Tan Kin Lian's Blog: Lavish spending at expense of policyholders

Monday, March 22, 2010

Lavish spending at expense of policyholders

Insiders of two local insurance companies told me that their new management has increased the expenses tremendously compared to the old management - salaries of top executives, advertising, engagement of consultants, etc.

These high expenses are made at the expense of the policyholders, as the bonuses have been cut. They are quite sad that the frugal approach of the old management in looking after the interest of the policyholders, are now being spent away lavishly.

I wonder what the board of directors of these companies are doing in respect of their fiduciary duty? Are they so busy that they do not bother to find out what is going on in the management? I also wonder what the regulator is doing about this type of lavish spending at the expense of the policyholders who have saved frugally for their financial future and are now getting a poor yield?

Tan Kin Lian

31 comments:

Anonymous said...: are we living in a realistic world?

if we are then its normal for these ppl to be greedy.

but they should have a limit if not one day they will be drowned by money.

mr tan you try your best to do good things like me so next time even if we go to hell we will suffer much lesser than this people.; March 22, 2010 3:11 PM
Anonymous said...: The board of directors are rubber stamps. They will remain as they are as long they receive handsome remuneration. Why rock the boat?; March 22, 2010 3:30 PM
Anonymous said...: The regulator will say that is not their business. They don't regulate the merits of the products. It's consumers' die is their business for not opening their eyes big big.
That is why the insurers are getting bolder rolling out products that are scams. They don't care so long their agents can make more commission and they have bigger market share to become #1.
Even the social enterprise insurer dares to sell scam products like Revosave and claim people before profit. Yes, this product claimed a lot of victims already. Where to get money for full page ads, siloso beach party, beijing, renovations, $2k chairs, etc if they are not from policyholders fund.; March 22, 2010 5:02 PM
Anonymous said...: The elites and high-income in Singapore are ape-ing Wall Street and The City in their smarter-and-better-than-you attitudes and entitlement mentality. This mentality applies to all from Govt to Boards of Directors to Chairman and CEOs of companies. In turn, this attitude becomes the culture for senior mgmt and middle mgmt, and everybody below are expected to see it as normal.

Nobody measures performance in terms of how frugal or how much saved, or what is the return yield to policyholders, or in terms of how much each policyholder is covered. Even for so-called cooperatives like Income and Fairprice, the KPIs are on sales revenue, net profits, assets under management, market share...

So as long as profits are going up, money is increasing, market share is expanding, the BOD, the CEO, even govt will say "Excellent job! Well done! Keep it up. You deserve big pay, big bonuses and big perks!"

Just like ministers are entitled to big pay increase and big bonuses as long as GDP is good. Don't care if income gap is the biggest in the world, don't care if HDB flats are affordable or not, don't care if bottom 20% of citizens are earning decent salary, don't care if too many PRs and foreigners, don't care what is the unemployment rate for above 40yr old citizens, don't care if majority of people are able to afford medical and retirement in their 60s, 70s, 80s.; March 22, 2010 5:37 PM
Layman.. said...: Hello Mr Tan
Thank you for sharing so much information to bring about awareness in the financial world and society in general.

Your knowledge of the insurance industry is respected. With all the criticism and negative perspectives posted here, I need to know:

Does the Insurance Act have any use at all? and for that matter, the Banking Act?

Are these Acts impotent?

I would like to have some views from you or anyone visiting this blog.; March 22, 2010 6:07 PM
Anonymous said...: Dear Mr.Tan,

This is not the first time that companies splurch on the hard earned monies through hard-working employees.BTW,board of directors are appointed and it is better that they keep quiet than to risk losing their jobs.As a former CEO of a major Insurance company,I think you should know better than all of us here.Even our local reputable charities ex-CEOs conducts were questionable during their term as chief.Gold tap in their own toilet,splurching on BMWs and kept horse as his hobby etc.This is no exception in this island.

Chicken stall man; March 22, 2010 6:21 PM
Tan Kin Lian said...: Hi chicken stall man

Words like "As a former CEO of a major Insurance company,I think you should know better than all of us here" is unfair and should not be used. Just state your opinion honestly, and let me state my opinion. Don't put words in my mouth.; March 22, 2010 8:18 PM
Anonymous said...: Good CEO will try to keep all costs low and reserve for future use. But once new CEO changed from ex-MNC company will try to get every cents out to their own pocket and benefits.

Tan S S; March 22, 2010 8:39 PM
Unknown said...: Hi Mr Tan,

I'm about to take up a whole insurance from either 1 of the 2 major coy(NTUC and TM Asia).. but your post has stirred up some good qns abt the current frugality of their management.

I would like know the 2 names of the 2 coys, preferably with the initials or thru my email acct..

appreciate it!; March 22, 2010 9:25 PM
Anonymous said...: Aiyah Lim, no need to ask. Each time you see a NTUC advert, say goodbye to a few dollars of your bonus. And they have been splashing a lot of your bonus on the adverts in so many papers.; March 22, 2010 9:40 PM
Anonymous said...: Lim,

Some ntuc bonus went up in smoke 2 weeks ago at Siloso beach and a big one coming, bigger than tsunami this April and you will see your bonus pour down the great wall of beijing.
TM Asia a safer bet. I say safer only becuase they NEVER cut bonus but all wholelife or endowment products are scams no matter from which company.; March 22, 2010 9:48 PM
Anonymous said...: I don't think it's an objective argument to label ALL policies are scam.

There are policies that meet obligations and pay out that benefits policyholders and families.

It is always easier to highlight the negative and also because it's human nature to do so but don't you agree that a sound argument should be objective and point out both side of the story?; March 22, 2010 10:25 PM
Anonymous said...: REX comments on 10.25 pm anon post,

I don't think anyone here ever said that ALL policies are scam. People here are fedup only with policies which mix insurance with investment giving poor claims-premium ratio and also yielding poor investment returns. Such policies always end up enriching the agents and the insurance company many many many times more than the company pays out benefit to the customer, that's why people associate it with "scam": it is a question of relative benefits of the buyer and the seller really, and not whehter the policies do pay or don't pay.

The majority here, i believe, knows that Term Insurance policies, unlike the types mentioned above, are good value for money.

That's the whole point, the old mantra "buy Term; invest the rest" should be recited along with the national pledge everyday!

rex; March 23, 2010 8:54 AM
Anonymous said...: Anon March 22, 2010 10:25 PM,

if you like to be cheated no one is stopping you.
It is WELL KNOWN that all par products, like wholelife and endowment DON'T give decent return and protection.
The man in the street need something that can provide adequate protection at low cost and reasonable return to save his hard earned money.But none of these products can instead they pay the insurance agents huge commission at your expense. There are better alternatives and the duty of insurance agents is to use the BEST products or solution to help the buyers but the agents don't . They ONLY sell products that can benefit themselves.
The problem is you don't accept the truth. The negatives of par products far outweigh the positives and that make them scams which SHOULD NOT be sold or pushed to unwary customers especioally customers who trust the agents.If you have been objective the argument and facts presented and anecdotal evidences in this blog are plenty. Many discovered and came forward to show the poor return of their policies after many years. How could you deny these facts? Are you an insurance agent?
If you are , you are not going to hear any good news from now.; March 23, 2010 8:58 AM
Anonymous said...: Dear Rex,

I quote from Lim's comment at March 22, 2010 9:48 PM.

"...TM Asia a safer bet. I say safer only becuase they NEVER cut bonus but ALL wholelife or endowment products are SCAMS no matter from which company."; March 23, 2010 10:17 AM
Anonymous said...: The real reason for cutting bonus payments has now being exposed - the monies robbed from the Policy holders can now be used for advertisements of scam insurance products, rebranding & rebuilding their soiled image & all the insincere sound bites! All Policy Holders should stand up & grilled them at the coming AGM!!!!!; March 23, 2010 10:40 AM
Anonymous said...: First of all, I do agree that Term policies are value for money in terms of affordability and the amount of protection it offers.

I'm an advocate of buy term and invest the rest PROVIDED that the person knows what to invest,how to invest and is able to remove all the emotional hurdles in investing.

Even with ETF, which is low cost and doesn't require much analysis because you're investing in the market, people who cannot handle the volatility of the market may let their emotions overrule and make unwise decisions.

Don't you agree that we live in a spoon fed or quick fix society where majority wants fast and quick solution without having to think or study too much?

Generally speaking, except for the learned few, consumers want the best of both worlds. E.g Protection and Returns.

No matter how good Term policies are, some just don't see the value in spending on something that they cannot cash out even even if nothing happens to them. Because they THINK that the chance of an unfortunate event happening to them is remote.

So with this kind of consumer mindset that's still prevalent, whole life and ILPs will still be around as long as consumers want quick fix and 2 in 1 solutions.

At the end of the day, it's consumer's choice and decision. The thing that we need to stamp out is mis-selling, product pushing, churning and other unethical behaviors. I'd also like to see a higher barrier of entry for the insurance industry, at least a degree qualification, so as to get more qualified people and hopefully better advice.; March 23, 2010 10:46 AM
Concerned said...: Anonymous 10:40 AM

"All Policy Holders should stand up & grilled them at the coming AGM!!!!!"

Can a policy holder attend an AGM of an insurance company? So far I have never heard of this. Maybe policyholders should push for such a change.; March 23, 2010 11:25 AM
Anonymous said...: March 23, 2010 10:46 AM,
With the middleman if you still have to make your own choices without help and take ownership whatever the outcome, why should you pay commission?.
Making your own choices is what MAS wants so they can wash their hands off whenever there is problem. In fact they have been promoting CAVEAT EMPTOR since 2000 to make Singapore a financial hub.
What is caveat emptor?
Crudely put it is 'die is your business' or 'read and open your eyes big big'. In other words MAS is indirectly protecting the interest of the FIs and their salesmen becuase they can hide behind caveat emptor and give the overly used excuses like, "the customers want it wah", "the customers like it this way, hor",
the custtomers choose it and not I, hor"..But if you examine the profile of the insurance agents' clientele 90% are consumers who financially uneducated, clueless , ignorant, gullible and vulnerable to glib tongue. So they buy on TRUST. Insurance agents exploit the trust and dump useless products on consumers...
If you advise on CPFlife will you get a commission? No!!!that is why agents don't recommend but advise against it..even knowing it is the best annuity they still find ways and means to hoodwink their trusting customers to buy their annuity. The same goes with term products.
For this reason, commission will be banned soon and fee introduced.
If you are paid a nominal fee you would give your best even it is term becuase YOU ARE NOT SELLING A PRODUCT but providing the best advice to help clients attain their goals and you a paid for the service.
At the end of the day consumers get value for money and get 'educated' and peace of mind too.
I bet very very few consumers have peace of mind becuase they are grossly under insured. What can $50K do for your family? Averagely a family of 2 needs at least $500K.
These figures are not plucked from the air but historical statistics.; March 23, 2010 11:38 AM
Anonymous said...: REX comments on Anon. 10.17

I think the word SCAM first need to be defined. There is a disjoint between YOUR interpretation of SCAM and that of people like "Lim" and many others, that is the big problem.

What's scam?
Scam is cheating someone of the principal invested without telling him clearly the stakes. Lehman minibonds is scam, it was disguised as "bond", it included CDO risks, which can destroy principal, it subpackages subprime loans from USA. So when the subprime crisis began, many people lost their PRINCIPAL in this scam. It is absolute, not relative.

On the other hand, the "SCAM" which most people i think refer to here, are not the :Lehman: genre of scam. Most people here are talking of products which, even though give you back your principal,the issuers take same to generate an enormous profit and also pay commisions, say totalling a million dollar, but at end of the day they give you $99.99 plus your principal back, all of it. Is this scam? Maybe not. You didn't lose your principal. You got what they predicted. But relatively speaking, your money was used to work many times more to feed the issuers profit machine. It is relative, not absolute unlike the first definition of scam i suggested above.

For me , I cannot say these endowment or whole life products are a scam because the buyer was shown the projected benefits, the distribution costs, etc. The costs were disclosed before signing.

It is like saying you can't sell cigarettes. When you puff a cigarette, maybe even a box a week, you wouldn't die straight away. Most people see the effects 10 years later, some don;t like Deng Xiao Peng chain smoker. So those who are smart, stay clear of cigarettes. But it is still permitted to sell these "scam" cigarettes, no problem, puff once in a while, "can't die one".

Buy Term and Invest the rest. Any other policy which is not Term insurance, gives poor cover and poor investment returns; some people all it scam, but in a way it is not as bad as full scale cheating Lehman Bond type of scam. Different flavour scam maybe.

(PS. If one doesn't know how to invest, then just don't invest, leave the money in the bank and use it for a rainy day. The returns on these "scam" poor value products give you only a couple hundred more dollars than put in normal bank account. You can't get rich that way.)

REX; March 23, 2010 11:51 AM
Anonymous said...: Erm. why isit tat property agents don't seem to get as much bashing ah?

think we shld start something against property agents too. they've a fair share of dirty tricks too.; March 23, 2010 12:13 PM
Anonymous said...: Caveat Emptor originated from the real estate industry.It was meant to warn buyers to open their eyes big big and do the due diligence. Yes, they can be done because the principle of caveat Emptor depends on your eyes, your touch and diligence to inspect before signing on the dotted line and if you fail to do all that then it is your faults albeit not entirely becuase there are still many defects that can be hidden like last minute paintwork, touch up or obstruction placed in the way of the defective areas.
This really opening your eyes big BIG.
In insurance and investment there is absolutely nothing for you to see ,touch, smell or urinate or shit on it. Everything is depending on your scanty knowledge and 99.9% on the agent and the BIs.
On top of it it laborious to go through them that agents take advantage of it by hurriedly get you to sign on the last page and make you acknowledge many thing that you have not read or seen or explained but 90% of the time listening to the lies of the agents.There is nothing you can take for test drive , or squeeze to test the firmness or to kick it to see if it is that hardy as claimed by the agents. At the end of the day only 2 words decide the sale, 'can or cannot' 'good or not'.Which do you think the agent will say? Of course 'good' and the deal is through. This is TRUST and is the key determinant. Meantime the agents will visit temples for intercession for protection and pray that the truth will not be exposed.
This is how agents living their life on the edge with a stricken conscience and hope they die before the clients.
The bad news is CASE chief once sounded that the long arm of the law will eventually catch up with you even when you in the coffin or in 18 level hell. THERE IS NO TIME BAR FOR CRIME.It is forever.; March 23, 2010 3:52 PM
Anonymous said...: Hi Rex,

I quote

"(PS. If one doesn't know how to invest, then just don't invest, leave the money in the bank and use it for a rainy day. The returns on these "scam" poor value products give you only a couple hundred more dollars than put in normal bank account. You can't get rich that way.)"

Given the kind of returns that banks give on your deposits, I wouldn't advice anyone to put their money in the bank just because they don't know how to, they'd be losing money as well. Not to agents but to inflation.

Can I make a case and say that the banks are cheating on our money too? Given that the banks use our money and loan others to get high returns only to give us 0.125% p.a. Is that justifiable and fair?

Not doing anything about your money doesn't mean that your money is not against you.

What consumers need is to take the responsibility and be financially literate so that they will be aware and can have more options.

Sometimes I feel that people are really weird. Last time government have a lot of regulation then people complain say a lot of red tape and restrictions. Now when they open up the market, people complain why the government never set rules to protect the people.; March 23, 2010 6:20 PM
Anonymous said...: REX comments on anon 6.20 pm

I'm one of those who put all my money in banks or in Single Premium Policies with slightly higher than bank interests and principal guaranteed. These are simple instruments for "dummies", it is safe and secure.
I know ETF and company shares pay 5% pa and is indeed generally safe "investment" instead of the bank deposit method.

The reason why i still stick to bank and simple instruments is because my wife might not know what to do with these ETF's if I conk out. She has absolutely no interest dealing in shares ETFs and talking to brokers, going to internet, selling, buying, not interested. So if i conk out, the money will be stuck in the ETF she wouldnt know how to handle it.. log in.. password.. protocols etc...

Not a very good reason but that is my situation.

Anyway a couple of % cannot make one rich, it is more important to have a positive cash flow throughout one's entire life.

REX
PS> on the dismal interest rates paid by banks compared to the bank's earnings, we can't do anything since all the banks pakat to pay us so low interest. The only advantage is the liquidity, otherwise, bank deposits would also be as "scammy" as all these fancy insurance products we were discussing.; March 23, 2010 7:25 PM
Anonymous said...: Hi Rex,

Would you agree that what is most important is for consumer to practice self responsibility in terms of financial literacy?

Consumers who choose to be financially ignorant and look for quick fix solutions have a price to pay and the price is that they may get a lower return compared to other investment alternatives.

So is it wrong to have an ILP? I don't think so because it still serves the same purpose just that you may take a longer time or longer route to reach your desired returns.

For those who are willing to take responsiblity over their own finances and financial literacy, they have a right to choose other investment vehicles and may get better returns for their money because they've put in the hard work and hours to improve on their knowledge.

At the end of the day, what i'm trying to say is that there is no free lunch. If you want wealth, take the time and invest in knowledge to understand that there is no such thing as low risk high return. This is a market that gives you choices and the right to make the best choices lies in the people who are willing to put in the effort and hours to improve on their financial literacy. There is a price to be paid in choosing to be ignorant.

IMO labelling and bashing people be it bankers or agents doesn't help because I still believe that there are decent advisors out there doing a honest job and we must accept the fact that black sheeps are always abound in any industry.

Taking ownership and improving one's financial literacy is the way to go.; March 24, 2010 12:04 AM
Anonymous said...: Anon March 24, 2010 12:04 AM,
Financial literacy is ideal but how many have? If the insurance agents don't have that literacy of a competent practitioner what do you think of the consumers at large?
I wonder you are an insurance agents. What is the profile of your clientele base? Are they all financially literate? Get real...let me put it to you..99% of the consumers are illiterate financially becuase 99.99% of the insurance agents are incompetent and unqualified. So , what do you expect the consumers' ability to take responsibility, taking ownership of their investment.
If you have visited this blog often enough you would have noticed many disgruntled consumers venting their frustration about products and their so called financial consultants.Why?
The latest MAS consultation is about Customer Knowledge Assessment.What do you think of the proposals be like? Did you feedback MAS about consumers' financail literacy? It is now 2010.
Singaporeans are still under insured. CPF members' balance is still reeling from losses. Many are still unable to buy the minimum $20K CPFlife. 85% don't have $40K in their CPF balance.
Waht financial literacy? Not easy... the consumers still need a lot of help in their personal finance. But with rogue and unqualified agents everywhere with an ubiquitous presence waht chance do the consumers have of financial independence.They are being robbed in broad daylight daily by either dishonest or incompetent insurance agents.
To stop these crimes is for MAS to remove the commission as it has been since time immemorial an evil cause of all mis-selling , conflict of interest and unethical practices. Financial literacy cannot solve as it is impractical, eg for a toilet cleaner or fast food hawker or Ah Sohs to be financial savvy to make informed decision. No way at all.
The answer is to fix the commission and force the insurance agents to use need based approach and comply with section 27 of the FAA and failing to meet reasonable basis is a breach of that section.
Make the immediate supervisor to responsible also as a second line of check and safeguard. I guarantee the crime rate will drop immediately... the criminals will also leave the industry and every insurance agent suddenly will become advisers and consultant and not product pushers and peddlers peddling snake oil products.
The companies they represent too will start withdrawing their dubious snake oil scam products and adhere to the top down fair dealing outcome guidelines. The CEOs will be jailed and fined for flouting the guidelines.
Financial literacy is a fantasy of MAS and will remain a fantasy. In mature markets , even with financial planning being taught in schools financial literacy is still a dream. As I have mentioned even the insurance agents , supposed to be financial experts have problems with understanding of finance and investing what do you expect the consumers?
Don't play into the hands of MAS. It has its own agenda. It is a trap.; March 24, 2010 1:12 AM
Anonymous said...: REX comments on anon 12.04 am

Yes, you are quite right. I never said that the ILP and Endowment etc are scam, as per my earlier post. 12.51 pm. They are extremely poor value for money, e.g. pay $2 for a can of coke where you can get very easily at $1.20 in other place.

Nevertheless, as you said correctly, consumers have a choice, To use the analogy again, some may feel that $2 is quite ok for some other reasons. Most people consider it poor value giving the seller absurd profits, but of course if one is financiallly literate and is able to accept that for some reason, these products cannot be considered as cheating because cheating as in, scam, means they didn't tell you, or else they tell you the wrong thing.

rex; March 24, 2010 6:48 AM
Anonymous said...: to our friend,Mr."Concerned"
who asked:
""All Policy Holders should stand up & grilled them at the coming AGM!!!!!"

Can a policy holder attend an AGM of an insurance company? So far I have never heard of this. Maybe policyholders should push for such a change."
The answer is Yes,a policy holder can atend the AGM.
Last year I had attended NTUC Income's AGM.But from my observation,there isn't much impact to the panel of ppl on the board.There were more supporters from the co-operatives than policy-holders.So you hardly could over-talk them.I'm thinking whether to take time off to attend this year.This is just my observation only.Maybe Mr.Tan could add his comments?

Cornflake; March 25, 2010 10:30 PM
Anonymous said...: Every policyholder is entitled to attend the AGM.
Please attend to grill the ceo and the board. Ask them to show the books and the members' remuneration. I heard they all are rubber stamps.
Ask also why there is a need to have so many senior VPs...all these eat finish rice senior managers.
Is it a wonder why your bonus keeps shrinking and your return shriveling?; March 26, 2010 12:07 AM
Anonymous said...: I still stand by my point. Tackling the issue about how agents are paid is not going to solve everything. You can do away with commission but can you still ensure that sound financial advice will be given?

My stand is still this.

1) MAS needs to set a higher level of entry for financial advisors. Minimum a degree qualification. If the person has a degree but not of a relevant field, they'd need to take certification courses such as CHFC or CFP.

2) The Government needs to take a proactive approach in financial education and likewise consumers also need to start taking responsibility for their financial literacy. With knowledge comes power.; March 28, 2010 11:18 PM
Anonymous said...: Do away with commission and make it compulsory to comply with section 27 of the FAA and a few more checks like making insurance agents' supervisors responsible and liable for the recommendations on reasonable basis and also the CEO.
And do you know MAS is seeking more power from parliament for direct 'prosecution'?
Be patient, at least half of the current population of insurance agents will leave the industry soon either becuase they are not qualified and incompetent to comply with new guidelines or they cannot get rich quick anymore or good chance they will end up in jail or those who robbed their clients in the past will have to return all the ill gotten loots.
This will be the new landscape where consumers will get responsible and competent financial planning advice.
Sorry , the toilet cleaners or the professor of medicine are alike and they need the help of a honest and competent financial planner.; March 31, 2010 10:31 PM

Monday, March 22, 2010

Lavish spending at expense of policyholders

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