An insurance company is paying a lot of money to recruit new agents (up to 135% of the previous year's income as signing bonus) and to retain their existing agents.
Why is it necessary for the insurance company to be paying so much money, on top of the high commission rates that are already earned by the agents? Where does the money come from? The simple answer is - the money comes from the policyholders.
I have seen many benefit illustrations that show the about 40% of the value of accumulated premium taken away after 25 years. For example, if the accumulated premium is $500,000, about $200,000 being taken away, leaving only $300,000 to the policyholder. The $200,000 is a lot of money for the insurance company to pay high commission to the agent, to pay high signing and retention bonus and still leave a lot of money from their profits. But it is money taken from the naive and unsuspecting policyholders, leaving them with a net yield that is not sufficient to cover inflation.
If each policyholder "donate" $200,000 to the insurance company and the insurance company is able to sell 10,000 policies in a year, guess how much money is available to pay as signing bonus?
It was reported that MAS issued a statement, "We expect insurers to observe a high standard in their recruitment". Beyond this statement of good intent, I wonder if MAS does investigate how the policyholder's monies are being spent?
Tan Kin Lian
You can learn how to read the benefit illustration here;
This company is "famous" for all their expensive products. In the past, they can get away with it due to their prestigious brand name. At one time, all their agents are making big bucks, travelling on conti cars, living in big houses etc.
ReplyDeleteHowever after the 2008 crisis, I am not sure people view them in the same light. Now you see their agent peddling their wares in the street/bus interchange/MRT station, no different from a certain local company owned by the govt. I wonder who will want to join this company except those who are only thinking for their own pocket.
In Singapore, all insurance companies just need to abide by 2 things:
ReplyDeleteMaintain adequate solvency ratios, and distribute minimum of 90% of certain specific profits to policyholders.
But the insurers can play around with accounting --- what is expenses, what is profit? Also what type of profit? Becoz not all profits are distributable to policyholders. It is obvious that insurers are spending lots of money on "expenses" --- big cash incentives, high commissions, overseas trips, lavish dinners at expensive restaurants, expensive renovations, expensive office furniture, high salaries, big year-end bonuses, etc.
In order to protect their position, insurers just dump 75% of policyholder's money into low-yielding govt bonds and GLC bonds. At the same time, they keep pumping their agents to get new sales to maintain the modus operandi.
Life insurance in Singapore works on a high turnover (many sales required) and a low yielding mechanism. With high costs and low yields, that's why 99.99% of consumers with expensive par policies end up with lousy outcomes.
The LIA report tells everything why the industry is a place for conmen and women.
ReplyDeleteLook at the statistics. You can't believe it. Sales gone up but not sum assured. Agents are doing fact finding but sum assured still the same as in the past years. What crap the President of LIA said that more consumers are more forthcoming with their personal details . If private details are available to the agents why the sum assured is still small?
Let me tell the President this.
More aggressive high commission product pushing pushed up the sale.
More agents are faking the fact find because if the sum assured is small then their recommendation failed the reasonable basis requirement and this is breaching section 27 of the FAA.
Why did it escape the notice or scrutiny of the compliance, the supervisors, the managers and the CEOs? The likelihood is all these people are in cahoot to con the consumers with WL par products which are lucrative to all of these people. To the agents means high commission. To the company means markets share and #1. To the CEO means higher performance bonus.
To the consumers? suckers, lah. What chance do the consumers have against the many scavengers eyeing their hard earned money.
MAS must do something about the 'high standard'. The insurance companies and the agents are all breaking the fair dealing outcome guidelines.
I am not surprised that in the next half of 2010 the sale will continue to go up and the fact find statistics will hit 100% but the sum assured and the death claim will remain the same, no change.
Is MAS worried? I am wondering....
Mr Tan you should write in to MAS and post their replies here.
ReplyDelete