A policyholder upgraded into an expensive private Shield plan. He had to undergo angioplasty. The insurance company rejected this claim on the grounds for non-disclosure of high cholesterol. The policyholder was not aware that this condition was serious to be disclosed, as his doctor did not ask him to take medication. He asked the insurance company to justify their decision for non-disclosure.
After one month, the insurance company replied that the policyholder did not reply to a question that ask if he has "suffered from any other illness". They consider that the high cholesterol should be answered under this question. This was the position taken by a senior management of the company.
I consider this rejection to be unfair and advised the policyholder to lodge a complaint to CASE or FIDREC.
Thursday, July 17, 2008
Returned E-mail
I received a few questions each day from readers of my blog. I usually give a reply within the same day or the following day. Quite often, the replies are returned to me, as the server could not deliver the e-mail. It could be due to a wrong e-mail address or other reasons.
Sometimes I post the questions on my blog, after removing personal details. I hope that my person who ask the question will be able to get the reply through this channel.
Sometimes I post the questions on my blog, after removing personal details. I hope that my person who ask the question will be able to get the reply through this channel.
Keen to work for an honest insurance company
Hello Mr.Tan,
I am an avid reader of your blog and find the information you have shared with your visitors well written.
I understand from reading your blog, you are starting a new insurance company.I am keen to explore a potential employment with your new company.
Currently, I am working in the IT industry in the private sector.Although I do not have the necessary experience in the financial industry, I am keen to explore the potential and believe in serving the interests of the people.
Hi Mr.Tan,
Thank you for taking the time to go through my resume. The insurance industry is in need of honest and capable people. I will look forward to hearing from you.
I am an avid reader of your blog and find the information you have shared with your visitors well written.
I understand from reading your blog, you are starting a new insurance company.I am keen to explore a potential employment with your new company.
Currently, I am working in the IT industry in the private sector.Although I do not have the necessary experience in the financial industry, I am keen to explore the potential and believe in serving the interests of the people.
Hi Mr.Tan,
Thank you for taking the time to go through my resume. The insurance industry is in need of honest and capable people. I will look forward to hearing from you.
Impact of market drop on long term yield
If you have invested in Singapore or Global equity over the past 10 to 20 years, your average yield (computed up to 2007) would have been 8% to 9% per annum. The stockmarkets had dropped by 25% from its recent peak.
If you allow for this drop, the impact on the average yield would be 1% to 2.5%. The average yield would have dropped to 5.5% to 8% per annum. It is still an attractive yield, compared to other asset classes.
The secret: invest for the long term (10 to 20 years) and select a low cost investment fund (which takes away 1% or less). Better still, find the right time to invest - when the market has dropped 25%. This is a good time. Even if the market drops further, it will recover within the next 6 to 12 months.
If you allow for this drop, the impact on the average yield would be 1% to 2.5%. The average yield would have dropped to 5.5% to 8% per annum. It is still an attractive yield, compared to other asset classes.
The secret: invest for the long term (10 to 20 years) and select a low cost investment fund (which takes away 1% or less). Better still, find the right time to invest - when the market has dropped 25%. This is a good time. Even if the market drops further, it will recover within the next 6 to 12 months.
Paying the right price
Many people are worried about suffering from a critical illness. The insurance agent scare them about the high cost of this event.
Let us take this example. The chance of making a critical illness claim before 65 is probably 10%. The average cost of the illness is $50,000. You should pay a total premium of only $5,000 to cover this risk. Allowing for interest earned from investing your premium, your actual could be much lower, say $2,000, spread over many years.
But, you are asked to pay a premium that is 5 to 10 times of the actual cost, say $10,000 to $20,000. Why should you pay so much? Why should it be so costly?
Although some part of the premium is returned to you as a cash value, the yield is so low. It takes up to 20 years just to break even. The selling expenses and profit margin of the insurance company are too high.
It is better to buy a short term cover for critical illness and pay the right price for it. You can invest the rest of your savings in a low cost investment fund. After 20 years, your savings will be more than the sum assured. You do not need any critical illness cover at that time, as it can be paid from your savings.
Let us take this example. The chance of making a critical illness claim before 65 is probably 10%. The average cost of the illness is $50,000. You should pay a total premium of only $5,000 to cover this risk. Allowing for interest earned from investing your premium, your actual could be much lower, say $2,000, spread over many years.
But, you are asked to pay a premium that is 5 to 10 times of the actual cost, say $10,000 to $20,000. Why should you pay so much? Why should it be so costly?
Although some part of the premium is returned to you as a cash value, the yield is so low. It takes up to 20 years just to break even. The selling expenses and profit margin of the insurance company are too high.
It is better to buy a short term cover for critical illness and pay the right price for it. You can invest the rest of your savings in a low cost investment fund. After 20 years, your savings will be more than the sum assured. You do not need any critical illness cover at that time, as it can be paid from your savings.
A low cost investment fund
You are not familiar with investing your money. You appoint a trusted person to handle your money and take care of investing it.
Thirty years later, you found whom you have trusted had taken away 65% of the investment gains, and left you with only 35% of the gain. Do you feel that you have been cheated?
If you invest $200,000 over 30 years and your total gain is $600,000, your trusted friend has taken away $400,000 and leave you with a gain of only $200,000.
What type of product is this? It is a high-charge investment linked policy.
Would you prefer to have chosen a more trusted person who takes away 20% of your gains (to cover his expenses and earnings) and leave you with 80% of the gains? This person took away $120,000 and return your savings of $200,000 plus a gain of $480,000.
What type of product is this? It is a low cost investment fund.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Thirty years later, you found whom you have trusted had taken away 65% of the investment gains, and left you with only 35% of the gain. Do you feel that you have been cheated?
If you invest $200,000 over 30 years and your total gain is $600,000, your trusted friend has taken away $400,000 and leave you with a gain of only $200,000.
What type of product is this? It is a high-charge investment linked policy.
Would you prefer to have chosen a more trusted person who takes away 20% of your gains (to cover his expenses and earnings) and leave you with 80% of the gains? This person took away $120,000 and return your savings of $200,000 plus a gain of $480,000.
What type of product is this? It is a low cost investment fund.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Buy critical illness for 20 years only
Hi, Mr Tan
I'm currently 34 years old (male). I am interested to obtain a $200k coverage in critical illness for life as I'm concerned about the rising medical costs as I grow older.
My financial adviser has advised me to buy LifeSecure (Limited pay plan) that requires me to pay 20 years' of premium. Thereafter, I need not pay anymore premium.
I would be grateful if you could advise if there are term plans in the market that would provide coverage for critical illness for life. And what is the premium like?
REPLY
In my view, critical illness cover for a lifetime is very expensive and unnecessary. You should buy this cover for 20 years. If you save the remainder of the premium in a low cost investment fund, your accumulated savings can be more than the sum assured at the end of 20 years.
Read this FAQ
http://www.tankinlian.com/faq/choice.html
I'm currently 34 years old (male). I am interested to obtain a $200k coverage in critical illness for life as I'm concerned about the rising medical costs as I grow older.
My financial adviser has advised me to buy LifeSecure (Limited pay plan) that requires me to pay 20 years' of premium. Thereafter, I need not pay anymore premium.
I would be grateful if you could advise if there are term plans in the market that would provide coverage for critical illness for life. And what is the premium like?
REPLY
In my view, critical illness cover for a lifetime is very expensive and unnecessary. You should buy this cover for 20 years. If you save the remainder of the premium in a low cost investment fund, your accumulated savings can be more than the sum assured at the end of 20 years.
Read this FAQ
http://www.tankinlian.com/faq/choice.html
Buy the right product
Someone told me, "If you are not insured, you stand a 5% chance of being poor. This is the chance of suffering from an uninsured event. If you are insured, you stand a 95% chance of being poor. This is the likelihood of buying an expensive product that takes away too much money from the customer and gives a good commission to the agent. "
If you buy the right insurance product, e.g. low cost term insurance, you avoid the 95% chance of being poor, and avoid the 5% chance of suffering an uninsured loss.
If you buy the right insurance product, e.g. low cost term insurance, you avoid the 95% chance of being poor, and avoid the 5% chance of suffering an uninsured loss.
MAS Guidelines on Fair Dealing
18 May 2008
MAS Guidelines on Fair Dealing
Submission by Tan Kin Lian
1. The Monetary Authority of Singapore (MAS) is seeking views on proposed Guidelines on Fair Dealing – Board and Senior Management Responsibility for Delivering Fair Dealing Outcomes to Consumers (Guidelines).
2. The Guidelines emphasise the responsibility of the Board and Senior Management of financial institutions (FIs) to deliver fair dealing outcomes when FIs provide financial advisory (FA) services to retail consumers. The fair dealing outcomes that FIs should strive to achieve are:
(a) Consumers have confidence that financial institutions put consumers’ interests first in the conduct of their business;
(b) Financial institutions offer products and services that are suitable for the consumer segments they target;
(c) Financial institutions appoint competent representatives who provide consumers with advice that meet their financial objectives and suit their personal circumstances;
(d) Consumers receive clear, relevant and timely information to make informed financial decisions; and
(e) Financial institutions handle consumer complaints promptly and in a consistent manner.
3. I agree with the goal to ensure that the consumers are given fair dealing outcomes. I believe that the board and senior management should be made responsible to achieve these outcomes. However, in my view, this requirement is not sufficient.
4. It is difficult for the board and senior management, who are responsible to achieve the “best shareholder value” for the financial institution, to be able to “put consumers’ interest first in the conduct of their business”. We must recognise and address this serious conflict of interest, in order to achieve the desired goal.
5. “Put consumers’ interest first” must be defined clearly. In my view, the financial products must be designed to give good value to the customers and a fair profit margin to the financial institution. If the product contains excessive expense charges and profit margins and are not fairly and clearly disclosed to the public, it will not pass the test of “good value”.
A good test is, “will a knowledgeable person, with no vested interest, buy the product for his own use or recommend it to a friend?”
6. As it is almost impossible for the board and senior management to exercise this responsibility adequately, we need a more effective channel to achieve the results.
In many countries, this responsibility falls on one or both of the following:
(a) Regulator
(b) Consumer advocates
7. Some financial products introduced in Singapore in recent years are complicated. It is not realistic to expect the consumer to be sufficiently well informed about the product to make the right decision, especially if they are pitted against the financial experts working for financial institutions, who have the freedom to design products aimed at maximising profits for the financial institutions.
8. There is a similar situation regarding the approval of drugs for consumption by the public. The regulator, such as the Food and Drug Administration of the USA and the Health Science Authority of Singapore, takes the responsibility to check that new drugs are suitable for consumption by the public. A drug cannot be sold without the approval of the regulator. The regulator does not expert the consumer to be sufficiently educated to make the judgement on their own.
9. It is equally important to ensure the financial health of Singaporeans. They work hard to earn an income and have to save part of the income for their future needs. If they are offered products that do not offer fair value, they are being unfairly exploited by the financial institutions.
10. Over the past ten years, Singaporeans have invested billions of dollars in complicated financial products, including structured financial products and more traditional financial products that give poor value. Most of these products have the following features:
(a) Excessive expense charges
(b) High profit margins
(c) Complex – difficult for consumers to understand
These excessive charges and high profit margins reduce the return to the consumer. Many of them get a poor return relative to the risk that they have to bear. They would have obtained a better return by investing in government bonds, for people who look for risk free returns, or leaving their savings in the Central Provident Fund.
For investors willing to take risk, they would have obtained a higher return by investing in fairly priced unit trusts.
11. Life insurance products, such as whole life, endowment and regular premium investment linked policies have high sales charges that take away more than 150% of the annual premium. These high charges reduce the return to the consumer considerably, and are not justified by the value of the product given to the consumer. The competition appears to be on the recruitment of the right type of agents who are able to “convince” customers to buy these products. There is no attempt to offer more appropriate, lower cost products to the consumers.
12. If MAS were to make a study of the innovative financial products that were sold to consumers in recent years and compare the actual return earned by the consumers against the return on “fair products” offering similar risks, the study will probably show that the investing public had been deprived of at least several hundred of millions of dollars of fair return from their investments.
13. I recommend the following approach:
(a) All complex financial products should be reviewed by two independent experts appointed by the regulator. These experts can ask relevant questions from the product issuer and study the answers to form an opinion on whether the product provides “fair dealing outcome” to the consumer. The experts can study if the charges, profit margin and penalty (to get out of a long term contract) are fair to the consumer. The experts can submit their recommendations to the regulator.
(b) Based on the recommendations of the independent experts, the regulator can disallow the product from being marketed, or be marketed with the views of the independent experts, posted in an easily accessible website.
(c) The regulator can specify the classes of simple and transparent products, such as bank accounts and products traded on the stock exchange, that are excluded from this requirement. These products may require certain guidelines to be observed, such as disclosing the effective rate of interest in a suitably prominent manner.
14. Conclusion
I support the move by MAS to make the board and senior management of financial institutions responsible to deliver fair outcomes to consumers. I recommend that this should be strengthened by an additional measure to get independent experts to review the financial products that are offered to the public.
Tan Kin Lian
MAS Guidelines on Fair Dealing
Submission by Tan Kin Lian
1. The Monetary Authority of Singapore (MAS) is seeking views on proposed Guidelines on Fair Dealing – Board and Senior Management Responsibility for Delivering Fair Dealing Outcomes to Consumers (Guidelines).
2. The Guidelines emphasise the responsibility of the Board and Senior Management of financial institutions (FIs) to deliver fair dealing outcomes when FIs provide financial advisory (FA) services to retail consumers. The fair dealing outcomes that FIs should strive to achieve are:
(a) Consumers have confidence that financial institutions put consumers’ interests first in the conduct of their business;
(b) Financial institutions offer products and services that are suitable for the consumer segments they target;
(c) Financial institutions appoint competent representatives who provide consumers with advice that meet their financial objectives and suit their personal circumstances;
(d) Consumers receive clear, relevant and timely information to make informed financial decisions; and
(e) Financial institutions handle consumer complaints promptly and in a consistent manner.
3. I agree with the goal to ensure that the consumers are given fair dealing outcomes. I believe that the board and senior management should be made responsible to achieve these outcomes. However, in my view, this requirement is not sufficient.
4. It is difficult for the board and senior management, who are responsible to achieve the “best shareholder value” for the financial institution, to be able to “put consumers’ interest first in the conduct of their business”. We must recognise and address this serious conflict of interest, in order to achieve the desired goal.
5. “Put consumers’ interest first” must be defined clearly. In my view, the financial products must be designed to give good value to the customers and a fair profit margin to the financial institution. If the product contains excessive expense charges and profit margins and are not fairly and clearly disclosed to the public, it will not pass the test of “good value”.
A good test is, “will a knowledgeable person, with no vested interest, buy the product for his own use or recommend it to a friend?”
6. As it is almost impossible for the board and senior management to exercise this responsibility adequately, we need a more effective channel to achieve the results.
In many countries, this responsibility falls on one or both of the following:
(a) Regulator
(b) Consumer advocates
7. Some financial products introduced in Singapore in recent years are complicated. It is not realistic to expect the consumer to be sufficiently well informed about the product to make the right decision, especially if they are pitted against the financial experts working for financial institutions, who have the freedom to design products aimed at maximising profits for the financial institutions.
8. There is a similar situation regarding the approval of drugs for consumption by the public. The regulator, such as the Food and Drug Administration of the USA and the Health Science Authority of Singapore, takes the responsibility to check that new drugs are suitable for consumption by the public. A drug cannot be sold without the approval of the regulator. The regulator does not expert the consumer to be sufficiently educated to make the judgement on their own.
9. It is equally important to ensure the financial health of Singaporeans. They work hard to earn an income and have to save part of the income for their future needs. If they are offered products that do not offer fair value, they are being unfairly exploited by the financial institutions.
10. Over the past ten years, Singaporeans have invested billions of dollars in complicated financial products, including structured financial products and more traditional financial products that give poor value. Most of these products have the following features:
(a) Excessive expense charges
(b) High profit margins
(c) Complex – difficult for consumers to understand
These excessive charges and high profit margins reduce the return to the consumer. Many of them get a poor return relative to the risk that they have to bear. They would have obtained a better return by investing in government bonds, for people who look for risk free returns, or leaving their savings in the Central Provident Fund.
For investors willing to take risk, they would have obtained a higher return by investing in fairly priced unit trusts.
11. Life insurance products, such as whole life, endowment and regular premium investment linked policies have high sales charges that take away more than 150% of the annual premium. These high charges reduce the return to the consumer considerably, and are not justified by the value of the product given to the consumer. The competition appears to be on the recruitment of the right type of agents who are able to “convince” customers to buy these products. There is no attempt to offer more appropriate, lower cost products to the consumers.
12. If MAS were to make a study of the innovative financial products that were sold to consumers in recent years and compare the actual return earned by the consumers against the return on “fair products” offering similar risks, the study will probably show that the investing public had been deprived of at least several hundred of millions of dollars of fair return from their investments.
13. I recommend the following approach:
(a) All complex financial products should be reviewed by two independent experts appointed by the regulator. These experts can ask relevant questions from the product issuer and study the answers to form an opinion on whether the product provides “fair dealing outcome” to the consumer. The experts can study if the charges, profit margin and penalty (to get out of a long term contract) are fair to the consumer. The experts can submit their recommendations to the regulator.
(b) Based on the recommendations of the independent experts, the regulator can disallow the product from being marketed, or be marketed with the views of the independent experts, posted in an easily accessible website.
(c) The regulator can specify the classes of simple and transparent products, such as bank accounts and products traded on the stock exchange, that are excluded from this requirement. These products may require certain guidelines to be observed, such as disclosing the effective rate of interest in a suitably prominent manner.
14. Conclusion
I support the move by MAS to make the board and senior management of financial institutions responsible to deliver fair outcomes to consumers. I recommend that this should be strengthened by an additional measure to get independent experts to review the financial products that are offered to the public.
Tan Kin Lian
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