Aug 6, 2009
TRANSPARENCY IN INSURANCE
Policyholders underpaid?
THE report last Friday, 'Insurance funds need more transparency', is a good start. But there is more.
We have invested more than $60,000 per household in whole life and endowment policies.
The money goes into a huge policyholders' fund at each life insurance company. We know little about the fund or how the money is invested.
It is very different from buying a unit trust, where you get a certain number of units in proportion to your ownership in the fund. These units amount to the fund's net asset value or NAV. It is updated and published daily.
Policyholder funds have the same concept but use the term 'asset share' instead of NAV.
Another difference is insurance companies do not disclose the asset share. This makes it easy for insurers to underpay policyholders without them knowing it. Insurers acknowledge this happens with early surrender policies, but do not say if it also happens with policies held to maturity.
As the rightful owners are policyholders who have left the fund - and supposedly cannot be found - it is called 'orphaned money' or money without a home.
Underpayments to policyholders accumulate over the years, and are now huge. Aviva in Britain made a distribution of $2.7 billion last year. In that case, policyholders got 70 per cent of the money and Aviva kept 30 per cent. The company claimed that legally, it could have kept it all.
That is one way insurers benefit from orphaned money. Another is earning a risk-free 10 per cent on the income it generates.
A third way is to provide a buffer to absorb losses in case of a market downturn. It means the fund avoids dipping into tier 1 capital, which is largely stockholders' money.
Officially, the rationale for holding orphaned money is different: It provides a buffer for policyholders to avoid bonus cuts in downturns. Not correct. Insurers typically cut bonuses in downturns - like now - while the orphaned money keeps growing.
Singapore insurers disclose nothing about orphaned money. We do not know how much there is or where insurers keep it. Does it remain in the policyholders' fund or has it been transferred to stockholders?
Larry Haverkamp
Writer is spot on. I have been having the same nagging question but could not get an answer. I hope the insurance companies will reveal details
ReplyDeleteWhat happened to the orphan money left behind by policyholders when they prematurely surrended or terminated or lapsed?
ReplyDeleteThe answer is , it is used by management to defray their expesnses and pay their themselves high salary.
It is also used to cover losses in some products.
Eg. Ntuc capital plus is a loss product. Why selll at a loss, you may ask? To create activities for greedy agents and more importantly to improve and capture market share. NTUC is obssessed with being #1, 'lose money also never mind but so long can be #1'.Market share is measured by revenue and NOT profit.
So you see , orphan money is a source for purposes like that instead of distributing to policyholders as bonuses or as anniversary bonus which during Mr. Tan's time ntuc did that.
Is it a wonder that you are getting miserable return for your wholelife and endowment nowadays?
Think about it if you are still blur.. Insurance industry is getting scammy with shady people at the helm and greedy and dishonest saleamen and women plundering your hard earned money.
The insurance indsutry is full of dishonest and greedy people. The recent downturn has thrown up a lot of these charlatans. They can be the ceos down to the agents. Unless MAS does something they are not going away.
ReplyDeleteNow everyone knows why insurance companies prefer to sell wholelife and endwoment. It is lucrative to the companies. It is source of free money for the company to do anything they like.It is bullshit to say insurance is for long term. They are hyporites . They hope you surrender prematurely and early so that they take over what money you have left.
They even encourage you to terminate when you are old and convert to annuity. This is the biggest scam. The insurance stands to win more than the policyholders. The policyholders get 5% more but the company gets more than 70% when polcyholders convert to annuity.They don't want you to hold for life. They are not sincere and truthful and the agents bleat this like parrots when they don't understand.
Eventually you get a whole lot of charlatans in the industry from ceos to the agents , out to plunder the consumers.The old folks , the aunities and uncles are not even spared. Infact they are the easiest victims of insurance agents. MAS must get rid of them if they are serious about leveling the field.
The problem is that in Singapore MAS does not require life insurers to compute policy values (particularly on surrender) based on asset share approach based on actual experience of the life fund.
ReplyDeleteIt is based on some fixed minimum basis present value actuarial formulae which does not truly reflect the experience of the life fund.
In Malaysia Bank Negara requires policy values on surrender to be computed on asset share approach based on actual experience of the life fund.
So that is the real problem is the MAS
It should be very clear now if you have money to invest in insurance or other investment products, invest in other countries. Our moneys are safer outside Singapore. Investors have no protection here. Only buy basic insurance like medishield, and invest in Australia or Hongkong where the financial regulators are more protective of investors.
ReplyDeleteDoes anyone know how is it possible to take a class action against AIA regarding the critical year issue? AIA has just been sued regarding the critical issue. Thanks
ReplyDeletehttp://forum.channelnewsasia.com/viewtopic.php?p=2958264&sid=897eb40141534fb6f6895280fb0f5de5
August 08, 2009 5:06 PM
What is life insurance?
ReplyDeleteIt is a bet by the insurer with you that you will not die soon and that you will surrender and terminate when you are about to die. It is sure win for the insurer. Claim ratio is 1:10,000.
You pay and pay and pay higher and more goes into the fund.
They set up a lot of obstacles along the way.High premium means it is hard to keep up.
If you go on APL or policy loan they will laugh all the way to the bank. They will keep coaxing you to pay. They will keep telling you about losing coverage or insurability. Actually, they are keeping their till ringing because you pay, yes you are covered but it means they continue to receive interest or return from you at very good rate.Even you cannot tahan anymore you terminate they still make alot of money from your left over.
During the prospecting stage, the drooling insurance agents will tell you that you need a WHOLE LIFE coverage; you need a forced saving plan because you have no discipline.
They sound plausible but look at them and you will see that they are selling you something that will keep themselves, the insurer paid for a long time and the insurance agents rich.
First you NEVER keep it for life and this is how the insurer got your money.
Second, you NEVER have enough coverage because you can't afford enough and this gives the inusrance agents opportunity to do a 'review' to sell you another whole life policy and still not enough so that they can come back for another 'review'.
Reveiw means to sell you more or another product.This is how the insurance agents create long term business for themselves.
By then you are saddled with alot of premium which you are struggling to keep up. One fine day, cannot tahan, an emergency arises and this where all hell breaks loose. The insurer is so happy to lend you because it is gauranteed but waht they pay you is NOT gauranteed.This is the beginning of the end for your policy but you have the insurance agent to plod you along to keep up paying.
Long time ago the insurance agents said that it was good saving plan but how come you have to borrow your own money and pay a hefty interest rate, from 5.5% to 8%. Your policy return breaks even only after 20 years and only paid 2.5% after 30 years and here you have the insurer charging 5.5% on your own money. Something is really wrong here, isn't it?
If you ask the agents they will tell you that "it is like that ,waht".But this was NOT told to you at the outset.
So you see, the insurance agents NEVER told you all these. They told you not even half truth. The insurer was not tranparent either. Both the insurer and the agents are in cahoot in this game to cheat you consumers, the suckers.
Is it a wonder that the claim amount figure released this year is only $43K?...I wonder how this amount can take care of your needs let alone your loved ones' needs. But I know the insuers and their agents are giggling behind that this is an opportunity for them to sell you MORE wholelife and endowment to repeat the cycle.
This is indeed a NOBLE profession.I wonder for who?
The Watchman