I have mentioned the bad practices of insurance companies in this blog. Someone asked me this question a few times, "was the practice different when you were in charge of NTUC Income?"
I can say that the two key differences during my time were:
a) my colleagues were very clear that it was our policy to give fair treatment of policyholders
b) as the CEO, I was willing to receive and respond personally to feedback from policyholders.
I am sure that my colleagues do make mistakes or took decisions that may be unfair to policyholders, but these mistakes are reduced (due to our culture at that time) and the ability for policyholders to access the CEO helps to correct these mistakes. I might have made some mistakes as well, but it was not intentional and not aimed at maximizing profits.
We still have to ensure that the policyholders do not take advantage of our generosity and are not paid claims that they are not entitled to, but we do give the benefit of the doubt to policyholders (unless it is clear that they are abusing our trust).
I believe that all insurance companies should aim to treat their policyholders fairly, regardless of whether they are cooperative, social enterprise or commercial, even as they aim to run a profitable business. They should make an honest and fair profit, and should not make an excessive profit at the expense of the policyholders. They should pay a fair rate of bonus to policyholders on their participating policies. They should design products that charge a fair rate of premium and give a fair yield to the policyholders on their savings.
Tan Kin Lian
Monday, March 22, 2010
Casino and coasters - a Singapore life
For those who have not yet visitor Resort World Sentosa, watch the photos in this article.
Poor return on a policy with regular payouts
A reader asked my advice on a life insurance policy that was bought a few years ago. It provided a cash payment every 5 years and projected the accumulation of the installments on a non-guaranteed interest rate of 5% per annum.
The benefit illustration showed the following:
a) The distribution cost, which is the amount taken from the savings to pay commission to the agent and other marketing expenses, amounted to $3,467 for the first 6 years, representing about 2 years of the premium. This will continue to increase for each year but at a lower pace. With two years of the savings taken away, the return on the policy is likely to be poor.
b) At the end of 20 years, the projected amount as follows:
guaranteed $40,300
non-guaranteed: $14,881 (assuming the coupons accumulate at 5% p.a.)
total $55,181
c) It is better to be conservative and assume that the coupon will accumulate at 2.5% p.a. and take the non-guaranteed portion at half, i.e. $7,440. The projected amount at the end of 20 years will be $47,740, representing a yield of 1.8% p.a. on the savings. This is a reduction of 3.4% from the projected yield of 5.25%. This reduction is excessive - this policy gives a poor return.
d) If the annual premium of $1,967 is invested to earn 5.25% p.a. the total accumulated savings at the end of 20 years would be $70,292. The projected payout (based on a more conservative estimate) is $47,740, representing a reduction of 32% (which is excessive).
The life insurance policy gives a poor return. But, If it is terminated now, the policyholder will still suffer a large loss. It will be difficult for me to advice whether to continue or terminate the policy at this time, as it depends on the personal circumstances and priorities of the policyholder.
Tan Kin Lian
Avoid all land banking projects
Dear Sir,
This project was brought to my attention and is currently being sold in Singapore as a land banking project in Hawaii financed by a company in Singapore.
My question is, is this project a legal one? I have been told the company selling the land to investors is not governed by the MAS and does not need to meet any of MAS guidelines. Is this possible? Is this project a scam?
I have some URL's below which show information on the project.
REPLY
Read my blog. This type of investments should be avoided. Do not invest in them.
You can ask MAS or the Ministry of Law on whether this company breaks the law. I am not the person who decides on such matters.
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