Commentary: Here’s why Income-Allianz deal isn’t necessarily a bad thing for customers

SINGAPORE: The proposed sale of 51 per cent of the shares in homegrown icon Income Insurance to global insurance behemoth Allianz has raised eyebrows.
It looks like an irresistible deal: Allianz has offered S$40.58 per share for a total transaction value of S$2.2 billion (US$1.64 billion). It’s a 37.3 per cent premium over Income’s net asset value per share of S$29.55 as at end of last year.
Even so, the announcement was met with an uproar of negative sentiments. The key concern is the abandonment of workers’, or, more generally, Singaporeans’ interests if the local insurance darling becomes part of a profit-driven international player.
But these concerns should not lead us to conclude that this is necessarily a bad deal.
Part of the outcry is due to Income Insurance’s heritage. It traces its roots to being a co-operative of the National Trades Union Congress (NTUC), an umbrella organisation of affiliated trade unions, social enterprises and related entities – the core of the nation’s labour movement championing the welfare of workers.
Certainly, Income Insurance has not carried the NTUC brand since 2022, when NTUC Income Insurance Co-operative became a corporate entity. But even after corporatisation, the company is expected to maintain its core mission as a social enterprise, reinforced by the 72.8 per cent majority shareholding by NTUC Enterprise.
However, the insurance sector has changed significantly especially over the recent years. Competition is relentless and innovation is inevitable to remain viable.
For example, significant resources will be needed for investments in generative artificial intelligence to design new products and customise to customer needs. This will require deep knowledge of insurance that Allianz has in comparison with other large players like banks.
With this transformation, it became more flexible and could pursue growth opportunities otherwise not possible as a co-operative, in particular, tapping institutional investors that are not co-operatives or trade unions.
Consolidation seems to be par for the course in the local insurance sector, and the sale to Allianz could be seen as a timely business decision.
NTUC Income as a co-operative had untapped potential before corporatisation. According to Statista, the gross domestic product of the finance and insurance industry in Singapore grew from S$45.97 billion in 2014 to S$74.07 billion in 2021. This represents a growth of 61.1 per cent over the period.
Yet the total revenue of NTUC Income, including insurance premiums, went from S$4.06 billion in 2014 to S$4.66 billion in 2021, according to its published financial statements. This is only a growth of 14.8 per cent, which suggests uncovered opportunities for growth.
Going corporate was a step in that direction, but it might not have been enough. After corporatisation, the reported revenue of the company increased from July 2022 to December 2023 was S$6.08 billion, which translates to some S$4.05 billion on an annual basis. This is, however, lower than the last reported year revenue of the co-operative in 2021 by 13.1 per cent.
That Allianz bid a hefty premium shows it recognises that Income Insurance can earn more than it currently does.
The new value may come from efficiency gains at Income Insurance when it is owned by a larger entity like Allianz. Also, cross-selling with other financial products at Allianz may present new market possibilities for Income Insurance.
Income Insurance seems to be stuck in the current set of products and markets. This is even with the fact that its products are not targeted exclusively for workers or even Singaporeans.
The counterargument that has arisen in the public backlash since the announcement is that Income Insurance, as a social enterprise, was never meant to pursue revenue and profit. And that any newly gained profits after this deal would go to private shareholders, not Singaporeans.
But to be more effective, it calls for more resources and new market opportunities, especially when Income Insurance’s competitors in the local market are mostly multinationals. Failure to keep up could mean it cannot fulfil its social mission anyway.
Indeed, Income Insurance is one of four “domestic systematically important insurers”, designated by the Monetary Authority of Singapore (MAS) in September 2023, whose failures would significantly affect the Singapore economy.
If the deal goes through, the new majority owner Allianz cannot afford to lose the faith of the people in Singapore, particularly the workers.
If it didn’t before, it knows now that there is an expectation to honour Income Insurance’s social responsibilities. If products are priced at a level seen to be in the relentless drive for money, workers would have less reason to be drawn to the company.
Allianz should be more than a shareholder. It may need to make a profit but the question is not just how much profits are being made, but how they are made.
The priority of Income Insurance now is to ensure its long-term growth, including and beyond achieving financial sustainability. Being a valuable and versatile company is in the best interests of workers and Singaporeans.
It is good to do good, but the new Income has to do well to do better.
Lawrence Loh is Director, Centre for Governance and Sustainability of NUS Business School at the National University of Singapore, where he is also Professor in Practice of Strategy and Policy. He is a policyholder of Income Insurance.