Giving a fair deal to policyholders

We have to be honest in our dealings with other people. Honesty is to be transparent and fair. We have to give the relevant information to the other party, so that they can make an informed judgement.

Let us look at the opposite value, which is dishonesty or cheating. Cheating is defined as taking advantage of another person, for one’s personal benefit, at the expense of the other person.

Let us look at the example of the sale of life insurance. The policy has a high upfront charge to pay commission to the agent. The commission earned is excessive, compared to the value of the service. The policyyholder pays an average of $2,000 on a typical policy of $100 a month. This high charge is hidden from the policyholder.

It takes about 15 years for the policy to earn sufficient investment income to cover the upfront charge. If the policy is kept longer, it may show a positive return on the premium. The policyholder does not realise that the high charges take away 40% or more of the total investment income. It leaves a poor return to the policyholder, that is insufficient to cover inflation.

The policyhohlder could have inviested in other "fairer" products that have lower charges and give a better return to the customer.

The insurance agent is able to sell the life insurance contract at the high charges, because they are trained to over-sell the value of the insurance contact. It tells the customer about the importance of protecting the family from the financial loss due to the death of the breadwinner.

A more honest way is to advise the policyholder to buy term insurance, where the cost is much lower and affordable.

To prevent the excessive abuse of customers, it is important for a life insurance company to act honestly and to reduce the excessive charges. When I managed an insurance company, I observe this principle and reduce the expenses to give better value to the customers. After my departure, this organisation has increased its expenses tremendously.

In many countries, the authority sets limits to these charges, to prevent abuse of the public. In Singapore, there are no limits, so long as the commission is disclosed. Unfortunately, this approach does not work, as the public is not informed about it.