Monday, March 24, 2008

Creaming off the customer

Dear Mr. Tan,
Is an insurance product that offers a return of less than 2% over 20 years considered as "creaming off" the policyholder?

REPLY
Over a 20 year period, the expected return should be 5% per annum, considering the current rate of inflation and other factors.

If the product offers less than 2%, then the difference of 3% is taken away for the following:
a) cost of insurance protection
b) commission to the sales agents
c) advertising expenses
d) high salaries and other expenses.

The cost of insurance protection should taken away only 0.5%. The remaining 2.5% is large wasted on the marketing and other expenses.

The product is usually marketed with "gimmicks" that hide the real cost. This can be considered as "creaming of" the customer.
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3 comments:

Anonymous said...
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March 24, 2008 10:35 PM
Anonymous said...
This comment has been removed by a blog administrator.
March 25, 2008 1:36 AM
Anonymous said...

This product must be revosave and all the other cash back products belonging to this group. Wonder sometimes why aurthority didn't stop these products from being introduced. They definitely don't benefit the consumers. Especially in a time when out government is urging us to save and grow our money for retirement. These products almost do the opposite.The marketing message speaks of it.It encourages spending. The products short change the consumer and lock them for very long time offering buyers paltry return .These are lazy products.
The problem is that public are clueless and therefore become easy prey for companies and the insurance salesmen to exploit.
I have known of many who bought these products but have no idea what and why they bought.
MAS should protect these consumers by requiring sellers to conduct a proper need analysis to see if the product meets consumers' needs. All these malpractices arise from selling. Selling is very dangerous becuase it preys on the buyer's weakness and very often unethical means are used to"convince" the buyer. This must be stopped before more people get hurt financially.

Zhumeng:o)

March 26, 2008 9:56 PM

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