Tan Kin Lian's Blog: Lack of transparency and fairness

Saturday, September 05, 2009

Lack of transparency and fairness

I posted the case of a policyholder who paid an annual premium of $2,000 and received $54,000 after 21 years (yield of 2.2%).

A similar policy, taken with another insurer, would have given a yield of 5% p.a. giving a payback of $75,000. The difference is $21,000 or 39%.

Where did the $21,000 disappear to? It went into high expenses or are retained in the fund to "smooth the bonus". There is lack of transparency and fairness. The policyholders are at the mercy of the insurance company!

A good way to overcome this problem is to introduce the calculation of asset share for each individual policy, as implemented in Malaysia.

7 comments:

Zhummmeng said...: Today Prudential has the worst of returns and NTUC has the best but the best of the worst.In other words, they are all BAD, par products have poor return and protection and should not be used for risk management and saving.
The IDEAL WAY is to separate protection from saving so that in bad times they will not be affected.
Many whole life and endowment policies were cancelled or surrendered during the reccession because many policyholders could not afford to pay and also they are the least important when it comes to the crunch.
Borrowing against your policies is a bad option because of the interest you have to pay which 5.5% at the lowest.Nobody pays back the loan and this results in the policies having NEGATIVE return(5.5%-2.2%). Surrendering is better option.It is silly to hold on and pay the insurer a hefty interest while they pay you peanuts.Your beloved and trusted agents will advise you against surrendering because of the protection need in bad times but this should have been planned by your so called qualified consultant. The truth is all those arguments are crocodile tears and insincerity. The insurer is also happy because you will leave some orphaned money which need not be accounted for.
So you see par products will have you trapped from the start. You are doomed from the start. They benefit the agents with high commission and the insurers with orphaned money and all of you will NOT keep beyond 60 years old. The journey to age 60 years is fraught with dangers and the roadblock at age 60 is the insurer will dangle a deceptive carrot before you to beguile you to convert to an annuity and this sounds the death knell of your whole life policy which is meant for "whole life" which 20 years ago your trusted agents told you it was important.
This whole conspiracy was properly planned and MAS is also abetting them to rob you of the protection for your family and your retirement.
These par products are a curse that left many unwary consumers mired. Like the above policyholder he or she is in a quandary whether to cancel or not and after 21 years. Time is money and without time there is no accumulation and compounding.
For goodness sake, don't buy par products. There is enough evidence they are not good for you, to protect you and your family or to save for your retirement..
The next time consult FISCA before talking to a salesman.; September 05, 2009 10:01 AM
Anonymous said...: I truely agree with you Mr Tan; September 05, 2009 12:23 PM
Anonymous said...: I dont trust the insurance companies and that is why I bought only 3 types of insurance and self insured the rest.
The insurance I bought are
1) Car insurance which is compulsory that I have no choice.
2) Fire and public liability insurance on my condo unit which I leased out as it is part of the tenancy agreement.
3) Medishiled which I took cover voluntary on the whole family to cover B2 coverage to insure against large hospital bill but self insured for deductable and co-insurance.

I read from the papers that some people insured by the millions with all the money going to all sorts of premiums. It is better to keep the money yourself and invest on your own. If you really need some insurance coverage, better buy straight protection like term life etc than those that married with investment features that are totally not transpatrent.; September 05, 2009 1:29 PM
Anonymous said...: After the minibond blowup, i dont trust the bank anymore. When they tell me that the investment products are guaranteed, I can not trust them because I do not know whether there is a small print somewhere. It will cost too much to verify that guarantee so best just dont buy anymore of this type of product. Just invest in shares, real bond and currency that are easy to understand and avoid everything else.; September 05, 2009 1:37 PM
Anonymous said...: Posted in REACH FORUM..(edited)

AGENT
05 Sep 09 , 13:18 PM

Come on, MAS, put in those stringent guidelines in place and stop dragging your feet. Before more scandals start regulate and don't trust the FIs and insurance companies. They never do that. I know it because I am in one of the companies.They don't enforce and they down play. They talk only and no actions taken against the agents for not complying. Product pushing or its variations is still the norm and the company closes both eyes. You see the company is only interested in sale and how it is done the company is NOT interested UNTIL complaint. The company cannot be left to self regulate and if it is allowed and the agents allowed to sell and push whatever they like it is going to be disastrous for the clients, maybe not now but in the future when it is too late. Many consumers have discovered that the wholelife is a rotten deal and are now in a delimma whether to cancel and sue the agents or take losses.
LIA already gave the figures of the sale for this half year and the claim. The figures for sum assured sold is only $50k and the death claim is $40K, where got enough? And it is very obvious what kind of products being pushed and sold.Product pushing cannot achieve the goals of consumers . Need analysis can uncover the cleints' needs but insurance agents are avoiding it. Product pushing is more lucrative and they can earn money faster.
5 areas MAS must do to endure a level playing field.
1.Stop insurance agents from product pushing and make need based analysis compulsory.
2. make agents responsible for the recommednation of the product instead of letting them push to the clients.
3.remove the commission and introduce fee
4. MAS must enforce stringently by frequent auditing on the agents as well on the management especially the ceo.
5. publish the errant and rogue agents
I am very sure with these in place the industry will be more professional and consumers have greater confidence. They need worry being conned by an unscrupluous agent.; September 05, 2009 3:21 PM
Michael Lim said...: If Malaysia regulator is able to implement such a policy, why is Singapore not able to put in place a similiar policy to protect its citizens??; September 05, 2009 6:39 PM
Anonymous said...: To michael lim
different environment mah. sinapore based on open your eyes big big approach; September 06, 2009 6:29 AM