First, insurers invest in private markets including private equity and debt for their par funds, and say they have been doing so for some time. This is interesting because of the intense interest in private assets lately. But the specific allocations, which are lumped together with equities, isn’t publicly disclosed by almost all except HSBC Life.
Without more disclosure, it’s hard to tell whether their private-asset exposure is sizeable enough to make a difference in terms of return enhancement or risk mitigation. In 2022, when stocks and bonds fell in tandem, par funds’ losses ranged between 7 and 14 per cent.
Second, Life Insurance Association data on new business indicates an apparently decisive shift from par products towards investment-linked plans (ILPs). Unlike par plans where premiums are pooled and invested collectively by the insurers, ILPs enable policyholders to make their own asset allocation and fund choices. Investors bear the risk of losses and do not depend on a “smoothing” process for returns or dividends.
Between 2022 and 2024, ILPs’ share of new business rose from 25 to 39 per cent. The trend continues this year. In LIA’s latest data for the six months to June, ILPs’ share rose from 31 per cent in 2023 to 43 per cent in 2025.
Traditionally, Singaporeans preferred par plans. Could the shift towards ILPs prove lasting? The puzzle, however, is this. Both vehicles may leave policyholders in limbo – still under-insured and with far lower net returns than illustrated.
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Over the long term, returns from par products especially whole life plans were typically only slightly better than fixed deposits and may not keep up with inflation. As for ILPs, a substantial portion of returns may be eaten up by high annual costs – as high as 4 per cent a year based on my earlier research. As a result, the protection value and overall return may also fall short.
Still, a trend towards ILPs suggests a greater awareness of the benefit of calibrating one’s portfolio choices towards one’s own risk appetite and objectives, and possibly a desire for greater transparency in returns. This is a good thing, especially at a time when choices for self-directed investors have burgeoned, even for the risk averse. Retail investors, for instance, have flocked towards Astrea’s latest offering of private equity-linked bonds, which attracted applications worth more than S$3 billion.
The popularity of platforms like Endowus, which onboards institutional funds with substantially lower fees than retail funds, is testament to rising awareness of the dilutive effect of high fees.
Now what remains is for insurers to simplify their ILPs and lower the recurring costs. That would go a long way towards enhancing returns, which is paramount in helping policyholders to achieve their financial goals.
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