Insurance should be based on sharing, fairness and transparency

Takaful insurance is operated on the Islamic principles of sharing, fairness and transparency.

In my view, all insurance transactions should be operated on these principles. As a cooperative society, NTUC Income has been observing these principles for the past 36 years.

When a person buys insurance, this person is joining an insurance pool. The premium should be calculated on the total claim amount and the expenses of operating the insurance pool, and shared fairly among the participants.

The insurance operator has the responsibility to manage the insurance pool well, pay the legitimate claims, keep the expenses low and make a fair margin. In this way, the premium can be kept low for all the insured participants.

The insurance operator should not charge a high premium and make excessive profit for shareholders. This will be unfair to the participants.

Sometimes, the insurance can produce a higher profit than expected. This could arise if the claim experience is favourable, or if the investments earn a better return.

Under takaful principles, a fair portion of the profits should be shared with the insured participants. The proportion to be shared should be fair and disclosed to the participants at the start.

Similarly, if the insurance pool pays more claim than expected, it is fair that they pay a higher premium and do not expect the shareholders to bear the loss.

It is possible for takaful principles to operate on general insurance, such as motor insurance and personal accident insurance.

Under this system, the premium charged to the participant has to be slightly higher than the market rates, maybe 10 to 20 percent higher.

The insurance operator should continue to manage the claims and expenses well and produce a profit. A fair portion of the profits should be shared with the insured participants. If this profit sharing is more than 10 or 20 percent of premium, the net cost to the insured participant will actually be lower under takaful insurance.

The insured participants can help to lower the cost in the following ways:

- avoid making excessive claims, eg motor repairs or health claims
- cooperate with the insurance operator to minimise the claims
- discourage other participants from making excessive claims
- reduce the admistrative cost by staying with the insurance operator for many years

Through this cooperative effort, the total cost can be reduced. This will be good for the insurance participants (ie the policyholders) and the insurance operator (ie the insurance company). It is win-win.

NTUC Income will be studying how to apply these principles to general insurance. We may introduce this profit sharing for certain products, such as personal accident insurance and motor insurance over the next 6 to 12 months.

We need to educate the public about the principles of sharing of risks and profits, and the principle of working together in cooperation.

We will offer a choice to our policyholders:

- pay a market rate based on a commercial contract
- pay a slightly higher premium rate and enjoy a share of profits

The profit sharing concept will be made available to Muslims and non-Muslims. Muslims like this concept as it it based on Syariah principles. Non-Muslims may like it as well.

Loss of earnings lead to less babies

The Institue of Public POlicy Research in the UK pubished a report. Many families delay having children, because women prefer to work and to earn an income. The cost of raising a child, ie the loss of earnings, is too high.

When they decide to have a baby later, it is too late. The women are less fertile. It was difficult to have a child at an older age.

This problem is faced in Singapore and in other countries. The problem in Singapore is probably worse.

What is the solution?

I have a radical proposal.

- give the mother $500 a child each month, until the child is 12 years old
- this is limited to 2 children per mother
- give free or subsidised further education to mother with 2 children

The cost of raising 2 children in each family will be borne by society. This gives an attractive option for some mothers to raise a family first, before they embark on a working career later.

I think that some countries, eg in Scandinavia, has adopted a bold approach and seem to be more successful in encouraging their people to have more children.

Assessment on the Spot

NTUC Income insures 290,000 vehicles. An average of 100 vehicles are involved in accidents daily.

Under the normal practice, the policyholder calls our hotline and ask for assistance. The policyholder is usually required to drive the vehicle to an accident reporting center (also called an Idac center) for the vehicle to be assessed. If the vehicle is badly damaged and cannot be driven, we will arrange for a tow truck to tow the vehicle to an Idac center.

Since 15 December 2005, NTUC Income has introduced another service. This is called "assessment on the spot". It provides for the mobile assessor to appear at the scene of the accident and to carry out an on-the-spot assessment.

The assessor takes about 15 minutes to reach the scene of the accident. The assessor assists our the policyholder and third party driver to assesses the damages at the scene of the accident. The assessor also helps them to complete the Singapore Accident Statement (SAS) forms, and to take photographs of the damaged vehicles and the scene of accident.

If any person is injured, the assessor calls an ambulance and the police. The vehicles will be towed to an IDAC center, if it cannot be driven. All documents and particulars will be forwarded to NTUC Income for further assistance or assessment of claim.

A total of 45 policyholders have used this service during the past 80 days. Based on a survey after the event, all the policyholders found this service to be useful.

Tan Kin Lian
CEO, NTUC Income

Dutch researcher: Innovative use of MMS

QUESTION:

I am a researcher for Endemol, a Dutch-based TV-production company.

I am currently working on a presentation on mobile marketing and mobile applications in the financial services industry. I just found out about NTUC's innovative MMS claim service which I think is very interesting!

Furthermore, when researching this service I found your blog, which I think is a very brave initiative! (I wouldn't know if a CEO of a Dutch insurance company would have the courage to do this, unfortunately)

I would like to highlight the NTUC MMS service in my presentation and would like to ask for some more information on the service. More specifically I have the following questions:

(deleted)

- Does NTUC have plans to launch other service-enhancing applications using mobile phones in the future.

REPLY:

Dear

We are delighted to be mentioned in your presentation. You may use our example.

We are now actively using SMS to send messages and reminders to our customers. It is working well.

Tan Kin Lian
CEO, NTUC Income

Make retirement housing more affordable

QUESTION FROM JOURNALIST:

Can you comment on the 30-year land for retirement housing? Does this make it more viable?

REPLY BY TAN KIN LIAN:

I prefer a special arrangement for the land to be tendered only for retirement housing. This will reduce the competition for the land from other type of use. It will bring down the price to a more affordable level for retirees.

It may be costly to buy a project for 30 years and to tear it down. The building cost has to be amortised over a short period.

It is better to allow for a longer period to amortised the building cost, for example 60 or 99 years.

The retirement housing can be owned by a cooperative, which can rent out to the retirees for a lifetime or a shorter period. The housing can be rented out to new tenants, after the retiree has passed away or moved out.

A retirement housing has the following advantages to the retirees:

- it is built to suit their special needs
- they have friends of similar ages that can spend time together
- they can go to the community to mix with younger people

I hope that my suggestions will give another perspective to reduce the cost to the retirees.

Reply: there is no catch in the top-up rider

20 February 2006

Editor
Forum
The Straits Times

I refer to the article, "Incomeshield removes limits on amount of lifetime claims", by Lorna Tan (Straits Times, 15 February 2006).

In the article, Mr Patrick Lim of Promiseland Independent was quoted as saying "Incomeshield's new top-up rider came with a catch. Unless it is an emergency case, policyholders are required to seek Income's approval for the treatment, by giving the insurer four days' notice prior to incurring the expense."

I wish to give our perspective of this feature.

NTUC Income recognises the concerns of some policyholders that the current limits are inadequate for major illnesses. The top up rider will pay for the additional expenses. In most cases, the policyholder can claim under the basic plan for the ordinary expenses, before hitting the current limit. The need for top-up expenses applies only to a small percentage of cases.

Our approach is to ensure that the larger medical expenses are kept at a reasonable level. If necessary, we will ask our own doctor to give a second opinion on the proposed treatment. This will be beneficial to the policyholder as well.

We aim aim to avoid excessive billing under a blanket "as charged" plan. We will manage the claims effectively and keep the premium affordable for our policyholders. This is important, as premium rates are expected to increase significantly when the policyholder gets older.

We have 800,000 people insured under our Incomeshield plan. As a cooperative society, our aim is to look after their best interest. We believe that a top up rider will pre-approval condition will serve them best in the long run.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Switch back to Incomeshield

To be sent to policyholders who switched away from Incomeshield recently.

22 February 2006

Incomeshield

You were previously insured under Incomeshield, but has transfered your insurance to another Shield plan. I wish to ask you to re-consider your decision.

Here are some key advantages of Incomeshield:

- The premium rates are lower than comparable plans
- It provides adequate coverage to meet most medical treatments
- You can buy a rider to cover the deductible and co-insurance
- You can buy a top-up rider to cover the major illness
- You enjoy unlimited lifetime coverage
- The insurance is guaranteed to be renewable for a liftime, beyond age 80 or 85.

Here is a brief comparison of the total premium payable over 40 years (from age 41 to 80 years) between Incomeshield and similar plans offered by other insurers:

Plan   NTUC Income     Other insurers
A        $30,000                $34,000 to $42,000
B        $18,000                $22,000 to $28,000

The coverages provided by the various plans are quite similar, except for some diffferences in the limits. The difference in premium can be as much as 60%. You can save up to $12,000 over 40 years, by insuring with NTUC Income. As the premium rates are expected to increase further in future years, it is important to choose an affordable plan.

If you wish to switch back to Incomeshield, you can call 6332-1133. We will arrange with CPF for you to switch bank and to get a refund of the proportionate amount paid to the other plan. You can also add the top-up rider to cover major illness.

If you wish to attend a dialogue session, you can call 6877-3366.

Tan Kin Lian
Chief Executive Officer

Set up a trust policy

Here is another idea of how a wealthy person can reduce estate duty:

- contribute a certain sum for each beneficiary in a trust policy now
- invest this sum in our combined fund or annuity
- allow the beneficiary to draw out a monthly sum from a certain birthday
- restrict the right of the beneficiary to draw out the principal sum

This gift is subject to estate duty, if the benefactor dies within 5 years of the transfer. This liability can be covered by a 5 year term policy.

RATIONALE: It is better for a wealthy person to transfer part of your wealth to your beneficiary now. If you do not want them to use the money immediately, you can set up a trust policy to ensure that the fund is withdrawn in instalments.

Use section 73 to reduce estate duty

Under section 73 of the Conveyancing and Law of Property Act, a policyholder can take up a life assurance policy and pledge it for the benefit of specified beneficiaries. Each policy will form a separate estate.

Here is an example of the use of Section 73 to save on estate duty

When a wealthy person passes away, the estate has to pay estate duty as follows:

- first $600,000 if free of tax
- next $x million will be taxed at 5%
- any excess will be taxed at 10%

The wealthy person can reduce the estate duty as follows:

- take a separate policy under section 73 for each beneficiary
- each policy is treated as a separate estate.
- the tax impact is lower.

Get a better medical insurance plan

Incomeshield offers you these attractive features!

* Unlimited Lifetime Coverage: Similar plans limit the amount that you can claim for a lifetime. Incomeshield covers has removed the lifetime limit.

* Guaranteed Renewability: Incomeshield guarantees that your cover will be renewable for a lifetime, beyond age 80, beyond age 85.

* Afforable premium: The premium payable under Incomeshield are 10% to 35% lower than similar plans charged by other insurers for similar coverage. As the premium increases sharply when you grow older, it is important for you to buy an affordable plan.

* Flexible Deductible: Incomeshield allows you to be treated in a lower class ward and to enjoy a lower deductible.

* Test and follow-up expenses: If your daily limit is fully utilised, the balance can be used to cover specialist consultation, examination and laboratory tests and post hospitalisation treatment.

* Riders: You can buy riders to cover the deductible and co-insurance, and to provide additional payments for critical illness

* No claim discount: If you have been insured for more than 3 years and have not made any claim in the preceding 12 months, you will enjoy a 10% discount on your premium (subject to review).