Benefits of Life Insurance

Life insurance performs two useful functions:
a) Provide financial security in event of premature death or disability through the pooling of risks
b) Provide a useful service for ordinary people to pool and invest their savings to get an attractive long term return.

If it is practiced fairly, transparently and honestly, it can bring tremendous benefits to ordinary people. This was how life insurance was practiced for a long time in the past. It was useful to society.

In recent years, life insurance has been changed to be a way for financial institutions to make large share of the gains, and to offer a poor return to the unsuspecting, trusting public. The charges taken away from the consumers to pay the high marketing expenses, salaries and profits are excessive - perhaps unconscionable.

I hope that the leaders of life insurance realize that they have a responsibility to offer a fair return to the consumers who trusted them to take care of their future. It is necessary to pay for the expenses and make a fair profit, but the charges should be reasonable and the interest of the consumers must also be protected.

I hope that the regulator will make it possible for the public to enjoy a fair outcome. This will make life insurance a good way for consumers to save and invest for the future.

Tan Kin Lian

Purpose of insurance regulations

Some regulators consider that their primary duty is to ensure the solvency of the insurance companies, as financial failure will cause hardship to the consumers. Solvency is important, but is not the only risks faced by the consumer.

The regulator has also to pay attention to all four duties, as follows:
- Maintain insurer solvency

- Compensate for inadequate consumer knowledge
- Ensure reasonable rates
- Make insurance available

Consumers are not well versed in insurance and may be badly treated through legal contracts that are not transparent and not fair. A common example is the use of irresponsible projection to entice consumers to invest in insurance contracts, and to give a final payout that is much lower than projected. Badly worded or unclear language in policy documents also place consumers at a disadvantage as the consumers are not able to afford the legal fees to have the contracted interpreted in the court.

The regulator has also to ensure that the insurance rates are reasonable and that consumers are not overcharged due to their ignorance of the market or their inability to judge the value of the insurance protection that is provided.

At the other extreme, the regulator also wants to prevent irresponsible price cutting that may lead to insolvency of the insurers. If an insurer cuts price to an inadequate level, other insurers may be forced to follow, to protect their market share.

The regulator also aims to ensure that insurance is available, especially for people or risks that are considered to be unprofitable. As motor insurance is compulsory, it is necessary to ensure that it is available to people who are considered to be high risk, as they would otherwise by denied the right to drive a car.

Tan Kin Lian

Mark to market and asset bubbles

There is an accounting principle called "mark to market". It is generally recognized that the most recent transaction represents the best indication of the current value of a specific asset and that it is better for the financial accounts to share the "fair values" of these assets.

This accounting principle works well when there is a true market with many transactions or where the prices are not driven by manipulation, speculation, gambling, greed and fear.  Unfortunately, the imperfect situation occurs more commonly than the true market situation.

Many property transactions do not reflect the true market as they are big ticket items, and are driven by manipulation and fear. These transacted prices are then used to create an impression of the market values. This is how bubbles are created.

Bubbles will create wealth for the speculators, but will eventually have to burst, giving a lot of economic pain for ordinary people who are caught with the over-priced assets that have to be paid over a lifetime. This does not create a sound economic or social foundation.

I hope that the "mark to market" rule can be modified to recognize its undesired role in creating bubbles in properties. I also hope that effective measures be taken to prevent future bubbles, such as the recent measures taken in Singapore and now being applied in China. It recognizes that property prices cannot be left to the market and have to be better controlled.

Tan Kin Lian

Broadcast of World Cup matches

How much should the operator pay for the right to broadcast the World Cup matches in Singapore? FIFA wants $100 million. The operator (Singtel, Starhub or both) offers to pay a lower fee, as they are not likely to get sufficient revenue to make a profit.

This is free market at work (or rather, fail to work). There is free negotiation, but there is no real market, as there is only one supplier, i.e. FIFA. Is FIFA abusing its monopolistic pricing power, or is it just trying to get a fair amount from affluent Singaporeans?

Rather than pay a flat fee, it would be better for the operator to work with FIFA on a revenue sharing formula. FIFA can decide on a fee per viewer (for the entire series of matches) and the operator can add on its charges to offer the final product to consumers. The price charged will determine the number of subscribers who are willing to pay this fee.

Let me make a guess about a fair fee to pay to FIFA. I estimate that 300,000 homes would be willing to pay $150 to watch the matches on TV. The operator has to keep $50 to cover its marketing and operating cost. This would leave $100 per subscriber for FIFA, or an estimated $30 million for 300,000 subscribers.  If the viewer is willing to pay $200, the fee to FIFA could be increased to $45 million.

I hope that the operator can agree with FIFA on a revenue sharing model or FIFA should reduce its fee to $30 to 45 million. This would be in the interest of soccer and sports.

Tan Kin Lian