Tan Kin Lian's Blog: Blow the whistle on hidden charges

Saturday, October 17, 2009

Blow the whistle on hidden charges

Here is a letter by Su Kim Teck printed in the Strait Times.

I have written a reply to the Straits Times to address the key points in the letter. In this blog I will only touch on the point why I did not "blow the whistle" earlier on the hidden charges.

First, I wish to point out that this type of personal attack is not necessary for the debate. As the Straits Times found it appropriate to print it, I have to give my reply.

My explanation is:
a) I did raise this issue earlier, but they did not reach the public domain
b) It would not be appropriate for me to criticize the marketing methods of the other insurance companies openly
c) Perhaps NTUC Income was also involved in adopting some of the "market practice" at that time.

When NTUC Income introduced its investment linked policy during my time, it kept its upfront charges to a total of 45% of the annual premium (compared to 160% of most other insurance companies) and made it quite explicit. Another product was introduced that kept the charges to a fixed amount (at a rather modest level).

Tan Kin Lian

23 comments:

Vincent Sear said...: Frankly and fairly, whether charges are hidden is subjective. If the agent didn't disclose it, it's hidden. If the agent disclosed and explained it and the client agreed to it, then it's accepted, not hidden, as in the case of the writer to ST.

So the use of term hidden charges generally can be as unfair as saying all insurance agents are crooks or all lawyers are liars.; October 17, 2009 1:52 PM
Vincent Sear said...: For example, you go to a bank to open an overdraft account. The officer says OK, you pay $60 account opening fee first and thereafter $60 annually for renewal. The interest rate is prime + 15%. You say OK.

Then the officer goes through all the forms and you signed here and there. Account opened. But before you go, the officer hands you another brochure of detailed terms and conditions, including e.g.:

- late repayment penalty $30
- inward bounced cheque penalty $30
- outward bounced cheque penalty $30
- stop cheque payment fee $30
- exceed credit limit penalty $30
- interest chargeable on unpaid penalty

Etc. etc. Are these hidden charges? An experienced or sophisticated client would have asked all these questions before signing here and there. But commonly, most just ask interest rate how much, annual fee how much?

The same is common when buying insurance policies, premiums how much, coverage how much, returns how much? People are not that naive, to think that the company and the agent serve them for free, surely a part of their premiums to going to pay the agent and company staff. What matters to them is not how much the company and agent earn from them. What matters to them is what's in it for them. The client agreed to buy based on the promised returns. If that's not delievered, then all the disputes and problems about ethics and costs will all sprout out.

Frankly, I've never seen any insurance policy contract document hiding charges. It's all there for the client to read, like what the writer to ST said. However, people who read (or can read) everything are very rare. As I've pointed out above, they look for the few items that seem to matter to them and them passover the rest.

Seriously in a practical sense, if a client want an agent to read over and explain the entire policy document word-by-word clause-by-clause, I've seen some agents doing that. That's classic full disclosure. But mostly, it's the clients who declined, for fear of being bored to death. Same thing as UT investors don't read prospectus, or even CEOs don't read full business documents, they ask for executive summaries.; October 17, 2009 2:25 PM
Anonymous said...: Sir, 45% is still a lot. Would a company be consider more unethical than your previous company had it marketed it at 60%?

Why do you want to earn 45% of my premiums? Even the property agent only earn 1%.; October 17, 2009 2:43 PM
Anonymous said...: I read this Su's letter. And he ends off saying something to the effect that buyers have to exercise due diligence over the insurance product purchased. I disagree with him. The buyer cannot be expected to have the same product knowledge as the insurance agent. This smacks of the sweeping statement "your eyes are open" made by a senior pap politician in dismissing allegations of mis-selling by financial institutions.; October 17, 2009 3:32 PM
Anonymous said...: I agree with Adrian Khiat's response that "An agent should be compensated for the advice, time and the years of service that he has to provide to the policyholder."

And

"... We must not forget that there are many other departments in an insurance company that are direct or indirect beneficiaries of these funds."

Perhaps we need to consider the amount of jobs that is created by the insurance industry and feeding many families. There are reasons why the products are designed this way.

I hope Mr. Tan understands that just buying term and investing in ETFs cannot sustain an insurer for the long run. It must be a win-win situation such that the insurer must survive for a long, long time. It must also remain profitable so that good people are retained to provide good service to the long term clients.; October 17, 2009 3:49 PM
Anonymous said...: To 2:43 PM
If the market practice is 160%, then 45% is fair. Even 60% is fair.

The insurance premium is $1,000 The property is $500,000. You have to make the correct comparison.; October 17, 2009 4:03 PM
Anonymous said...: Vincent,
Can a toilet cleaner read the policy document? To be fair, can a policyholder with PhD understand the policy document?
I think you are naive to argue that EVERBODY can. Can insurance agents understand? This is a bomb I am dropping on agents. My honest answer is they know 'F' too.
To say that people buy after understanding the products is another naive statement.99% of buyers know 'F' about insurance.To say that they are able to make a decision is another naive statement. Consumers can't.
How is the consumer sold then ? Trust!!!!!The consumers trust that the insurance agent is HONEST and that he or she is COMPETENT.
Alas, the insurance agents are either (1)honest but INCOMPETENT or(2) competent but DISHONEST or (3)both dishonest and incompetent.
At least 60% of agents fall into the 1st group 20% in the 2nd group and 15% in the 3rd group. Leaving 5% who are HONEST AND COMPETENT..
The most disastrous outcome will come from the 1st group. The 2nd and 3rd will soon be found out and they can change but the worse is the 1st group who are hard to be exposed. This is the most insidious group.The customers will defend them because they trust them. Only much later on then can this group be exposed.The good news is , they need not wait any longer with FISCA to help expose them, expose their incompetence, mis-selling and conflict of interest.; October 17, 2009 5:46 PM
zhummmeng said...: Anon October 17, 2009 3:49 PM,
do you feed your family with ill gotten money?
Do you want create more jobs for thieves to rob the already hard pressed consumers?
The industry must be reminded, the agents and salespeople must be reminded that this industry is NOT created to enrich them, to line the pockets of the salespeople, to help them qualify for mdrt or cot, to buy condos, to rob the poor man in the street .This industry is created to help the man in the street to meet their financial needs and goals.
What have the agents done for the poor ?????
None...they are still poor at the best but many got poorer. They are the very people insurance agents are supposed to help instead they are the people who got robbed.
Evidences are plenty..
In the first world Singapore , Singapore is lying in the 8th place in the PENSION INDEX, even below the average score of 61.4. Average Singaporeans are insured for only $49K (LIA) well below the much needed $500K. If the results are any telling the insurance agents are indeed are noble thieves in the so called noble 'profession'.
I like to pose this question to every consumer.
Can the wholelife , endowment products help to secure your protection needs adequately and to help you retire?
My answer is a big NO! can never unless you are a CEO, a minister or someone earning a million a year.You can leave your money idle and gather moss in the wholelife or endwoment products.
Think , before you say yes to meeting an insurance agent.Ask him or her if he or she has credentials like CFP or CFA. Ask if they know the right products for you. If they immediately pitch the product nicely withdraw and have nothing to do with them. Don't take chances.This is a salesman and salesmen can't help you with your personal finance.; October 17, 2009 6:27 PM
Vincent Sear said...: Anonymous 5:46PM:

Please re-read my posting. I didn't say everybody can. I said it's very rare. To be a bit blunt, you can't even understand what I wrote, much less a toilet cleaner.; October 17, 2009 8:36 PM
Don Lim said...: Hi Mr Tan,
While you made a few valid points, I wish to point out that you should not sound too aggressive. Especially so when you were a CEO of an insurance company that sold many products that you began to criticize aggressively after you resigned. For example, the traditional, ilp and private shield products were introduced by you in your former company.

It's not possible to be completely 'transparent'. When you go to a bank, it's the same. How much of the profit that is earned from your deposit from giving loans is shared with you in the form of interest? How much of it is used to cover marketing costs? admin costs? legal costs? You won't know.

I think most of the benefits illustrations have been designed to be very clear already. The expense ratios and distribution costs are also capped by the authority. A lot has been achieved in terms of protecting consumers' rights.; October 18, 2009 4:47 AM
Anonymous said...: zhummmeng, can you be specific about "ill-gotten money"?

does that include people who earn a living selling cigarettes and wines?

does that include everyone who will be working in a casino?

does it include the companies that manufactures the toxic financial products and the distributors that markets and distributes them?

you do know that smoking kills, wine and gambling are vices that destroy families, right? there are many bad financial products in the market as help people to earn less than they would had they park their money in fixed deposit?

Or maybe as far as you know, the only people earning ill-gotten money are insurance agents?; October 18, 2009 11:55 AM
zhummmeng said...: October 18, 2009 11:55 AM,
yes!! illgotten money is money that is obtained by cheating, by unethical means, by conning ignorant consumers into buying products that are not suitable to meet their needs, that short change their protection needs and saving..It is money from selling products that are premeditated without any basis and motivated by high commission. This describes most insurance agents in the industry.
For some products there are questions of morality, legality, health etc etc. Would you want to earn a return from a product that is invested in heroine manufacturing? Would you want to invest in a product that derives its earning from product that kills people?
Would you call these earnings illgotten?; October 18, 2009 2:56 PM
Anonymous said...: Quote from October 17, 2009 5:46 PM

["How is the consumer sold then ? Trust!!!!!The consumers trust that the insurance agent is HONEST and that he or she is COMPETENT"]

The above is what most consumers are....... We trust the goverment will roll out products that will benefit or be in the interest of the public, We trust the banks and insurance companies etc, to have a high percentage of our interest at heart, the customer.

When I first bought insurance in my 20's I did so, trusting my agent to look after my express interest, but alas that was not so.... Because the agents themselves were "ignorant"......

The detractors of Mr Tan always go after him by saying that he too sold these products....yes, BUT they are not listening to what he is saying....." KEEP THE EXPENSES, COMMISION REASONABLE" NOT AT 160% !!
Provide the customers with a better yield....etc.....Which he did, during his term.....

Presently the expenses are high the yield is crap or being taken away, with gimmicks.

The financial markets have evolved and there are many ways to improve on your returns with a much lower "expense" eg.ETFs

Package their products with ETFs? I dont know if that make sense but stop using traditional form to continue to screw the customers, previoulsy there were not much finacial tools available, now there is a slew.....; October 18, 2009 9:46 PM
Anonymous said...: Hi Mr. Tan, I am an new agent with NTUC Income.

I really believe in helping clients meeting their insurance needs and making a difference for them.

We are taught to conduct fact find and analyse the client needs and we will definately recommend low cost term insurance to meet their protection needs...

However most of the time is the clients who wants to take up whole life insurance for the savings returns....

Of course we will try to get them to add on term insurance to cover the shortfall...

Commission being paid to Insurance agent is really quite reasonable... I have read Adrian Khiat blog and he had explained clearly how much that a insurance agents earn....

It is really very sad for an agent who is working very very hard to earn a modest living in this industry to hear so many bad things here about unethical insurance salesman.... why is'nt anyone here complaining about unethical banker, relationship manager, property agent.

The amount of effort (prospecting, fact finding, analysing, presentation, recommedation, closing, follow up).... Seriously I feel that Insurance job is very hard to earn... (for me who really sell term insurance) I also can't convince myself to sell regular premium ILP or even endowment plan as I myself would rather buy Monthly investment unit trus plan or lower cost ETF...

Are insurance agent really overpaid? Most of the agents I know earn a really modest living.

To zhummmeng: Please try being a ethical agent selling all the low cost insurance products and see how long u can survive in the industry....

Ethical agent = hard to survive...; October 18, 2009 11:40 PM
Anonymous said...: MAS will be pushing for a model that will reward people like ADRAIN for their honesty, professionalism, competence and passion for their clients. The others will go to Changi Prison to serve their time learning how to be ethical, competent and how to put their clients' interest first. All their ill gotten gains will be confiscated and they will go to the widows, the orphanage and the needy whom they had robbed directly or indirectly.
Writing is on the wall.. Take heed you unethical agents especially the self confessed unethical agent from ntuc.; October 19, 2009 11:06 AM
Anonymous said...: Dear MAS,

Please regulate the insurance industry further. I think ethics is an important course. You can see the reply by the agent Anon 11.40pm. My goodness, and he is a new agent.

If you do not, you will find the reputation of Singapore as being clean and honest going down the drain.

Dear Anon 11.40pm,

Maybe Insurance is not your cup of tea. Maybe you could try your hand at something else. I know many insurance agents earn a modest living. If you want to earn better than modest living, try something else. All the insurance talk of being a millionaire thru insurance selling is just "talk". Only a small minority make it.

Being ethical would keep your conscience clear. You would sleep better at night.; October 19, 2009 12:34 PM
Anonymous said...: As a bachelor I NEED a 2 room flat or a studio unit to stay comfortably but the agent CONvinced me to buy a bungalow arguing that I might have a dozen children or have 2 wives in the future. My loan committment is 70% of my income..of course to cut the story short I lapsed in my payment after a year without acquiring cash value or equity and my house was foreclosed leaving me homeless.
Thinking back, I realise that the agent was unethical in CONvincing me to buy a house that I didn't need and wonder how much commission she msut have made from the deal.Learned a lesson never to trust agents anymore.; October 19, 2009 8:39 PM
Vincent Sear said...: Anonymous 8:39PM:

As much as you have my sympathy, I must say that you shouldn't say or imply that the agent conned you.

The agent simply don't care about what happen to you or the lending bank after making the sale and collecting the commission. As long as no material lies were involved, what legal wrong was there?

The agent's job is to present the property as saleable and desirable to the client, without lying.

The lending bank approved the loan. I'm sure that there were questions to answer and forms to fill and sign there. Should the bank be accused of being so greedy for interest income so as not to have credit standing properly checked and approved the loan?

With due respect, pardon me for being frank, if someone can agree to go view a bungalow, can come up with the downpayment, can clear the mortgage criteria, it's hard to blame everything on the agent when things go wrong.

Good sales and convincing skills are not sins, as long as there's no lying or cheating.; October 19, 2009 10:52 PM
Anonymous said...: In yesterday ST, the main complaint against agents is bad service, misrepresentation, unethical, lying etc and they sound similar to insurance agents.
Lately the focus is on property agents. I wonder when drastic action s will be taken against insurance agents too.; October 20, 2009 8:44 AM
Anonymous said...: Dear Anon 8.39pm,

I am not sure how the agent convinced you to buy the bungalow by arguing that you might have a dozen children or two wives. Could you elaborate further? This is so that I wouldn't be tricked.

Wow, that agent must be one heck of a super agent!!!!; October 20, 2009 9:22 AM
Anonymous said...: I heard of a similar story about a couple in their late 50s being conned to buy $150K vivolife from ntuc and paying premium of about $20K yearly as legacy for his 2 children in late 20s.Both children financially independent and their bungalow house fully paid.
They consulted a IFA and realised they were conned. There was NO reasonable basis and lucky it was within the 14 day free look they canceled them.
They have no need for the insurance.Thjey are rich. They have free medical benefit as civil servant for life.
The $20K can be saved and invested to provide for self insurance and as legacy.
How did the agent convince an educated high ranking civil servant is marvelous. Isn't the civil servant considered savvy?; October 20, 2009 8:12 PM
Vincent Sear said...: The business of sales is such, if you sell a blind dog to a blind man, however cheap, you're an immoral cheat. But if you sell a blind dog to to a man with perfect eyesight and faculty, it's down to sales and bargaining about the price. No price is too expensive or immoral, as long as you have the skills to convince the buy to pay it. That's the way of the world of business and economics.

The problem is with withholding of disclosure, misrepresentation or even fraud and cheating.

Another problem arising nowadays is unilateral modification of contracted terms by a big principal party to the contract against the interest of a group of much much smaller parties.; October 21, 2009 9:33 PM
Anonymous said...: Cheating arises if you
misrepresent
concealment
distort and twist
undue influence
lie
falshood
miss-advise
force
These are the tactics today insurance agents employ to make a sale. Salesmanship is about all these.It is NOT about meeting the cleint's needs but the agent's.
When an agent pitches a product upfront isn't he or she has intention to cheat?; October 21, 2009 11:01 PM

Saturday, October 17, 2009

Blow the whistle on hidden charges

23 comments:

Blog Archive