Friday, November 04, 2005

Reverse Mortgage for retirees


Dear Mr Tan,

I am writing a feature article on home equity. 47 per cent of total assets in the household sector are invested in residential properties.

1) Can you tell me more about Income's proposal for a reverse mortage plan that will suit HDB flat owners?

2) What are the main obstacles to Singaporeans monetising their assets, namely their HDB flats? What would you say are the best ways to overcome these obstacles?



At present, HDB does not allow its flats to be used for reverse mortgage. This is the main obstacle. If HDB relax on this rule, some owners may wish to use their HDB flat to get a reverse mortgage.

You have to ask HDB for their reason to impose this rule. It has been the rule for many years. HDB is not prepared to relax this rule up to now.

If HDB relax its rule, the financier will still have to address the following obstalces:

- how much should be granted as a monthly income?
- what interest rate to charge?
- how long to grant the loan?
- what happens when the property value drops below the borrowings plus interest?
- should the scheme be insured, ie guarantee payment of the income for the lifetime of the mortgagee?
- who owns the residential interest in the property at the time of death of the mortgagee?

The reverse mortgage offered by NTUC Income is an "uninsured" mortgage. It works as follows:

- we agree on a monthly payment to the mortgagee
- interest is charged at the current rate (around 4-5% per annum)
- so long as the total borrowings, with interest, does not exceed 80% of the value of the property (ie the 20% is to be a buffer), we will contiue the arrangement
- when the total borrowings reach 80% of the value of the property, we ask the mortgagee to make other arrangements, eg to sell the property and repay the loan
- if a small amount is taken out monthly, the arrangement is likely to continue for 20 years or longer
- when they sell the property, they repay the loan and keep the balance.
- if they die, the property is sold, and the balance of the property, after repaying the loan and interest, will go back to the estate.

In practice, we believe that many mortgagees are likely to sell their property after 5 or 10 years and to repay their loan. They can find another place to stay, eg rent a flat, stay with their children, or stay in a home for the elderly.

We also give an option for the mortgagee to allow a family member, eg son or daughter, to take over the property and the loan.


Here are some examples of the amount that can be drawn down:

- Non-insured, fixed period loan (20 years)
- All flat owners (fully paid up) over age 70 are eligible
- Interest rate 5% fixed
- Sample monthly drawdown amount (0.2% of initial property value)

Flat type Property Monthly
Value Drawdown

3-room $160,000 $320
4-room $240,000 $480
5-room $320,000 $640
Exec Apt $480,000 $960

- Borrowers can continue to stay in flat
- Early repayment and downgranding to smaller flat allowed (repay loan)

Thursday, November 03, 2005

Direct Discount for Motor Insurance



I understand Income is offering 5-10% loyalty discounts, as well as 10% discount if customers come direct to you (bypassing broker).

How has the promotion been in terms of success so far? What is your exact market share this year, compared with last year?



We offer a discount of 10% for a motorist who register with us and take the motor insurance directly with us, i.e they do not go through an insurance agent.

This direct discount of 10% incorporates the loyalty discount of 5% or 10%. The "direct" motorist receive a total discount of 10%, inclusive of the loyalty discount of 5% which is given to a motorist who stays with us for 3 years and 10% for 7 years or longer.

We have received extremely good response for the direct channel.

The number of direct motorists increased from 15,200 at the beginning of 2005 to 21,800 now. It now represents 14% of all motor cars insured with us. The other 86% are brought in by our insurance agents.

Earlier this year, an average of 300 cars insured directly each month. After the introduction of the 10% discount, the number than insure directly has increased by more than 3 times. In September, 1,100 motorists insure their cars directly with us.

We also offer the same 10% discount for motor cycles and commercial vehicles that insure directly. They also received good response. I do not have the figures for these two category of vehicles that are insured directly with us.

We believe that more motorists will choose to insure directly with us in the future. We have a network of seven branches located all over Singapore. They can also call us directly over the telephone. We will arrange for the policy document to be sent to their home for a small administration fee of $5.

The 10% discount represents an average saving of $80, based on an average premium of $800 for a motor car. If the premium is higher, the saving is more substantial.

Our market share of motor insurance has dropped from 42% last year to 39% now. This drop of 3% is contributed by the following factors:

- a few insurers have aggressively reduced their premium rates to match or go below our competitive rates.

- many people are scrapped their old cars to buy new cars this year due to the low COE. They are compelled to insure with another insurer through a tied arrangement with the distributors for the first year.

- some insurance agents diverted the motor insurance to other insurers, as they are unhappy with our direct channel.

We are confident that our market share will increase next year for the following reasons:

- many motorists who bought new cars will come to us when they renew their insurance on the second year

- our competitors will not be able to sustain the low premium rates, as they have not been able to manage their repair cost effectively.

- more people will come to us to enjoy the 10% discount

Our special discount of 10% for motorists who insure directly will apply up to the end of this year only. We may reduce the direct discount to 5% from next year.

To enjoy this 10% discount, the motorists can call our hotline now, and register with us before th end of this year.

Tan Kin Lian
CEO, NTUC Income

MHS provides better coverage than Medishield


Dear Mr. Tan,

I'm 65 this year and presently insured under the HMS. Recently, there are some drastic changes in the Medishield polcies.

My understanding is that I am not protected under the Medishied because of MHS. That was before the changes.

As of Jul 2005, private insurers have launched their medical insurance plans as enhancement plans to the reformed MediShield. Does that mean I will automatically become a medishield policyholder and enjoy the benefits on top of MHS?

If I'm presently only with MHS, am I taking a great risk not opting for Medishield? Or should I sign up for incomeshield and MHS to be safe? But that would be a burden financially because I'm retired.




You do not need to be worried.

The MHS provides a more comprehensive coverage compared to Medishield. It covers medical treatment at the GP, specialist and hospital. It has a co-payment of only 10% and pays from the first dollar (ie no deductible). So a higher percentage of the hospital bill is covered under MHS.

The only disadvantage of MHS is that it can be quite costly when you get older. If you find the premium to be too expensive, you can opt to be converted to Incomeshield, which covers hospital treatment, and is subject to a deductible and co-payment of 15%. This coverage is still better than Medishield.

You do not need to be worried about your coverage, as it is much better than Medishield.

Tan Kin Lian
CEO, NTUC Income

Investing the annuity pool

Dear Mr. Tan,

I think it is great that you make such an effort to communicate with your customers and potential customers. I have just been reading your blog...

I understand that the money for a particular annuity series is put into an insurance pool, which is then invested. What I'd like to do is to understand the nature of the investments.


1. Do you buy and hold bonds in your investment pool? What kinds? If so, what is the duration of the portfolio generally (i.e. just to get an idea of how
often the bonds turnover)?

Reply: we invest about 65% in bond and fixed income investment, and 35% in equity and property investments. The duration of the bond is between 3 to 7 years. We like to have longer duration. We tend to keep the bond for the longer term, and avoid active trading.

2. If there is a general shift in interest rates, how long before this
rise shows up in returns (bonuses) to policy holders?

Reply: If there is a shift in interest rate, we expect to see a higher yield on the reinvestment of our bonds. If there is an increase in interest rate, we expect the yield to increase gradually over the next few years.

3. I understand that there may be an upfront load/fee. What are the recurring ones? i.e. your cut of the returns from the investments.

Reply: Our expense of investment is about 0.5%. This is a reduction from the gross yield.

4. How often do you start a new series on average?

Reply: We introduced a new series due to the severe drop in interest rate. Our current series of annuity is priced at 2.5% per annum.We expect to keep this series for several years. If we earn a higher return, we will pay a higher bonus.

Wednesday, November 02, 2005

Are you getting better repair when you pay more?


Some owners insist on getting their cars repaired by the distributor's workshop. They think that the quality of repair is better.

On average, the distributor's workshop charged 2 times of the price of repairs carried outside.

We investigated on how several distributors carry out the repair. Do they provide better quality?

Our finding? Many of the distributors outsource the repairs to external independent workshops. They charge the full price for the parts and add 35% on the bill of the external workshops.

If you (the owner) go to the external workshop directly, you can get a discount on the genuine parts and pay the market rate. You get the same quality of repair.

So, if you are paying for the servicing and repair of your car, you do not need to go to the distributor and pay so much more.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Only 1% of repair affect the engine

We carried out a detailed analysis of 200 motor repairs arranged by us during a week.

Only 1% of the repairs affect the engine. Under our repair practice, we send these cases to the distributor as it involves the use of specialised equipment, that are available from the distributor.

5% of the repairs require "mounting of the engine" but not repair to the engine. This means that the engine has to be removed to allow repairs to be done to other damaged parts, and mounted back. This can be done by external workshop without any risk at all.

The remaining 95% do not affect the engine or mounting of the engine. They are usually on minor dents and replacement of exterior parts of the vehicle. They can be done by external workshops quite easily. Many of the people working in these external workshops had their experience working for the distributors previously.

Conclusion? You only need to pay a high price for 1% of repairs that has to be done by the distributor. For 99% of cases, you can go to an external workshop and enjoy up to 50% saving and get satisfactory quality of repair.

Tan Kin Lian
Chief Executive Officer
NTUC Income

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