Panic of AIA policyholders

Dear Mr. Tan Kin Lian:

I'm a journalist. We read your blog and see many AIA policyholders seeking your advice. We are very interested. How big a problem is AIA facing? How are policyholders reacting to the problem? Do you find their worries reasonable or unreasonable?

REPLY

The policyholders of AIA (American International Assurance) were worried about the safety of their insurance savings when they heard about the financial trouble facing AIA's parent company, AIG (American International Group). At that time, they learned that AIG had to be find additional capital of USD 80 billion (not sure about the exact figure), failing which AIG had to declare bankrupcy. They were worried that their savings would be locked up during the bankrupcy or worse still, disappeared entirely.

Many policyholders queued up to terminate their policies and receive the cash values. They are willing to take a loss, as the cash value is less than the premiums that they have paid, and the penalty is quite high for policies that are terminted during the early years of the insurance policy.

A total of 5,000 policies were reported to be surrendered during the first two years. Many of these policyholders formed large queues outside of the office of AIA. This caused other policyholders to be alarmed.

Some of the AIA policyholders sent e-mails to seek my advice. I advised them not to panic and not to surrender their policies. My reasons were given in this blog:

http://tankinlian.blogspot.com/2008/09/is-your-money-safe-with-aia.html

On the following days, the regulator, i.e. Monetary Authority of Singapore, and AIA issued similar statements to assure the policyholders.

There was no need for the policyholders to panic, as their insurance savings are kept in a separate fund for Singapore policies. This fundwas, to my knowledge, solvent and in good financial state. Even if there is financial difficulty facing AIA (and there was none at that time), there is provision in the Insurance Act for the regulator to activate the Policyowners Protection Fund. This fund would guarantee 90 percent of the liability under a life insurance policy. This is much better than taking the cash value, as the penalty is higher for a surrendered policy.

I do my best to educate the public about the actual situation and to help them avoid taking the wrong action that will result in making a loss on their savings.