Thursday, August 20, 2009
Health insurance exchange: the fine print
The article explains the working of the proposed health insurance exchange. It will have impact on how insurance will be sold in the future. I hope that the idea can spread to Singapore.
High Bank Charges
I have to make a remittance of USD 2,000 to a factory in Shenzhen. A check with several banks showed the bank charge to be SGD 40 or more. I find it to be quite high. The actual cost to the bank of making this remittance should be small. They are over-charging customers to make a big profit. What happen to competition in bringing down cost?
US Immigration Form - Moral Turpitude
If you wish to enter the USA, you have to complete a form that includes the question, "Have you ever been convicted of an offence involving moral turpitude?"
What is "moral turpitude"? How do you answer this question? Read a tip here.
RED website
I have received several favourable comments about the RED website (Real Estate Data).
* easy to navigate
* layout very neat and clear
* useful information
* useful to show similar projects in the same zone
* give the potential buyer an idea of the prices being transacted for the specific or nearby condo
I do not have the photos and videos yet, and will encourage the owners to upload them into the website. If accepted by me, the owner will get $5 for each set of materials.
Go to www.easysearch.sg (Real Estate Data).
Transparency in insurance
Published in Straits Times Forum page
I REFER to last Thursday's reply by the Monetary Authority of Singapore (MAS), 'Interests of policyholders protected: MAS', in which MAS stated that my letter ('Transparency in insurance: Policyholders underpaid', Aug 6) suggested that insurers have built up 'orphaned money' by under-declaring bonuses to participating policyholders.
I never suggested that. In fact, I said orphaned money comes from a different source: policyholders who leave the fund early, before their policy matures.
Life insurers acknowledge that early surrenders receive less than their full asset share. The underpayments accumulate and form a slush fund commonly known as 'orphaned money'.
MAS claims I believe life insurers under-declare bonuses in order to build up orphaned money, but this would be difficult and I doubt it happens.
Bonuses are cut only in downturns, when the policyholders' fund has suffered losses. They would need to be cut in good times for the bonuses to add to orphaned money. This has probably never occurred.
Whether orphaned money exists depends on just one thing: Do life insurers pay less than the proportionate ownership - called asset share - to policyholders who leave the fund before their policy matures? To give a frame of reference, it would be like a unit trust paying less than the net asset value when investors sell.
If MAS or the life insurers say, 'We pay early surrenders their full asset share and always have', then that is the end of it. I have made an error, orphaned money does not now exist, it never has and I apologise.
The MAS reply, however, talks about the 90:10 insurance rule and the risk-based capital regime. These do not address the question of whether the full asset share is paid to policyholders when they exit the fund. That is the only way to know if orphaned money exists.
It would be easy for MAS or life insurers to disclose if they pay the full asset share. They are the only ones who can answer the question as they are the only ones with the data.
If orphaned money exists, then we can move on to the second step of determining how much it is and where it is held since - at present - no Singapore life insurer carries an account labelled, 'orphaned money'.
Larry Haverkamp
Concept of asset share is fairer to policyholders
Published in Straits Times Forum Page
IN LAST Thursday's reply, 'Interests of policyholders protected', the Monetary Authority of Singapore (MAS) stated that insurers in Singapore are required to record the total amount of assets held in the participating fund as backing liabilities to participating policyholders. It also said the issue of 'orphaned money' does not arise.
I am unable to follow its reasoning. Take, for example, a participating fund with assets of $15 billion and total individual liabilities of participating policies of $13 billion. This leaves orphaned money amounting to $2 billion.
Although this orphaned money is supposed to belong to the policyholders, it is not distributed to any individual policyholder who leaves the fund on termination of his policy.
This is not fair to policyholders who have unwittingly contributed to the orphaned money by receiving lower bonuses than they are entitled to. This has contributed to the poor return received by policyholders on the savings in their life insurance policies made over a lifetime.
The orphaned money is usually used by the insurance company to pay the high marketing expenses to acquire new policyholders and introduce new products. This benefits shareholders.
The recent practice of many insurance companies in reducing their bonus rates will aggravate this problem.
I have terminated most of my participating policies as I felt uneasy with the practice that is now adopted by the insurance company.
Several countries have addressed this problem by mandating that the 'asset share' should be computed for each individual policy. This is the amount that is attributable to each individual policy based on the premiums paid, the investment income earned on these premiums, less the charges for insurance protection and expenses.
There is also a requirement that the full asset share should be given to the policyholder on termination of the policy, after it has been in force for a certain period.
It is timely for Singapore to explore the use of this concept of asset share, to ensure that the interest of the policyholders is truly protected and that they receive a fair return for a lifetime of savings. It will also prevent the accumulation of a large orphaned fund, at the expense of the participating policyholders.
Tan Kin Lian
Bonus cut by 45% in 5 years
Dear Mr Tan
I had insured three 5-year policies taken with X since 2004. They reduced the bonus in April 2009 and reduced the maturity proceeds for my three policies by a substantial sum of $ 12,751 (projected yield at maturity reduced from 2.81% reduced to 1.59%). The maturity returns was cut by almost 45% over the 5-year period.
My appeal case was reviewed twice by X but they were unable to offer the higher maturity values. X stated that the bonus revision is within the policy contract and only the non-guaranteed portion is adjusted.
The poor returns affect my retirement saving. I would like to seek your advice - should I put forward my case to FIDReC for a third partly iassessment in order to get a fairy satisfactory returns.
REPLY
FIDREC is likely to side with X, so there is no point in asking them to adjudicate.
I had insured three 5-year policies taken with X since 2004. They reduced the bonus in April 2009 and reduced the maturity proceeds for my three policies by a substantial sum of $ 12,751 (projected yield at maturity reduced from 2.81% reduced to 1.59%). The maturity returns was cut by almost 45% over the 5-year period.
My appeal case was reviewed twice by X but they were unable to offer the higher maturity values. X stated that the bonus revision is within the policy contract and only the non-guaranteed portion is adjusted.
The poor returns affect my retirement saving. I would like to seek your advice - should I put forward my case to FIDReC for a third partly iassessment in order to get a fairy satisfactory returns.
REPLY
FIDREC is likely to side with X, so there is no point in asking them to adjudicate.
It is unfair for X to cut the bonus by so much, especially as the stockmarket has recovered substantially from since April. I suggest that you write to the newspapers and make a complaint.
Plain English is the best policy
Read this article. It explains why insurance policies have to be written in a form that consumers can understand.
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