Dear Mr. Tan,
I purchased a Secure Retirement Plus (SRP) plan last year. This is a variable aunity which buys into one of the insurer's unit trust and offers lock-in of the unit trust value every 5 years (up to 85 years old). I have the option to top up my deposit within 1 year. This is a rather complex scheme, with 50% "virtual" bonus after 10 years, and 'virtual' lock-in of the account value of the unit trsut every 5 years.
'Virtual' means that the insurer is committed to honour the payout based on the 'virtual' account amount, but if client wishes to close the account, he/she will get back only the actual value of the unit trust. It sounded like a good deal since the downside risk is the survivability of the insurance company itself (which I think is finanically sound) and the upside is growth of value of the unit trust that the funds is invested in, thereby indirectly assure that the payout grows with inflation (inflation likely to flollow market growth).
I have the following question.
1) Is this SRP annunity better than the annuity offered by other insurance companies?
2) I wish to invest 40% of my retirement fund in this scheme (remaining money in unit trust, stocks and cash) Is this a good proportion?
3) Does MAS mandate that insurance company in Singapore must maintain a certain amount of capital to honor the annuity payout?
REPLY
I avoid complex financial products that are designed with features that are not clear to the consumer. This allows the product issuer to interpret the features to its advantage, and take a large share of the investment gains from the consumer. The product that you described falls in this category.
If you wish to invest in a variable annuity, you should just buy into the STI ETF and make a monthly withdrawal to meet your needs. If you withdrawal is modest, relative to the amount that you have invested, it is likely to last for your lifetime, and leave some balance remaining for your children. You will get the average market return, which is likely to be around 6% per annum. I am not sure how much you can get from this complex product after deducting the charges.
E-mail: kinlian@gmail.com. Website: www.tankinlian.com Facebook: www.facebook.com/kinlian
Saturday, March 27, 2010
Expensive Telephone Charges
I received this SMS: Welcome to Tunisia. To call Singapore, dial +65phone no. Voice @$5/min. SMS S$0.60/sms. Data S$20/MB.
Wow! I called home using Skype! But if I make a mistake and accept an incoming call on my mobile phone, I have to pay this high charge. This is how business make profits - catch the unwary customer!
Wow! I called home using Skype! But if I make a mistake and accept an incoming call on my mobile phone, I have to pay this high charge. This is how business make profits - catch the unwary customer!
Bank staff mis-selling to be scrutinized under government plans
http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=390355&re=8921&ea=138574
Bank staff mis-selling to be scrutinized under government plans
By Victoria Bischoff 25 March 2010
Financial services firms that force staff to promote and sell products to consumers in order to meet sales targets will be reformed, under plans revealed in the budget this week.
The government has said it will set up a ‘working group’ to consider how staff targets and incentives might lead to poor outcomes for consumers and employees.
This is building on the Retail Financial Services Forum’s remit to make financial services work better for consumers. The group will meet with a number of banks, consumer groups and trade unions, to discuss the need for reform, before reporting to the Chancellor in time for the Pre-Budget Report.
Unite Union has welcomed this investigation into bank sales culture, describing it as a ‘victory’ for staff in banks across the UK.
Rob MacGregor, Unite national officer said: ‘There is now an opportunity to eradicate the murky practices which put pressure on staff and customers. This new examination by the Government is a win for consumers and a win for those workers on the front line of the banking sector.’
‘Unite members feel uncomfortable with having to pressure customers to invest in products which they often don’t feel they need, simply because the staff have to meet unreasonable sales targets,’ he added.
Consumer champion Which? recently sent out mystery consumers to 37 branches of banks and building societies, and found just four gave consumers good advice to consumers investing a lump sum. Meanwhile, the remaining 33 banks often recommended inappropriate products, failed to properly explain the risks or simply couldn’t get the basics of good advice right.
Which? chief executive, Peter Vicary-Smith, said: ‘Banks and building societies need to buck up their ideas and make sure that their sales practices don’t exploit consumers by encouraging their staff to recommend inappropriate products’.
A spokesperson for the British Banker’s Association said they are not currently aware of any invitation to the new group on remuneration and incentives, but they will be pleased to participate if asked.
Bank staff mis-selling to be scrutinized under government plans
By Victoria Bischoff 25 March 2010
Financial services firms that force staff to promote and sell products to consumers in order to meet sales targets will be reformed, under plans revealed in the budget this week.
The government has said it will set up a ‘working group’ to consider how staff targets and incentives might lead to poor outcomes for consumers and employees.
This is building on the Retail Financial Services Forum’s remit to make financial services work better for consumers. The group will meet with a number of banks, consumer groups and trade unions, to discuss the need for reform, before reporting to the Chancellor in time for the Pre-Budget Report.
Unite Union has welcomed this investigation into bank sales culture, describing it as a ‘victory’ for staff in banks across the UK.
Rob MacGregor, Unite national officer said: ‘There is now an opportunity to eradicate the murky practices which put pressure on staff and customers. This new examination by the Government is a win for consumers and a win for those workers on the front line of the banking sector.’
‘Unite members feel uncomfortable with having to pressure customers to invest in products which they often don’t feel they need, simply because the staff have to meet unreasonable sales targets,’ he added.
Consumer champion Which? recently sent out mystery consumers to 37 branches of banks and building societies, and found just four gave consumers good advice to consumers investing a lump sum. Meanwhile, the remaining 33 banks often recommended inappropriate products, failed to properly explain the risks or simply couldn’t get the basics of good advice right.
Which? chief executive, Peter Vicary-Smith, said: ‘Banks and building societies need to buck up their ideas and make sure that their sales practices don’t exploit consumers by encouraging their staff to recommend inappropriate products’.
A spokesperson for the British Banker’s Association said they are not currently aware of any invitation to the new group on remuneration and incentives, but they will be pleased to participate if asked.
UK ban on commission to take effect from 2013
http://www.citywire.co.uk/personal/-/blogs/money-blog/content.aspx?ID=390639&re=8931&ea=138574
Is it right to ban financial advisers from taking commission?
By Tony Bonsignore 26 March 2010
The Financial Services Authority today finally banned financial advisers from taking commission on investment products such as ISAs, pensions, life insurance and the like
The move has been on the cards for a couple of years, and follows a major regulatory review of the sector. But still it is likely to come as a shock to those old-school advisers who pick up a tasty commission for every product they flog.
Certain voices within the advice industry have long argued that forcing consumers to pay upfront will deter them from seeking financial advice together. Others, meanwhile, argue that the FSA has no business intervening in the market in this way.
Other observers, though, note the way ‘independent’ advisers are swayed in their recommendations by the amount of commission they earn, both in the products they pick and the providers they choose.
They also remember a wave of outrageous mis-selling scandals within the sector, from personal pensions to endowments in the 80s and 90s to precipice bonds and split capital investment trusts in the noughties.
Commission-based advisers cannot but help but be biased, they say, and for that reason they should be banned.
The regulator obviously agrees.
From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product, an FSA statement said
‘In addition, firms will not be able to accept commission in return for recommending specific products. Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs.‘
Firms offering independent advice will now have to demonstrate their recommendations are based on ‘a comprehensive and unbiased analysis of the market and that any product selection is made in their clients’ best interests,’ it added.
As for those who are unable or unwilling to pay for financial advice, the cost of the advice can be bundled with the product; however it must be clear exactly how much is being charged for advice.
‘It is vital that consumers know not only the cost of financial advice, but also its value,’ Sheila Nicoll of the FSA says.
‘There is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.’
So what do you think, then, has the FSA made the right decision? Will it boost demand for financial advice or reduce it? Does commission have any place in modern retail financial services? And will it stop the next mis-selling scandal?
Is it right to ban financial advisers from taking commission?
By Tony Bonsignore 26 March 2010
The Financial Services Authority today finally banned financial advisers from taking commission on investment products such as ISAs, pensions, life insurance and the like
The move has been on the cards for a couple of years, and follows a major regulatory review of the sector. But still it is likely to come as a shock to those old-school advisers who pick up a tasty commission for every product they flog.
Certain voices within the advice industry have long argued that forcing consumers to pay upfront will deter them from seeking financial advice together. Others, meanwhile, argue that the FSA has no business intervening in the market in this way.
Other observers, though, note the way ‘independent’ advisers are swayed in their recommendations by the amount of commission they earn, both in the products they pick and the providers they choose.
They also remember a wave of outrageous mis-selling scandals within the sector, from personal pensions to endowments in the 80s and 90s to precipice bonds and split capital investment trusts in the noughties.
Commission-based advisers cannot but help but be biased, they say, and for that reason they should be banned.
The regulator obviously agrees.
From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product, an FSA statement said
‘In addition, firms will not be able to accept commission in return for recommending specific products. Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs.‘
Firms offering independent advice will now have to demonstrate their recommendations are based on ‘a comprehensive and unbiased analysis of the market and that any product selection is made in their clients’ best interests,’ it added.
As for those who are unable or unwilling to pay for financial advice, the cost of the advice can be bundled with the product; however it must be clear exactly how much is being charged for advice.
‘It is vital that consumers know not only the cost of financial advice, but also its value,’ Sheila Nicoll of the FSA says.
‘There is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.’
So what do you think, then, has the FSA made the right decision? Will it boost demand for financial advice or reduce it? Does commission have any place in modern retail financial services? And will it stop the next mis-selling scandal?
FISCA website
The FISCA website is being updated daily with new articles that are relevant for consumers. You can visit it by clicking on this link or the link on the right panel of this blog.
Many Singaporeans are migrating
Read this article by Seah Chiang Nee.
http://thestar.com.my/columnists/story.asp?file=/2010/3/27/columnists/insightdownsouth/5936468&sec=insightdownsouth
Testimonial to my Financial Planning book
I received a wonderful testimonial from CJ. I like to invite other people who have read my book to give their views here.
Hi,
Just want to say thank you, for sharing your knowledge on your blog. I am married with first baby expected to deliver on june, and i have just read your book I learnt a lot regarding the insurance that i should bought to protect my family, and the correct saving investment method, etc. Hope more people can learn from you, and do not fall into the trap ever again.
CJ
Hi,
Just want to say thank you, for sharing your knowledge on your blog. I am married with first baby expected to deliver on june, and i have just read your book I learnt a lot regarding the insurance that i should bought to protect my family, and the correct saving investment method, etc. Hope more people can learn from you, and do not fall into the trap ever again.
CJ
Friday, March 26, 2010
Simulation game: Pro-Investor
This simulation game gives you a chance to practice on selecting the right stocks. Read this guide on how to play the simulation game.
ST Online: Premium questions for motor insurers
MR PAUL Chan's Forum Online letter on Wednesday ('More accountability needed from motor insurers')
raises two less known points about the motor insurance industry.
The first.. There is no mandatory insurance required for property damage, including damage to motor vehicles... So it may be timely for the Government to step in and provide the necessary regulation.
It is unfair to consumers who are required to take up third-party injury insurance by law, and are taken advantage of by insurers who build and bundle an expensive insurance product because they know consumers have no choice but to buy it.
Second....motor insurers should factor in and disclose the investment income derived from premiums collected
when justifying premium increases for a better understanding among consumers.
Peter Lo
http://www.straitstimes.com/STForum/Story/STIStory_506672.html
raises two less known points about the motor insurance industry.
The first.. There is no mandatory insurance required for property damage, including damage to motor vehicles... So it may be timely for the Government to step in and provide the necessary regulation.
It is unfair to consumers who are required to take up third-party injury insurance by law, and are taken advantage of by insurers who build and bundle an expensive insurance product because they know consumers have no choice but to buy it.
Second....motor insurers should factor in and disclose the investment income derived from premiums collected
when justifying premium increases for a better understanding among consumers.
Peter Lo
http://www.straitstimes.com/STForum/Story/STIStory_506672.html
Price of HDB flat
Dear Mr Tan,
Will HDB Minister Mah Bow Tan and all other PAP Ministers again defend that this is an exception rather than norm... That PRs are NOT driving public housing prices in Singapore? Today's Asiaone article:
---------
A TAIWANESE couple have paid $650,000 for a four-room flat in Bain Street - smashing Housing Board (HDB) records and reflecting the strength in the red-hot resale market.
The sale price works out to be $736 per sq ft for the 30-year-old flat on the 25th floor of a block at Bras Basah.
That is the highest psf price paid for an HDB property and is on a par with prices of private homes in suburban areas.
----------
Regards,
Concerned but feel hopeless Singapore Citizen
COMMENT BY TAN KIN LIAN
The problem is the use of the "market price" as the benchmark for deciding on the price of new flats. If the price of new flats is based on cost and there is adequate supply to meet demand (and the state has a lot of land and airspace that can be developed) the people will not need to fear and drive up the prices further. It is better to have property based on "cost plus" rather than "market".
Will HDB Minister Mah Bow Tan and all other PAP Ministers again defend that this is an exception rather than norm... That PRs are NOT driving public housing prices in Singapore? Today's Asiaone article:
---------
A TAIWANESE couple have paid $650,000 for a four-room flat in Bain Street - smashing Housing Board (HDB) records and reflecting the strength in the red-hot resale market.
The sale price works out to be $736 per sq ft for the 30-year-old flat on the 25th floor of a block at Bras Basah.
That is the highest psf price paid for an HDB property and is on a par with prices of private homes in suburban areas.
----------
Regards,
Concerned but feel hopeless Singapore Citizen
COMMENT BY TAN KIN LIAN
The problem is the use of the "market price" as the benchmark for deciding on the price of new flats. If the price of new flats is based on cost and there is adequate supply to meet demand (and the state has a lot of land and airspace that can be developed) the people will not need to fear and drive up the prices further. It is better to have property based on "cost plus" rather than "market".
Public administration
The UK Government spends about 50% of the GDP (a proportion higher than the other countries in Europe and the USA) to provide welfare benefits, such as free or highly subsidized health care, education, unemployment and old age pension. This spending is funded by a high rate of taxation. While a certain proportion of the spending is abused by the recipients, this system has been well received by the population who prefer the security that comes from the welfare state.
The USA is in the other extreme among the developed nations. It spends less on the social benefits and collect less tax. However, the public have to pay a large part of their income on health care and education. The total cost to the public may be higher, if the private spending is added to the tax.
Many people considers the welfare state to be wasteful, due to abuses and inefficiency. This is only one side of the situation. The private spending system used in the US also have negative points, as is seen in their health care system. There is high administrative and marketing costs and the abuse of profit-driven enterprises, such as denying coverage to the people in poor health or denying legitimate claims.
It is better for a country to rely less on private spending system. Even the US is making reforms to its system.
However, we do not need to go to the other extreme of the welfare state that is practiced in the UK.
We can implement a form of welfare that is not abused and not wasteful. This approach recognizes the benefit of collective purchase by the state for essential services on behalf of the people. It allows the state to find the most efficient supply, at a determined level of quality, for the majority of the people and still allow the higher income to spend their own money to get a higher quality of service. It requires a public administration that is run by honest and competent people, who have a feel for the public that is being served. Singapore used to have this type of approach in the past. We can go back to this approach.
Tan Kin Lian
The USA is in the other extreme among the developed nations. It spends less on the social benefits and collect less tax. However, the public have to pay a large part of their income on health care and education. The total cost to the public may be higher, if the private spending is added to the tax.
Many people considers the welfare state to be wasteful, due to abuses and inefficiency. This is only one side of the situation. The private spending system used in the US also have negative points, as is seen in their health care system. There is high administrative and marketing costs and the abuse of profit-driven enterprises, such as denying coverage to the people in poor health or denying legitimate claims.
It is better for a country to rely less on private spending system. Even the US is making reforms to its system.
However, we do not need to go to the other extreme of the welfare state that is practiced in the UK.
We can implement a form of welfare that is not abused and not wasteful. This approach recognizes the benefit of collective purchase by the state for essential services on behalf of the people. It allows the state to find the most efficient supply, at a determined level of quality, for the majority of the people and still allow the higher income to spend their own money to get a higher quality of service. It requires a public administration that is run by honest and competent people, who have a feel for the public that is being served. Singapore used to have this type of approach in the past. We can go back to this approach.
Tan Kin Lian
Thursday, March 25, 2010
IHT settle defamation claims in Singapore
http://www.nytimes.com/2010/03/25/business/media/25times.html
Singaporean leaders have a history of taking the offensive against news organizations
for language that would be legally protected — or even considered relatively innocuous — in the United States, threatening legal action or restricting the sales of publications
“Nobody in most of the world would bat an eye about” such a piece, said Stuart D. Karle, a former general counsel of The Wall Street Journal, who has handled disputes with Singapore’s leadership but was not involved in this case.
But in that country, he said, there is often “the presumption that there’s a hidden message”
about nepotism or corruption in news coverage, and if that turns into a libel case, a news organization faces
“a near-certainty of losing.”
Singaporean leaders have a history of taking the offensive against news organizations
for language that would be legally protected — or even considered relatively innocuous — in the United States, threatening legal action or restricting the sales of publications
“Nobody in most of the world would bat an eye about” such a piece, said Stuart D. Karle, a former general counsel of The Wall Street Journal, who has handled disputes with Singapore’s leadership but was not involved in this case.
But in that country, he said, there is often “the presumption that there’s a hidden message”
about nepotism or corruption in news coverage, and if that turns into a libel case, a news organization faces
“a near-certainty of losing.”
Why labour mobility may be difficult
At a tripartite dialogue Lim Swee Say cautioned businesses against depressing wages.
He pointed out that workers could and would change employers if their wages fall below the market rate. In reality, however, labour mobility remains a luxury, not a given. For one thing, unskilled and low-skilled elderly workers do not have the bargaining power. Foreign workers constitute another group who can ill afford to walk out on their bosses. Also, the current work permit system allows foreign workers to work only for the employer stated on their work permits.
Labour mobility thus rings hollow in the absence of stronger enforcement measures and reforms to the work permit system.
Ong Yanchun (Ms)
He pointed out that workers could and would change employers if their wages fall below the market rate. In reality, however, labour mobility remains a luxury, not a given. For one thing, unskilled and low-skilled elderly workers do not have the bargaining power. Foreign workers constitute another group who can ill afford to walk out on their bosses. Also, the current work permit system allows foreign workers to work only for the employer stated on their work permits.
Labour mobility thus rings hollow in the absence of stronger enforcement measures and reforms to the work permit system.
Ong Yanchun (Ms)
SCMP:The crisis lesson that the HKMA still hasn't learned
http://www.lbv.org.hk/content/pages/posts/the-crisis-lesson-that-the-hkma-still-hasnt-learned7511.php
This is worrying, because if there is one lesson the HKMA boss really should have learned from the financial crisis, it is that while Hong Kong's supervision of banking system stability is relatively solid, our regulatory protection of bank customers is woefully inadequate, as the Lehman minibond scandal demonstrated.
In fact, the HKMA's over-emphasis on systemic stability proved actively harmful to ordinary bank customers. It was because of concerns over the financial strength of Hong Kong smaller banks' following the dismantling of the interest rate cartel in the late 1990s that the HKMA encouraged them to increase their fee income, for example by selling complex structured products to depositors
This is worrying, because if there is one lesson the HKMA boss really should have learned from the financial crisis, it is that while Hong Kong's supervision of banking system stability is relatively solid, our regulatory protection of bank customers is woefully inadequate, as the Lehman minibond scandal demonstrated.
In fact, the HKMA's over-emphasis on systemic stability proved actively harmful to ordinary bank customers. It was because of concerns over the financial strength of Hong Kong smaller banks' following the dismantling of the interest rate cartel in the late 1990s that the HKMA encouraged them to increase their fee income, for example by selling complex structured products to depositors
Facilities at Dubai Airport
At terminal 3 of Dubai International Airport, there is a mobile charging station where travellers can charge their mobile phones and laptop computers. It can accomodate many users. There are also ample seats at this station. There is free wireless connection, although the speed is slow, possibly due to heavy usage. This is useful and thoughtful design.
Wednesday, March 24, 2010
Earn back the public trust
Business has to change to earn back the public trust. Here is an article from Jeff Kindler, CEO of Pfizer.
At Pfizer, we’ve begun to change.
We know we need to be straight with people...
The stakes are high.
We know we will be measured not by what we say, but by what we do.
If we don’t do what we say we will, then we’ll lose trust even further.
Then we could lose customers or face more legal problems.
This is true for all leaders, whatever industry or public office they’re in.
At Pfizer, we’ve begun to change.
We know we need to be straight with people...
The stakes are high.
We know we will be measured not by what we say, but by what we do.
If we don’t do what we say we will, then we’ll lose trust even further.
Then we could lose customers or face more legal problems.
This is true for all leaders, whatever industry or public office they’re in.
Shape Quiz Mini-pak for training
Video: How to solve Sudoku puzzle
Difficulty with Shield claim
Hi Kin Lian,
Trust & integrity from insurance companies are indeed important especially when it comes to claims. I wish to share my experience.
When I had an operation, I made a claim under my private shield insurance cover which came with enhancement including a rider for 100% coverage. These enhancements were purchased at a later stage and came with certain medical condition exclusions but it was stated specifically in the insurance cert that my original shield cover remains in tact and not subject to the exclusions. So whatever the issues arising on the exclusions, the minimum valid claim at least under my original cover would have been $X which was a substantial amount of the total medical bill.
The key point I want to share with you and thru you to others is that initially my claim under my insurance policy for 100% cost was Totally DECLINED on the basis of dispute on the exclusions despite the above said minimum claim entitlement. It was errorneous and yet it took me a few months and a string of correspondences on deaf ears and only after finally a visit to their office to physically point out to them the relevant clauses in the insurance before they humbly and embarrassingly acknowledged to pay the $X claim amount unconditionally and immediately. Because of my perseverance and knowledge of the insurance terms, I prevailed.
But if this is the way insurance companies administer claims and have an apparent built-in resistance to claims (possibly for profit-enhancement reasons), it is very wrong and unethical because there are many insureds out there who are less educated, informed or able to raise these issues and fight for their rights. Why should insureds even have to fight at all for their rightful dues? Shouldn't the company have qualified professionals to process claims independently and objectively according to the T&C of each cover? What form and standard of corporate governance does it have?
As an aside: the good news was that I won on my full claim in due course after almost a year of aggravation because the insurance co. ultimately backed out from the adjudication process. I cannot go into the details of the winning arguments except that one more positive that resulted was that the company was found to be unfair to both charge higher premiums for medical conditions and at the same time impose exclusions on the same medical conditions which amounted to a double whammy, and I got my premium reduced. Something is therefore also unfair with its underwriting process.
I hope you can share your comments in a general manner on the latter as well as the claim process to alert the public and others who are similarly aggrieved.
REPLY
It is wrong for an insurance company to reject a legitimate claim in a careless manner. In some states in America, it is illegal for an insurance company to deny a claim without a valid reason. If they make a mistake or are are malicious, they have be fined by the authority or have to pay damages to the policyholders. This is stated in the text book that I used to teach risk management.
An insurance company has a duty to treat its customers fairly. Rejecting a valid claim is a serious breach of duty and breach of trust. The policyholder should not be put to so much trouble or distress in making a legitimate claim.
Trust & integrity from insurance companies are indeed important especially when it comes to claims. I wish to share my experience.
When I had an operation, I made a claim under my private shield insurance cover which came with enhancement including a rider for 100% coverage. These enhancements were purchased at a later stage and came with certain medical condition exclusions but it was stated specifically in the insurance cert that my original shield cover remains in tact and not subject to the exclusions. So whatever the issues arising on the exclusions, the minimum valid claim at least under my original cover would have been $X which was a substantial amount of the total medical bill.
The key point I want to share with you and thru you to others is that initially my claim under my insurance policy for 100% cost was Totally DECLINED on the basis of dispute on the exclusions despite the above said minimum claim entitlement. It was errorneous and yet it took me a few months and a string of correspondences on deaf ears and only after finally a visit to their office to physically point out to them the relevant clauses in the insurance before they humbly and embarrassingly acknowledged to pay the $X claim amount unconditionally and immediately. Because of my perseverance and knowledge of the insurance terms, I prevailed.
But if this is the way insurance companies administer claims and have an apparent built-in resistance to claims (possibly for profit-enhancement reasons), it is very wrong and unethical because there are many insureds out there who are less educated, informed or able to raise these issues and fight for their rights. Why should insureds even have to fight at all for their rightful dues? Shouldn't the company have qualified professionals to process claims independently and objectively according to the T&C of each cover? What form and standard of corporate governance does it have?
As an aside: the good news was that I won on my full claim in due course after almost a year of aggravation because the insurance co. ultimately backed out from the adjudication process. I cannot go into the details of the winning arguments except that one more positive that resulted was that the company was found to be unfair to both charge higher premiums for medical conditions and at the same time impose exclusions on the same medical conditions which amounted to a double whammy, and I got my premium reduced. Something is therefore also unfair with its underwriting process.
I hope you can share your comments in a general manner on the latter as well as the claim process to alert the public and others who are similarly aggrieved.
REPLY
It is wrong for an insurance company to reject a legitimate claim in a careless manner. In some states in America, it is illegal for an insurance company to deny a claim without a valid reason. If they make a mistake or are are malicious, they have be fined by the authority or have to pay damages to the policyholders. This is stated in the text book that I used to teach risk management.
An insurance company has a duty to treat its customers fairly. Rejecting a valid claim is a serious breach of duty and breach of trust. The policyholder should not be put to so much trouble or distress in making a legitimate claim.
Land banking product - views of two investors
View of investor 1
An investor bought a land banking product said: There is also a similar group of investors - who has hired a corporate investigator in New York - to file a class action suit against X. I received a phone call from New York sometime ago. In Malaysia-KL, X office was raided by the authorities,.investigations still pending. It appears to those who are suspicious - that X is a very cleverly-crafted "legal cheat".
View of investor 2
This investor bought into another land banking product, which carried the name of a reputable legal firm in Singapore. The name of this legal firm gave him the confidence that the product was sound. He learned later that he was cheated, and was not able to take action as the land banking company is based outside Singapore.
An investor bought a land banking product said: There is also a similar group of investors - who has hired a corporate investigator in New York - to file a class action suit against X. I received a phone call from New York sometime ago. In Malaysia-KL, X office was raided by the authorities,.investigations still pending. It appears to those who are suspicious - that X is a very cleverly-crafted "legal cheat".
View of investor 2
This investor bought into another land banking product, which carried the name of a reputable legal firm in Singapore. The name of this legal firm gave him the confidence that the product was sound. He learned later that he was cheated, and was not able to take action as the land banking company is based outside Singapore.
Self education on financial planning
Hi!
I have finished the book (Practical Guide on Financial Planning). It is really a good book for me to plan my future, Do you have any relevant book to recommend me?
REPLY
There is a free e-book available in FISCA website, www.fisca.sg. Ask the webmaster for help, if you cannot locate it. Please recommend my book to your friends.
Toughest Puzzle - Who tells the truth?
This is labelled by www.ft.com as the toughest puzzle of all times. But it is not so difficult after all, as I was able to solve it. Read the comments for my solution.
There are three guardians, A, B and C. Their ames are Knight, Knave and Chaos. Knight always speaks truly, Knave always lies. Chaos tossed a coin this morning to decide whether today he would behave like Knight or like Knave.
Your task is simple: ask three yes-no questions, each of a single guardian, and determine which is Knight, which is Knave, and which is Chaos. There is, alas, a complication: the guardians understand English but will answer in the local language, in which “Da” means yes and “Ja” means no. Or possibly “Ja” means yes and “Da” means no – you cannot remember.
There are three guardians, A, B and C. Their ames are Knight, Knave and Chaos. Knight always speaks truly, Knave always lies. Chaos tossed a coin this morning to decide whether today he would behave like Knight or like Knave.
Your task is simple: ask three yes-no questions, each of a single guardian, and determine which is Knight, which is Knave, and which is Chaos. There is, alas, a complication: the guardians understand English but will answer in the local language, in which “Da” means yes and “Ja” means no. Or possibly “Ja” means yes and “Da” means no – you cannot remember.
Posting comments in my blog
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Some people criticized this blog for being not objective but are not prepared to give their real name. If they feel this way, there is no need for them to visit this blog. It is meant for other people who find the blog to be educational, fair and useful.
Some people criticized this blog for being not objective but are not prepared to give their real name. If they feel this way, there is no need for them to visit this blog. It is meant for other people who find the blog to be educational, fair and useful.
ST Forum: More accountability needed for motor insurance
Read this letter in the Straits Times:
http://www.straitstimes.com/STForum/OnlineStory/STIStory_505625.html
The premium for the insurance of my motor car went up 20% on this year's renewal, even though I did not make any claim for last year. Many people would have faced the same experience.
http://www.straitstimes.com/STForum/OnlineStory/STIStory_505625.html
The premium for the insurance of my motor car went up 20% on this year's renewal, even though I did not make any claim for last year. Many people would have faced the same experience.
Financial stability of banks
An asset manager offered this interesting perspective. When you put your money in the bank, you do not own the assets of the bank. The bank just give you a fixed deposit certificate or a monthly statement, i.e. just a piece of paper. If the bank gets into financial difficulty, you may lose all of your money. Your protection is up to the amount of the deposit insurance scheme or government guarantee.
During the financial crisis in USA, many large banks were on the verge of collapse. If the government did not step in to bail out the banks, many people would have lost their savings in the failed banks.
He told me that it is safer to invest in shares as the investor directly owns a share of the invested company. A unit trust allows diversification into many companies, with the assets held by the trustee company (and not the fund manager).
My friend, who worked several years in Vietnam, told me that the banks offered high interest rate, but the people were afraid to put their savings in the bank, as they were afraid of bank failure. They invested in other assets, such as life insurance, property and gold. But they avoided the banks.
Singapore banks now enjoy full government guarantee on their deposits, but this guarantee will expire soon. After that, the money will be exposed to the same risk faced by banks elsewhere. Although the local banks have high credit rating, the deposits are still exposed to the underlying risk
People who put their money in the bank should look for a higher interest rate that is much higher than the 0.5% paid by the bank. If not, it is better to invest in a low cost investment fund, and manage the risk through diversification and long term investing.
Tan Kin Lian
During the financial crisis in USA, many large banks were on the verge of collapse. If the government did not step in to bail out the banks, many people would have lost their savings in the failed banks.
He told me that it is safer to invest in shares as the investor directly owns a share of the invested company. A unit trust allows diversification into many companies, with the assets held by the trustee company (and not the fund manager).
My friend, who worked several years in Vietnam, told me that the banks offered high interest rate, but the people were afraid to put their savings in the bank, as they were afraid of bank failure. They invested in other assets, such as life insurance, property and gold. But they avoided the banks.
Singapore banks now enjoy full government guarantee on their deposits, but this guarantee will expire soon. After that, the money will be exposed to the same risk faced by banks elsewhere. Although the local banks have high credit rating, the deposits are still exposed to the underlying risk
People who put their money in the bank should look for a higher interest rate that is much higher than the 0.5% paid by the bank. If not, it is better to invest in a low cost investment fund, and manage the risk through diversification and long term investing.
Tan Kin Lian
Tuesday, March 23, 2010
Culture of trust and fair treatment
I have mentioned the bad practices of insurance companies in this blog. Someone asked me this question a few times, "was the practice different when you were in charge of NTUC Income?"
I can say that the two key differences during my time were:
a) my colleagues were very clear that it was our policy to give fair treatment of policyholders
b) as the CEO, I was willing to receive and respond personally to feedback from policyholders.
I am sure that my colleagues do make mistakes or took decisions that may be unfair to policyholders, but these mistakes are reduced (due to our culture at that time) and the ability for policyholders to access the CEO helps to correct these mistakes. I might have made some mistakes as well, but it was not intentional and not aimed at maximizing profits.
We still have to ensure that the policyholders do not take advantage of our generosity and are not paid claims that they are not entitled to, but we do give the benefit of the doubt to policyholders (unless it is clear that they are abusing our trust).
I believe that all insurance companies should aim to treat their policyholders fairly, regardless of whether they are cooperative, social enterprise or commercial, even as they aim to run a profitable business. They should make an honest and fair profit, and should not make an excessive profit at the expense of the policyholders. They should pay a fair rate of bonus to policyholders on their participating policies. They should design products that charge a fair rate of premium and give a fair yield to the policyholders on their savings.
Tan Kin Lian
I can say that the two key differences during my time were:
a) my colleagues were very clear that it was our policy to give fair treatment of policyholders
b) as the CEO, I was willing to receive and respond personally to feedback from policyholders.
I am sure that my colleagues do make mistakes or took decisions that may be unfair to policyholders, but these mistakes are reduced (due to our culture at that time) and the ability for policyholders to access the CEO helps to correct these mistakes. I might have made some mistakes as well, but it was not intentional and not aimed at maximizing profits.
We still have to ensure that the policyholders do not take advantage of our generosity and are not paid claims that they are not entitled to, but we do give the benefit of the doubt to policyholders (unless it is clear that they are abusing our trust).
I believe that all insurance companies should aim to treat their policyholders fairly, regardless of whether they are cooperative, social enterprise or commercial, even as they aim to run a profitable business. They should make an honest and fair profit, and should not make an excessive profit at the expense of the policyholders. They should pay a fair rate of bonus to policyholders on their participating policies. They should design products that charge a fair rate of premium and give a fair yield to the policyholders on their savings.
Tan Kin Lian
Casino and coasters - a Singapore life
For those who have not yet visitor Resort World Sentosa, watch the photos in this article.
Poor return on a policy with regular payouts
A reader asked my advice on a life insurance policy that was bought a few years ago. It provided a cash payment every 5 years and projected the accumulation of the installments on a non-guaranteed interest rate of 5% per annum.
The benefit illustration showed the following:
a) The distribution cost, which is the amount taken from the savings to pay commission to the agent and other marketing expenses, amounted to $3,467 for the first 6 years, representing about 2 years of the premium. This will continue to increase for each year but at a lower pace. With two years of the savings taken away, the return on the policy is likely to be poor.
b) At the end of 20 years, the projected amount as follows:
guaranteed $40,300
non-guaranteed: $14,881 (assuming the coupons accumulate at 5% p.a.)
total $55,181
c) It is better to be conservative and assume that the coupon will accumulate at 2.5% p.a. and take the non-guaranteed portion at half, i.e. $7,440. The projected amount at the end of 20 years will be $47,740, representing a yield of 1.8% p.a. on the savings. This is a reduction of 3.4% from the projected yield of 5.25%. This reduction is excessive - this policy gives a poor return.
d) If the annual premium of $1,967 is invested to earn 5.25% p.a. the total accumulated savings at the end of 20 years would be $70,292. The projected payout (based on a more conservative estimate) is $47,740, representing a reduction of 32% (which is excessive).
The life insurance policy gives a poor return. But, If it is terminated now, the policyholder will still suffer a large loss. It will be difficult for me to advice whether to continue or terminate the policy at this time, as it depends on the personal circumstances and priorities of the policyholder.
Tan Kin Lian
Monday, March 22, 2010
Avoid all land banking projects
Dear Sir,
This project was brought to my attention and is currently being sold in Singapore as a land banking project in Hawaii financed by a company in Singapore.
My question is, is this project a legal one? I have been told the company selling the land to investors is not governed by the MAS and does not need to meet any of MAS guidelines. Is this possible? Is this project a scam?
I have some URL's below which show information on the project.
REPLY
Read my blog. This type of investments should be avoided. Do not invest in them.
You can ask MAS or the Ministry of Law on whether this company breaks the law. I am not the person who decides on such matters.
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
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
Shape Quiz - door gift for corporate events
The shape quiz mini-pak is an excellent door gift for a corporate event, such as the staff dinner and dance. It is fun, challenging and develops creativity. Suitable for adults, children and seniors. Watch this video. There is a lower price for a large order. Write to kinlian@gmail.com.
Universal Studio Singapore - videos
Watch these videos to get an introduction to the new theme park in Singapore.
ST Forum - Taxing time with mum's insurer
WHEN we think of insurance,
we tend to visualise a man with a friendly face
holding an umbrella out to us when it starts to rain.
That is the result of successful marketing.
In reality, when the crunch comes,
how many insurance companies can truly claim to be such a 'friend'?
Isn't it more a case of wait until you are drenched
before deciding to hold the umbrella out to you,
by which time the downpour has probably eased off
and you have caught pneumonia?
Take my experience with NTUC Income. I bought..
holding an umbrella out to us when it starts to rain.
That is the result of successful marketing.
In reality, when the crunch comes,
how many insurance companies can truly claim to be such a 'friend'?
Isn't it more a case of wait until you are drenched
before deciding to hold the umbrella out to you,
by which time the downpour has probably eased off
and you have caught pneumonia?
Take my experience with NTUC Income. I bought..
Sunday, March 21, 2010
Survey - land banking
If you have been caught in a land banking product, and you wish to meet other investors in the same situation, give your particulars here.
Guaranteed renewable - for motor insurance?
Some insurance contracts are guaranteed renewable. The insurance company has to renew the policy based on its standard rates. The insurance company cannot refuse to renew the insurance, or to charge a higher rate based on the claim record of the individual person. (However, the insurance company can revised its standard rates based on its claims experience, but the same rate must apply to the whole class of policyholders).
This feature is standard for long term health insurance. It is a standard feature of the Medishield or the private Shield in Singapore. I hope that the guaranteed renewable feature can be extended to motor insurance.
At present a motorists may find that after a large accident claim, their insurance premium may be loaded by 50% to 100%, in addition to losing their no-claim bonus. They have to accept these harsh terms, as no other insurance company may accept them. They may suffer this penalty even if they have many years of accident free record.
At present, no insurance company offers this guaranteed renewable feature, even for motorists with good driving records. If you find an insurance company that does offers this feature in the future, it is better to insure with this insurance company even if the premium rate is 10% higher.
Tan Kin Lian
This feature is standard for long term health insurance. It is a standard feature of the Medishield or the private Shield in Singapore. I hope that the guaranteed renewable feature can be extended to motor insurance.
At present a motorists may find that after a large accident claim, their insurance premium may be loaded by 50% to 100%, in addition to losing their no-claim bonus. They have to accept these harsh terms, as no other insurance company may accept them. They may suffer this penalty even if they have many years of accident free record.
At present, no insurance company offers this guaranteed renewable feature, even for motorists with good driving records. If you find an insurance company that does offers this feature in the future, it is better to insure with this insurance company even if the premium rate is 10% higher.
Tan Kin Lian
Managing personal risks
A working person faces the following risks:
a) premature death
The chance of (a) and (b) occurring during the working life is quite low, perhaps less than 5%. By getting bad advice from insurance agents, they spend too much of their savings to insure against these risk.
Most people (i.e. 95%) are likely to face the risk of (c) and (d). This risk can be best managed through personal savings. The savings should be invested to earn a good rate of return and can be withdrawn without penalty, e.g. through a low cost investment fund. The personal savings can be used to cover cash flow needs during a temporary period of unemployment, without the need to depend on borrowings which incur a high interest burden. If the savings are invested prudently, they will provide an adequate amount for retirement.
Many investment products offer a poor yield of 2% per annum. By investing on their own in a low cost investment fund, they can get a much higher yield, for example, 5% per annum. The difference in yield is taken away in distribution cost and other charges by the financial institution.
Here is the difference in the accumulated amount at the end of 35 years from a monthly saving of $500.
Many people invest their hard earned savings in a life insurance policy to earn a net yield of 2% per annum. If they invest on their own in a low cost investment fund, they may be able to earn a higher yield, which could potentially give them 86% more.
They only need to spend 5% of their savings to buy a low cost decreasing term insurance. If this is taken off $569,000, they will still get a net balance of $540,000, which is still much higher than $306,000. They will accumulate sufficient savings in 20 years - so the insurance becomes less essential.
As an alternative, they can also buy a personal accident insurance for $300,000 at a premium of about $200 a year. Most of the risk of premature death is caused by accident.
Summary: the key priority is to have adequate savings (say 15% to 20% of your earnings, in addition to CPF) and to invest it in a low cost insurance fund to earn an adequate rate of return. Spend not more than 5% of your savings on term or personal accident insurance.
Tan Kin Lian
a) premature death
b) serious illness and disability
c) unemployment
d) insufficient income during retirementThe chance of (a) and (b) occurring during the working life is quite low, perhaps less than 5%. By getting bad advice from insurance agents, they spend too much of their savings to insure against these risk.
Most people (i.e. 95%) are likely to face the risk of (c) and (d). This risk can be best managed through personal savings. The savings should be invested to earn a good rate of return and can be withdrawn without penalty, e.g. through a low cost investment fund. The personal savings can be used to cover cash flow needs during a temporary period of unemployment, without the need to depend on borrowings which incur a high interest burden. If the savings are invested prudently, they will provide an adequate amount for retirement.
Many investment products offer a poor yield of 2% per annum. By investing on their own in a low cost investment fund, they can get a much higher yield, for example, 5% per annum. The difference in yield is taken away in distribution cost and other charges by the financial institution.
Here is the difference in the accumulated amount at the end of 35 years from a monthly saving of $500.
Interest Accumulated % rate savings 2% $306,000 100% 3% $374,000 122% 4% $460,000 155% 5% $569,000 186%
Many people invest their hard earned savings in a life insurance policy to earn a net yield of 2% per annum. If they invest on their own in a low cost investment fund, they may be able to earn a higher yield, which could potentially give them 86% more.
They only need to spend 5% of their savings to buy a low cost decreasing term insurance. If this is taken off $569,000, they will still get a net balance of $540,000, which is still much higher than $306,000. They will accumulate sufficient savings in 20 years - so the insurance becomes less essential.
As an alternative, they can also buy a personal accident insurance for $300,000 at a premium of about $200 a year. Most of the risk of premature death is caused by accident.
Summary: the key priority is to have adequate savings (say 15% to 20% of your earnings, in addition to CPF) and to invest it in a low cost insurance fund to earn an adequate rate of return. Spend not more than 5% of your savings on term or personal accident insurance.
Tan Kin Lian
Workers prefer job security
People are becoming "nesters,"
who prefer to stay in one career or with one employer for their entire career.
...a disconnect
between what such "nesters" want and the growing trends that are shaping the global workforce: an increasing emphasis on flexible staff and short-term employment,
more offshoring and part-time work.
http://www.reuters.com/
A safe environment
Singapore used to be a safe place. But in recent years, the situation has changed. Many people are feeling less safe in Singapore due to the large influx of foreigners and to inadequate policing action. Do you find Singapore to be less safe than before? Give your views here.
Universal Studio Singapore
Many people think that Universal Studio Singapore will fail. They point to the other theme parks that failed, e.g. Har Par Villa, Tang Dynasty City and Asian Village (also in Sentosa). They point to the hot climate, limited land space (due to high cost of land) and the small population base.
I think that USS has a good chance to succeed. Here are the positive factors:
a) It is better to be in a hot climate, rather than a cold climate (i.e. winter). USS only needs to create shade and breeze to make it more comfortable. Technology allows this to happen.
b) The compactness is an advantage, as there is no need to walk far from one ride to the next.
c) The closeness of Sentosa to the city and hotels is also an advantage. The tourist does not have to spend two hours to get to the theme park (which is the travelling time for most theme parks around the world).
The management of USS can turn the disadvantages into advantages, and make USS successful (against the odds).
Tan Kin Lian
I think that USS has a good chance to succeed. Here are the positive factors:
a) It is better to be in a hot climate, rather than a cold climate (i.e. winter). USS only needs to create shade and breeze to make it more comfortable. Technology allows this to happen.
b) The compactness is an advantage, as there is no need to walk far from one ride to the next.
c) The closeness of Sentosa to the city and hotels is also an advantage. The tourist does not have to spend two hours to get to the theme park (which is the travelling time for most theme parks around the world).
The management of USS can turn the disadvantages into advantages, and make USS successful (against the odds).
Tan Kin Lian