Saturday, July 05, 2008

Losing its cooperative character

I met a friend at a cooperative dinner last night.

He made this observation, "Mr. Tan, when you were with Income, you kept the expenses low and offered an alternative to the people that were different from the other insurance companies. I can see that much of what you have done is being reversed and Income is now becoming like the other insurance companies. I feel quite sad for the policyholders of Income."

I told him that I agree with this observation. I hope that the management and board of Income will realise that many policyholders feel this way.

Free surplus in the Life Fund

I raise the issue about why the yield on the Growth policy was below the "actual experience of the Life Fund".

In his reply, Mr. Ken Ng from Income said,

I would like to highlight an additional consideration in 2008. Markets were very turbulent because of the sub-prime crisis at the time the bonus declaration was made. Much of the capital appreciation enjoyed in the 2007 has been reversed. They are still are very turbulent. It would not have been prudent to make an significant increase in bonuses and raise expectations at such a time of uncertainty.

I asked Mr. Ken Ng for the following information:

1. How much was the free surplus in the Life Fund at the end of 2007 (that was not distributed to policyholders)
2 How much of this free surplus has since been reversed?

There was no reply and no acknowledgement to my question for about one week.

Friday, July 04, 2008

Buy Two Life Annuities

Dear Mr. Tan,

Is it sensible to have two Anunities - one from CPF and the other from NTUC Income? I am more on the preservative type, do not want to take risk in investment.

This is an excellent idea. I have recommended it before. Buy an annuity for CPF for its attractive return. Buy a life annuity from the private sector using cash savings.

Read this FAQ:

Fair Treatment of Policy Owners

I found this excellent paper from Bank Negara, Malaysia. It explained the method of using asset share to ensure that policy owners get cash values that are fairly computed:

Here is the FAQ from the Life Insurance Association of Malaysia:

Here is another article printed in The New Paper:,4136,167015,00.html

Long breakeven point for 30 year endowment

My friend is a retired manager of a life insurance company. He found that his daughter, a recent graduate, was sold a 30 year endowment policy. The benefit illustration showed that, for the first 27 years, the cash value was below the premiums paid.

During the last three years, the benefit illustration showed a large amount of non-guaranteed terminal bonus that boost the yield on the policy. The daughter was not aware that she would suffer a loss for 27 years and had not been properly advised by the agent. The agent only highlighted the high maturity value to convince the policyholder to enter into this "saving plan".

My friend said, "How can a saving plan have a breakeven point of 27 years? This is like cheating people". He wanted to ask the agent to refund all the premiums to the daughter. I advised him to get the daughter to lodge a complaint with MAS.

Asset share in 2009

Mr. Ken Ng said that NTUC Income will work on the asset share in 2009 and declare bonuses based on the "actual experience". This is not fair to policies that mature in 2007 and 2008, where the bonuses are far short of the asset share.

It is the duty of the appointed actuary to look at the actual experience to declare a fair rate of bonus. Whether the actuary adopt the asset share or other suitable method, the need for fairness has always been a key consideration in the distribution of bonus.

It is not correct for the appointed actuary or the board of directors to ignore this consideration, as it affects the reasonable expectation of the policyholders and could amount to holding back many thousands of dollars that may be fairly attributed to them. There is the risk of legal action taken by the policyholders.

Mr. Ken Ng asked me to clarify that he became the appointed actuary only in 2007. The bonus declaration for 2006 was recommended by the previous appointed actuary, Nick Rhodes, and supported by me when it was presented to the board of directors in late 2006 (when I was still the CEO).

I replied to Mr. Ken Ng that the bonus declared in 2006 showed a significant increase over 2005. I believe that the bonus for 2007 should show a further increase over 2006, as it can be justified by the excellent investment yield achieved in 2007.


MySudoku appears in the MyPaper daily. The puzzle on Friday are arranged to show the letters M-Y. Take a look at this puzzle.

The tips to solve the Sudoku puzzles are contained in my website,, under Logic9 (an alternative name to Sudoku).

Improve public transport

Do you have any suggestions to improve the public transport in Singapore. Give your views in this website:

Thursday, July 03, 2008

Use of asset share in Malaysia

From 2005, the regulator in Malaysia made it mandatory for life insurance companies to use asset share to determine the cash value and maturity value of their participating policies. This is to ensure that the policyholders get a fair value on their policies based on the actual experience of the fund.

Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.

The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.

After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.

I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.

Wednesday, July 02, 2008

Cooperative credentials

Dear Mr. Tan,

May I be permitted to make an observation. The new management of Income missed a wonderful opportunity to show that they can embrace the true spirit of being a cooperative and win over the loyalty of over 1 million policyholders that you have built up over the past 30 years.

How? The excellent investment yield in 2006 and 2007 gave them the chance to restore back all of the bonus cuts since the Asian financial crisis. Why did I say this? I read that the investment yield over the past 10 years is 7.8% and that is more than the yield of 6% that was used to project the bonus rates during these years.

I am rather sad that they did not take this opportunity to re-establish their credentials. Instead, they appear to be trying to hide the profits from the policyholders, and give less than what the actual experience would really allow. How disappointing. What are your views, Mr. Tan?


I agree with your views. Indeed, if they have restored the past bonus cuts, and they have the surplus to do so, they would have placed NTUC Income is a strong marketing position. This is a reputation that is more valuable than the millions of dollars spent on advertising.

They still have the chance to change their strategy and adopt this "restore the bonus cut". I hope that the board will do so.

Disclose the Asset Share of the Policy


Hi --

NTUC Income says, "We don't have the money to pay higher bonuses."

Mr. Tan says, "Based on your high stated yield, it sure looks like you do."

How to know for sure?

As Mr. Tan has pointed out before, it is easy. Simply disclose NTUC Income policyholder fund's "asset share" (for each of its policyholders), as required in other countries like Malaysia, Australia, UK and South Africa.

That would give us the answer. At the moment, there is no way for policyholders to know if NTUC Income is holding back on bonus payments or not.

NTUC Income says it is not -- but declines to provide documentation.

Why? Why not reveal each policyholders' asset share? It is easy to do. There is adequate precedent in other countries for doing it. Everyone agrees it would increase transparency of the policyholders' fund.

Those are rather good reasons for disclosure.

Perhaps NTUC Income can state its reasons for non-disclosure.


Larry Haverkamp

A Gracious Society

Read my article in The Online Citizen:

Public Transport in Singapore

I have created a new blog to share views about improving the public transport system in Singapore.

Low yield on maturing Growth policy

Dear Mr Tan,

I compared the yield for the equivalent policies maturing in 2006 and 2007, as well as the yield in the original benefit illustration. This is not out of line with the maturity yield in 2008, considering that in 2006 and 2007, the long term yields were also quite good. The maturity yield in 2008 of 3.06% p.a. is also higher than the yield shown in the original benefit illustration. I set these out below:

2006 maturity 3.01% p.a.
2007 maturity 2.76% p.a.
2008 maturity 3.06% p.a.
Yield in original benefit illustration 1.65% p.a.

In 2008, we focused on the maintaining yields whilst changing the mix of annual and special bonus going forward. Under the old bonus structure it is an impossible strain on the fund to increase the yield by the extent indicated. To increase the yield by 2% p.a. to the policyholder requires an annual bonus of roughly 10% which will cost $400m when applied uniformly to all Growth policies. This is the more than the cost of bonus for the entire fund of $293m. As a result, the old bonus structure would have delivered the same yields in 2008 by default. A flexible special bonus is the way to go.

The new bonus structure is the first stage of the change. Following this with more flexible special bonus will allow maturity values to reflect asset shares more closely in subsequent bonus declarations. Indeed the Board has made the assurance on fairness of payouts and more work will need to be done to support this assurance. This will be tackled in 2009 as the second phase of the change.

I would like to highlight an additional consideration in 2008. Markets were very turbulent because of the sub-prime crisis at the time the bonus declaration was made. Much of the capital appreciation enjoyed in the 2007 has been reversed. They are still are very turbulent. It would not have been prudent to make an significant increase in bonuses and raise expectations at such a time of uncertainty.


Ken Ng
Chief Actuary
NTUC Income


Dear Ken Ng,

When the policy was issued in 2003, the investment yield was very low and the bonus rate had been drastically reduced due to the previous crisis year. The benefit illustration were made based on the reduced bonus at that time.

In subsequent years, the investment yield had been significantly higher than projected. Under such circumstances, it would be appropriate for the bonus to be increased to reflect "the actual experience", as promised by your chairman in his speech at the recent annual general meeting.

I believe that the yield of 3.06% is far short of the actual experience over the past five years. The actual investment yields during 2006 and 2007 had been exceptionally high.

During 2006, there was a modest adjustment in the bonus rates, but it has does not reflect fully a fair rate of return. I would expect the good performance for 2007 to have justified a further significant increase in bonus (including a once-off bonus), but instead it was virtually kept unchanged.

As I have pointed out in my earlier letter, the actual yield of 3.06% is far short of the average yield of 7.8% earned by the Life Fund over the past 10 years, and far short of the actual yield earned during the last five years (from 2003 to 2007), which is possibly higher than 7.8%. For a maturing policy, you should give a fair return of return to reflect the "actual experience", instead of keeping a large part of the surplus in the Life Fund. The retention of the excess surplus in the Life Fund does not benefit the maturing policyholder and cannot be justified on the grounds of fairness.

I calculate that the difference in payout based on the amount that you are paying out, and the amount that is "fair and consistent with the actual experience", is more than $10,000 in this case. This is not an insignificant amount of money and cannot be just ignored. If you disagree with my calculation, I suggest that you refer this matter to an independent actuary to make the calculation.

I wish also to convey this message on behalf of many other policyholders, especially for policies that have or will be maturing this year and the next few years, who have not been given a fair payout based on the "actual experience".

I hope that you will agree to review this matter. Perhaps this matter can be referred to an impartial, independent party to arbitrate.

Tan Kin Lian

Losing faith

Mr Tan,
Recently, I received an open letter from the current NTUC Income CEO Mr Tan Suee Chieh explaining how the restructuring of bonus will "benefit" us. I am particularly disappointed that the letter did not really explain how.
To be honest, I am losing faith in NTUC Income ever since you have retired from the CEO position. Its policies have become less attractive and I am prepared to pull out totally if they continue to be less transparent.
I will be following your blog closely to see how you engage them. Thanks for your effort.


I suggest that you should convey your opinion directly to Tan Suee Chieh and get him to address your concern. It is his duty to address your concern.

Delay in handling a theft claim

Dear Mr Tan,
My car was stolen in May 08 at HDB carpark (open space). Currently under police investigation. My car was insured under X.

On the day of discover my car was missing, I had called up X's hotline and seeked their advise on the reporting procedures. I went to the branch and submitted my police report and given details to the counter staff. I had also requested the staff to get the officer-in-charge of my claims to call me in briefing me the process of claims.

After 6 days I filled the report, I have not receive any phone call from claim dept. I rang up the claim dept and shock to me that there was "NO RECORDS" of my filling as was told by the staff who receive my call. I was very frustrated and demand them to check it out.

One day later, the customer support staff advised me to re-submit my police report to her as "the investigation of the loss of my documents was still in progress".

After emailed my document to the claim dept and I had again requested the officer in charge to brief me on the claim process. After two days of my email, again I recieve NIL call. I called up again and was told that "the routing of document may need 3-4 working days".

I started to show my anger and demanded the staff to check on my submission immediately. After a day, I only receive a call from customer support officer with brief message on " waiting for 3 months after police close the case and also the COE/OMV rebates from LTA have to surrender to X". The claim officer in charge couldn;t even bother to call me directly and just passed the message via another person.

I'm very disappointed on the responsibility and response of X in this entire process as they just take their own sweet time in handling my case,

In view of the above situation, I have lost my confidence in X in giving me a "fair estimation of my car market value" of my stolen car. As the claim will be effected after 3 months, I have no ideals on how to prepare myself in avoiding an "unfair" compensation to my loss.

Hope Mr Tan could enlighten me with advise and guide me on this claim. Hope to hear from you soon.

You can write to ask X to give you a FAQ to explain how the market value of the vehicle is determined. If you find that the claim has not been handled promptly and fairly, you can lodge a complaint with the service quality manager.

If this is not settled satisfactorily, you can file a complaint with FiDREC.

Tuesday, July 01, 2008

Ask for relevant information

Dear Mr. Tan
I read your blog today on the "Bonus that reflect the actual experience" and "A poor yield on single premium endowment expired in 2 month time" with a projected return of 3.06%.

Will it be a scenario that the 10 year Growth plan compare to a 5 year plan bought in the same period - 10 year may only get a little bit higher return upon maturity since smoothing start in April this year.Let us take two policies as an example.

5 year plan for $50K from 01 May 2003 and matured on 30 April 2008 for $58,100-00 @ 3.06% against a 10 year plan buying at the same year.

(details removed)

I suggest that you write to ask NTUC Income on the following:
a) What is the cash value of your policy now, if you terminate it
b) What is the yield on the cash value
c) What is the projected maturity value of the policy?
d) What is the yield at that time.
e) What is the yield earned by the Life Insurance fund during the years that your policy has been in force, and the projected yield up to the maturity date.
Perhaps you will be able to get a better idea when Income gives the above information to you.

Bonus that reflect the actual experience

Siewkhim asked if NTUC Income has responded to my question about adjusting the bonus to reflect the "actual experience".

I had sent a question regarding the maturity value of the 5-year Growth policy belonging to my wife that will be maturing in August. I pointed out that the maturity value is far short of and does not reflect the "actual experience" during the past five years. I have received a reply that my issue will be attended to "officially". I have not received any further communication after two weeks.

This is the style adopted in most organisations of Singapore. Keep the customer waiting. Do not engage in any conversation. When you are finally ready, give an official reply and defend it strongly. It reflects a disrepect for the rights of the customer.

As this is a complicated matter, I will wait for another one or two weeks, before I take it up at a higher level.

I also intend to raise the issue of the bonuses and cash values of other existing policies that are far short of the "actual experience". A few of my personal policies fall in this category.

Outsourcing of work

Some government agencies identify their non-core activities and engaged in outsourcing the work. Some examples are cleaning of premises and answering of telephone calls.

Most people are familiar with the tendering approach, as follows:

> specify the standard of work
> award the work to the contractor that gives the lowest cost.

The consequence is that the contractor will find the cheapest source of labour, including foreign workers. Eventually, the standard of service deteriorates. Wages continue to be depressed.

There is another way of approaching this outsourcing of non-core work, as follows:

> specify the contract price, including the wages to be paid to the workers
> award the work to the contractor that is able to give the best standard of service.

If a specified wage is given, the focus is to select the best candidates for the job. This will ensure better standard and quality of service. The contractor's task is to ensure that the human and other resources are organised efficiently to meet the rapid changes in the business environment.

I hope that more attention can be paid to this new method of outsourcing, which is based on quality of service, rather than reducing cost.

Saving regular to buy a Life Annuity

Dear Mr. Tan,
From what i know most insurance company annunity plan premium are lump sum. Do you know any company (beside Z) that premium can be paid monthly till age 65.

In my view, it is better to invest in a low cost investment fund to get a good return on your savings until your retirement age (which can be at, before or after age 65 ).

You can take the savings to buy a life annuity (by paying a lump sum premium) at that time. This gives you the greatest flexibility and a better yield.

Read these FAQs:

Switching to a new rider for Shield plan

Dear Mr. Tan,
I just received a notice from X advising existing policy holders of the Plus Rider to switch to the Assist Rider. The rationale being that it will assist policyholders to save more in the long run. Medical cost according to their notice has increased as much as 30%. The difference between the Plus Rider and the Assist Rider is that the Plus Rider ensures that the patient does not have to co-pay whereas the Assist Rider would require the patient to pay up to $2000 or 10% of whatever is claimable. The Plus Rider will no longer be available to new policy holders.

What is your view? Would you switch to this? Do I have to take a healthcheck in order to renew my policy or are existing applicants automatically ensured coverage?

You have the choice of discontinuing the rider or switching to the new rider. I hope that this FAQ can help you to make your decision:

You are not required to do a healtheck to switch to the new rider.

Monday, June 30, 2008

Is it time to invest in the stockmarket?


If you are a long term investor, it is about the right time. The global stockmarkets have corrected down by about 20 percent. It is almost one year, since the subprime crisis surfaced. Most of the bad news have been discounted. The recovery is likely to occur over the next three months to six months (just a guess). It may be earlier.

Something may happen that will trigger a recovery. By that time, the market may move up quite rapidly, and you miss miss the boat. So, as a long term investor, it may be time to start investing.

Investing to get a retirement income

Dear Mr. Tan,
You have always talked with much sense & wisdom. I would like to seek your views.

I have been told by my insurance agent that with my impending retirement, it is good to invest in Investment Linked Policies (ILPs). Let the investments grow and sell little bit by little bit, when I need money.

But with market turbulence and falling equity prices, I have a feeling that this may not be the way to invest. What is your opinion here. Please help out with your opinion.


Please read these FAQs and see if they are helpful in your decision:

If you are investing for the long term, say 10 years or longer, it is all right to invest now. You can ignore the market turbulence in the meantime. It is difficult for you to catch the right time to invest anyway. In a turbulent time right now, you have the chance to buy the equities at a lower price and make a bigger gain when the market recovers.

It is all right to invest in a ILP and have a monthly withdrawal to get your retirement income. You should choose a single premium ILP (where the upfront charges are 2% or less, and the annual fee is less than 1%).

Wish you all the best.

Financial planning and inflation

For the first time in 20 years, we have to deal with high rates of inflation. Are you saving enough and earning a sufficient return to cope with inflation?

Here are some simple tips on how to deal with this matter. Read this FAQ:

Sunday, June 29, 2008

Put People First

I hope that our business policies are made on the concept of "put people first", rather than "make more profit".

By putting people first, the business can still earn a good profit margin. They will get the loyalty of their customers.

Some businesses make more profit by overcharging customers or degrade the service to customers. They may reduce their expenses, but they add more cost to the customers. Some examples are:

1. SMRT reduces the number of trains during off-peak hours. The commuters have to wait longer for a train. The train will be nearly fully packed, even during the off-peak period. By adding more train, SMRT will increase its cost marginally, but it will improve the comfort level of the commuters significantly.

2. Businesses make customers waste a lot of time in navigating through their automated call center systems. It reduces the expenses to the businesses marginally, but add a lot of wasted time and telephone bills for the customers.

3. Businesses make customers wait a long time at their customer service counters. If they increase the manpower to serve customers, they may increase their cost marginally, but reduce the waiting time for customers. Wasted time is costly to customers.

If there is genuine competition, businesses will put their best effort to "put people first", so that they win over the loyalty of their customers. Unfortunately, in Singapore, many businesses are operated by near monopolies. In competitive situations, these businesses apply unfair methods to lock their customers into term contracts and then treat the customers badly during the lock-in period.

I hope that there is a stronger voice to speak for the consumers in Singapore.

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