Negligence and insurance

Hi Mr. Tan

Kindly advise me on the following :-

(a) Under S'pore Insurance laws, is payment made out of Medisave of a plaintiff (pedestrain) claimable against the Insurer of a defendent motorist?

(b) What if payment is paid out of any Medishield / Healthshield policy of the patient first, is it claimable against the Insurer of a defendent motorist?

(c) In the above cases, which Insurer is the first party to bear the claim? Insurer of the defendent motorist or Medishield insurer of the pedestrain?

(d) If the a company has a welfare scheme and paid a sum to assist an employee (pedestrain) due to the accident due to financial hardship, and that sum is used to pay part of hospital costs first, can that employee still claim against the insurer of the motorist ? Any implication if the welfare assistance is paid direct to the hospital instead of direct payment to that employee?

Hope you can clarify.

CH

REPLY

This is a legal issue. I am not familiar with this matter. In my view, and I am not a legal expert, the position will be as follows:

> You are entitled to claim for your loss, due to the negligence of the other party
> You are certainly allowed to claim for payment made from Medisave (which is your own savings)
> You can also claim for expenses that are paid by your insurance policy (e.g. Medishield) or by the company's welfare scheme
> The liability for the payment by the negligent party applies to the total expenses (regardless of the status of insurance)
> I do not know if the insurer (of Medishield) or employer will ask you to repay back the expenses that have been successfully claimed from the negligent party - but it is a separate matter.

Who's really looking after your money?

There is an excellent article by John Bittlestone in Today paper, 7 July. It shows a list of improvements that should be made by the finance industry. Although the suggestions are made to the banking sector, they apply to the insurance sector as well.

The topics are:
> Drop the jargon
> Cut the "products" by 95 percent
> If a bank wants to act as a broker
> Treat us as customers
> Be transparent
> Make your charges realistic
> Re-examine your "relationship manager" practice
> Reduce your paper chase
> Look at your bonus system
> You are already over-regulated

Here is the soft copy of the article:
http://www.todayonline.com/articles/263596.asp

Logic Quiz

Try the logic quiz:

http://www.tankinlian.com/logicquiz/quiz.html#B1

It is challenging and fun.

Politician and accountant

It is easy for a beggar to tell the difference between a politician and an accountant. If he asks a man for money for a meal saying that he hasn't eaten all day and the man replies, "Sorry, no. But things will be better for you tomorrow" - that man must be a politician.

If the beggar asks the same question and the man replies, "Sorry, no. But I am interested to know how your financial situation compares with the same period last month" - that man must be an accountant.

A Gracious Society and Dr. Chee Soon Juan

I met Dr. Chee Soon Juan at a BBQ organised by the Online Citizen, and had a nice conversation with him. Read about my views in item 47 of:

http://theonlinecitizen.com/2008/07/important-to-build-a-gracious-society/#comments

Losing its cooperative character

I met a friend at a cooperative dinner last night.

He made this observation, "Mr. Tan, when you were with Income, you kept the expenses low and offered an alternative to the people that were different from the other insurance companies. I can see that much of what you have done is being reversed and Income is now becoming like the other insurance companies. I feel quite sad for the policyholders of Income."

I told him that I agree with this observation. I hope that the management and board of Income will realise that many policyholders feel this way.

Free surplus in the Life Fund

I raise the issue about why the yield on the Growth policy was below the "actual experience of the Life Fund".

In his reply, Mr. Ken Ng from Income said,

I would like to highlight an additional consideration in 2008. Markets were very turbulent because of the sub-prime crisis at the time the bonus declaration was made. Much of the capital appreciation enjoyed in the 2007 has been reversed. They are still are very turbulent. It would not have been prudent to make an significant increase in bonuses and raise expectations at such a time of uncertainty.

I asked Mr. Ken Ng for the following information:

1. How much was the free surplus in the Life Fund at the end of 2007 (that was not distributed to policyholders)
2 How much of this free surplus has since been reversed?

There was no reply and no acknowledgement to my question for about one week.

Buy Two Life Annuities

Dear Mr. Tan,

Is it sensible to have two Anunities - one from CPF and the other from NTUC Income? I am more on the preservative type, do not want to take risk in investment.
JL

REPLY
This is an excellent idea. I have recommended it before. Buy an annuity for CPF for its attractive return. Buy a life annuity from the private sector using cash savings.

Read this FAQ:
http://www.tankinlian.com/faq/life.html

Fair Treatment of Policy Owners

I found this excellent paper from Bank Negara, Malaysia. It explained the method of using asset share to ensure that policy owners get cash values that are fairly computed:
http://www.bnm.gov.my/files/publication/dgi/en/2004/08.box2.pdf

Here is the FAQ from the Life Insurance Association of Malaysia:
http://www.liam.org.my/cms/general.asp?whichfile=English&productid=237&catid=13

Here is another article printed in The New Paper:
http://newpaper.asia1.com.sg/columnists/story/0,4136,167015,00.html

Long breakeven point for 30 year endowment

My friend is a retired manager of a life insurance company. He found that his daughter, a recent graduate, was sold a 30 year endowment policy. The benefit illustration showed that, for the first 27 years, the cash value was below the premiums paid.

During the last three years, the benefit illustration showed a large amount of non-guaranteed terminal bonus that boost the yield on the policy. The daughter was not aware that she would suffer a loss for 27 years and had not been properly advised by the agent. The agent only highlighted the high maturity value to convince the policyholder to enter into this "saving plan".

My friend said, "How can a saving plan have a breakeven point of 27 years? This is like cheating people". He wanted to ask the agent to refund all the premiums to the daughter. I advised him to get the daughter to lodge a complaint with MAS.

Asset share in 2009

Mr. Ken Ng said that NTUC Income will work on the asset share in 2009 and declare bonuses based on the "actual experience". This is not fair to policies that mature in 2007 and 2008, where the bonuses are far short of the asset share.

It is the duty of the appointed actuary to look at the actual experience to declare a fair rate of bonus. Whether the actuary adopt the asset share or other suitable method, the need for fairness has always been a key consideration in the distribution of bonus.

It is not correct for the appointed actuary or the board of directors to ignore this consideration, as it affects the reasonable expectation of the policyholders and could amount to holding back many thousands of dollars that may be fairly attributed to them. There is the risk of legal action taken by the policyholders.

ADDITIONAL POINT
Mr. Ken Ng asked me to clarify that he became the appointed actuary only in 2007. The bonus declaration for 2006 was recommended by the previous appointed actuary, Nick Rhodes, and supported by me when it was presented to the board of directors in late 2006 (when I was still the CEO).

I replied to Mr. Ken Ng that the bonus declared in 2006 showed a significant increase over 2005. I believe that the bonus for 2007 should show a further increase over 2006, as it can be justified by the excellent investment yield achieved in 2007.

MySudoku

MySudoku appears in the MyPaper daily. The puzzle on Friday are arranged to show the letters M-Y. Take a look at this puzzle.

The tips to solve the Sudoku puzzles are contained in my website, www.tankinlian.com, under Logic9 (an alternative name to Sudoku).

Improve public transport

Do you have any suggestions to improve the public transport in Singapore. Give your views in this website:

http://singaporepublictransport.blogspot.com/

Use of asset share in Malaysia

From 2005, the regulator in Malaysia made it mandatory for life insurance companies to use asset share to determine the cash value and maturity value of their participating policies. This is to ensure that the policyholders get a fair value on their policies based on the actual experience of the fund.

Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.

The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.

After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.

I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.

Cooperative credentials

Dear Mr. Tan,

May I be permitted to make an observation. The new management of Income missed a wonderful opportunity to show that they can embrace the true spirit of being a cooperative and win over the loyalty of over 1 million policyholders that you have built up over the past 30 years.

How? The excellent investment yield in 2006 and 2007 gave them the chance to restore back all of the bonus cuts since the Asian financial crisis. Why did I say this? I read that the investment yield over the past 10 years is 7.8% and that is more than the yield of 6% that was used to project the bonus rates during these years.

I am rather sad that they did not take this opportunity to re-establish their credentials. Instead, they appear to be trying to hide the profits from the policyholders, and give less than what the actual experience would really allow. How disappointing. What are your views, Mr. Tan?

JK

REPLY
I agree with your views. Indeed, if they have restored the past bonus cuts, and they have the surplus to do so, they would have placed NTUC Income is a strong marketing position. This is a reputation that is more valuable than the millions of dollars spent on advertising.

They still have the chance to change their strategy and adopt this "restore the bonus cut". I hope that the board will do so.

Disclose the Asset Share of the Policy

A COMMENT POSTED IN MY BLOG

Hi --

NTUC Income says, "We don't have the money to pay higher bonuses."

Mr. Tan says, "Based on your high stated yield, it sure looks like you do."

How to know for sure?

As Mr. Tan has pointed out before, it is easy. Simply disclose NTUC Income policyholder fund's "asset share" (for each of its policyholders), as required in other countries like Malaysia, Australia, UK and South Africa.

That would give us the answer. At the moment, there is no way for policyholders to know if NTUC Income is holding back on bonus payments or not.

NTUC Income says it is not -- but declines to provide documentation.

Why? Why not reveal each policyholders' asset share? It is easy to do. There is adequate precedent in other countries for doing it. Everyone agrees it would increase transparency of the policyholders' fund.

Those are rather good reasons for disclosure.

Perhaps NTUC Income can state its reasons for non-disclosure.

Sincerely,

Larry Haverkamp

A Gracious Society

Read my article in The Online Citizen:

http://theonlinecitizen.com/2008/07/important-to-build-a-gracious-society/#comments

Public Transport in Singapore

I have created a new blog to share views about improving the public transport system in Singapore.

www.singaporepublictransport.blogspot.com

Low yield on maturing Growth policy

Dear Mr Tan,

I compared the yield for the equivalent policies maturing in 2006 and 2007, as well as the yield in the original benefit illustration. This is not out of line with the maturity yield in 2008, considering that in 2006 and 2007, the long term yields were also quite good. The maturity yield in 2008 of 3.06% p.a. is also higher than the yield shown in the original benefit illustration. I set these out below:

2006 maturity 3.01% p.a.
2007 maturity 2.76% p.a.
2008 maturity 3.06% p.a.
Yield in original benefit illustration 1.65% p.a.

In 2008, we focused on the maintaining yields whilst changing the mix of annual and special bonus going forward. Under the old bonus structure it is an impossible strain on the fund to increase the yield by the extent indicated. To increase the yield by 2% p.a. to the policyholder requires an annual bonus of roughly 10% which will cost $400m when applied uniformly to all Growth policies. This is the more than the cost of bonus for the entire fund of $293m. As a result, the old bonus structure would have delivered the same yields in 2008 by default. A flexible special bonus is the way to go.

The new bonus structure is the first stage of the change. Following this with more flexible special bonus will allow maturity values to reflect asset shares more closely in subsequent bonus declarations. Indeed the Board has made the assurance on fairness of payouts and more work will need to be done to support this assurance. This will be tackled in 2009 as the second phase of the change.

I would like to highlight an additional consideration in 2008. Markets were very turbulent because of the sub-prime crisis at the time the bonus declaration was made. Much of the capital appreciation enjoyed in the 2007 has been reversed. They are still are very turbulent. It would not have been prudent to make an significant increase in bonuses and raise expectations at such a time of uncertainty.

Regards,

Ken Ng
Chief Actuary
NTUC Income

REPLY

Dear Ken Ng,

When the policy was issued in 2003, the investment yield was very low and the bonus rate had been drastically reduced due to the previous crisis year. The benefit illustration were made based on the reduced bonus at that time.

In subsequent years, the investment yield had been significantly higher than projected. Under such circumstances, it would be appropriate for the bonus to be increased to reflect "the actual experience", as promised by your chairman in his speech at the recent annual general meeting.

I believe that the yield of 3.06% is far short of the actual experience over the past five years. The actual investment yields during 2006 and 2007 had been exceptionally high.

During 2006, there was a modest adjustment in the bonus rates, but it has does not reflect fully a fair rate of return. I would expect the good performance for 2007 to have justified a further significant increase in bonus (including a once-off bonus), but instead it was virtually kept unchanged.

As I have pointed out in my earlier letter, the actual yield of 3.06% is far short of the average yield of 7.8% earned by the Life Fund over the past 10 years, and far short of the actual yield earned during the last five years (from 2003 to 2007), which is possibly higher than 7.8%. For a maturing policy, you should give a fair return of return to reflect the "actual experience", instead of keeping a large part of the surplus in the Life Fund. The retention of the excess surplus in the Life Fund does not benefit the maturing policyholder and cannot be justified on the grounds of fairness.

I calculate that the difference in payout based on the amount that you are paying out, and the amount that is "fair and consistent with the actual experience", is more than $10,000 in this case. This is not an insignificant amount of money and cannot be just ignored. If you disagree with my calculation, I suggest that you refer this matter to an independent actuary to make the calculation.

I wish also to convey this message on behalf of many other policyholders, especially for policies that have or will be maturing this year and the next few years, who have not been given a fair payout based on the "actual experience".


I hope that you will agree to review this matter. Perhaps this matter can be referred to an impartial, independent party to arbitrate.


Tan Kin Lian

Losing faith

Mr Tan,

Recently, I received an open letter from the current NTUC Income CEO Mr Tan Suee Chieh explaining how the restructuring of bonus will "benefit" us. I am particularly disappointed that the letter did not really explain how.

To be honest, I am losing faith in NTUC Income ever since you have retired from the CEO position. Its policies have become less attractive and I am prepared to pull out totally if they continue to be less transparent.

I will be following your blog closely to see how you engage them. Thanks for your effort.

DC

REPLY
I suggest that you should convey your opinion directly to Tan Suee Chieh and get him to address your concern. It is his duty to address your concern.

Delay in handling a theft claim

Dear Mr Tan,
My car was stolen in May 08 at HDB carpark (open space). Currently under police investigation. My car was insured under X.

On the day of discover my car was missing, I had called up X's hotline and seeked their advise on the reporting procedures. I went to the branch and submitted my police report and given details to the counter staff. I had also requested the staff to get the officer-in-charge of my claims to call me in briefing me the process of claims.

After 6 days I filled the report, I have not receive any phone call from claim dept. I rang up the claim dept and shock to me that there was "NO RECORDS" of my filling as was told by the staff who receive my call. I was very frustrated and demand them to check it out.

One day later, the customer support staff advised me to re-submit my police report to her as "the investigation of the loss of my documents was still in progress".

After emailed my document to the claim dept and I had again requested the officer in charge to brief me on the claim process. After two days of my email, again I recieve NIL call. I called up again and was told that "the routing of document may need 3-4 working days".

I started to show my anger and demanded the staff to check on my submission immediately. After a day, I only receive a call from customer support officer with brief message on " waiting for 3 months after police close the case and also the COE/OMV rebates from LTA have to surrender to X". The claim officer in charge couldn;t even bother to call me directly and just passed the message via another person.

I'm very disappointed on the responsibility and response of X in this entire process as they just take their own sweet time in handling my case,

In view of the above situation, I have lost my confidence in X in giving me a "fair estimation of my car market value" of my stolen car. As the claim will be effected after 3 months, I have no ideals on how to prepare myself in avoiding an "unfair" compensation to my loss.

Hope Mr Tan could enlighten me with advise and guide me on this claim. Hope to hear from you soon.

REPLY
You can write to ask X to give you a FAQ to explain how the market value of the vehicle is determined. If you find that the claim has not been handled promptly and fairly, you can lodge a complaint with the service quality manager.

If this is not settled satisfactorily, you can file a complaint with FiDREC.
http://www.fidrec.com.sg/website/faq.html

Ask for relevant information

Dear Mr. Tan

I read your blog today on the "Bonus that reflect the actual experience" and "A poor yield on single premium endowment expired in 2 month time" with a projected return of 3.06%.

Will it be a scenario that the 10 year Growth plan compare to a 5 year plan bought in the same period - 10 year may only get a little bit higher return upon maturity since smoothing start in April this year.Let us take two policies as an example.

5 year plan for $50K from 01 May 2003 and matured on 30 April 2008 for $58,100-00 @ 3.06% against a 10 year plan buying at the same year.
(details removed)

REPLY

I suggest that you write to ask NTUC Income on the following:

a) What is the cash value of your policy now, if you terminate it

b) What is the yield on the cash value

c) What is the projected maturity value of the policy?

d) What is the yield at that time.

e) What is the yield earned by the Life Insurance fund during the years that your policy has been in force, and the projected yield up to the maturity date.

Perhaps you will be able to get a better idea when Income gives the above information to you.

Bonus that reflect the actual experience

Siewkhim asked if NTUC Income has responded to my question about adjusting the bonus to reflect the "actual experience".

I had sent a question regarding the maturity value of the 5-year Growth policy belonging to my wife that will be maturing in August. I pointed out that the maturity value is far short of and does not reflect the "actual experience" during the past five years. I have received a reply that my issue will be attended to "officially". I have not received any further communication after two weeks.

This is the style adopted in most organisations of Singapore. Keep the customer waiting. Do not engage in any conversation. When you are finally ready, give an official reply and defend it strongly. It reflects a disrepect for the rights of the customer.

As this is a complicated matter, I will wait for another one or two weeks, before I take it up at a higher level.

I also intend to raise the issue of the bonuses and cash values of other existing policies that are far short of the "actual experience". A few of my personal policies fall in this category.

Outsourcing of work

Some government agencies identify their non-core activities and engaged in outsourcing the work. Some examples are cleaning of premises and answering of telephone calls.

Most people are familiar with the tendering approach, as follows:

> specify the standard of work
> award the work to the contractor that gives the lowest cost.

The consequence is that the contractor will find the cheapest source of labour, including foreign workers. Eventually, the standard of service deteriorates. Wages continue to be depressed.

There is another way of approaching this outsourcing of non-core work, as follows:

> specify the contract price, including the wages to be paid to the workers
> award the work to the contractor that is able to give the best standard of service.

If a specified wage is given, the focus is to select the best candidates for the job. This will ensure better standard and quality of service. The contractor's task is to ensure that the human and other resources are organised efficiently to meet the rapid changes in the business environment.

I hope that more attention can be paid to this new method of outsourcing, which is based on quality of service, rather than reducing cost.

Saving regular to buy a Life Annuity

Dear Mr. Tan,
From what i know most insurance company annunity plan premium are lump sum. Do you know any company (beside Z) that premium can be paid monthly till age 65.

REPLY
In my view, it is better to invest in a low cost investment fund to get a good return on your savings until your retirement age (which can be at, before or after age 65 ).

You can take the savings to buy a life annuity (by paying a lump sum premium) at that time. This gives you the greatest flexibility and a better yield.

Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/life.html

Switching to a new rider for Shield plan

Dear Mr. Tan,
I just received a notice from X advising existing policy holders of the Plus Rider to switch to the Assist Rider. The rationale being that it will assist policyholders to save more in the long run. Medical cost according to their notice has increased as much as 30%. The difference between the Plus Rider and the Assist Rider is that the Plus Rider ensures that the patient does not have to co-pay whereas the Assist Rider would require the patient to pay up to $2000 or 10% of whatever is claimable. The Plus Rider will no longer be available to new policy holders.

What is your view? Would you switch to this? Do I have to take a healthcheck in order to renew my policy or are existing applicants automatically ensured coverage?

REPLY
You have the choice of discontinuing the rider or switching to the new rider. I hope that this FAQ can help you to make your decision:
http://www.tankinlian.com/faq/shield.html

You are not required to do a healtheck to switch to the new rider.

Is it time to invest in the stockmarket?

JUST A PERSONAL OPINION.

If you are a long term investor, it is about the right time. The global stockmarkets have corrected down by about 20 percent. It is almost one year, since the subprime crisis surfaced. Most of the bad news have been discounted. The recovery is likely to occur over the next three months to six months (just a guess). It may be earlier.

Something may happen that will trigger a recovery. By that time, the market may move up quite rapidly, and you miss miss the boat. So, as a long term investor, it may be time to start investing.

Investing to get a retirement income

Dear Mr. Tan,
You have always talked with much sense & wisdom. I would like to seek your views.

I have been told by my insurance agent that with my impending retirement, it is good to invest in Investment Linked Policies (ILPs). Let the investments grow and sell little bit by little bit, when I need money.

But with market turbulence and falling equity prices, I have a feeling that this may not be the way to invest. What is your opinion here. Please help out with your opinion.
E

REPLY

Please read these FAQs and see if they are helpful in your decision:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/seniors.html

If you are investing for the long term, say 10 years or longer, it is all right to invest now. You can ignore the market turbulence in the meantime. It is difficult for you to catch the right time to invest anyway. In a turbulent time right now, you have the chance to buy the equities at a lower price and make a bigger gain when the market recovers.

It is all right to invest in a ILP and have a monthly withdrawal to get your retirement income. You should choose a single premium ILP (where the upfront charges are 2% or less, and the annual fee is less than 1%).

Wish you all the best.

Financial planning and inflation

For the first time in 20 years, we have to deal with high rates of inflation. Are you saving enough and earning a sufficient return to cope with inflation?

Here are some simple tips on how to deal with this matter. Read this FAQ:
http://www.tankinlian.com/articles/financial.html

Put People First

I hope that our business policies are made on the concept of "put people first", rather than "make more profit".

By putting people first, the business can still earn a good profit margin. They will get the loyalty of their customers.

Some businesses make more profit by overcharging customers or degrade the service to customers. They may reduce their expenses, but they add more cost to the customers. Some examples are:

1. SMRT reduces the number of trains during off-peak hours. The commuters have to wait longer for a train. The train will be nearly fully packed, even during the off-peak period. By adding more train, SMRT will increase its cost marginally, but it will improve the comfort level of the commuters significantly.

2. Businesses make customers waste a lot of time in navigating through their automated call center systems. It reduces the expenses to the businesses marginally, but add a lot of wasted time and telephone bills for the customers.

3. Businesses make customers wait a long time at their customer service counters. If they increase the manpower to serve customers, they may increase their cost marginally, but reduce the waiting time for customers. Wasted time is costly to customers.

If there is genuine competition, businesses will put their best effort to "put people first", so that they win over the loyalty of their customers. Unfortunately, in Singapore, many businesses are operated by near monopolies. In competitive situations, these businesses apply unfair methods to lock their customers into term contracts and then treat the customers badly during the lock-in period.

I hope that there is a stronger voice to speak for the consumers in Singapore.

Suggestions are not welcomed

Dear mr Tan
You have given so much practical suggestion for improvement for our public transport such as for MRT, taxi etc - I presume you have also been in direct contact with the concerned parties. Do they respond at all or accept any of your suggestions? Are they allowed to read your posting or allowed to reply?

I think the authorities concerned should make it a point to browse through your blog and other websites which are frequently suggesting improvement. They should actively encouraged those citizens who so freely give out ideas for improvement without any charges or selfish intention. Perhaps I am too naive to think in such way.
monsoon

REPLY
I have given a lot of suggestions to different levels of the Land Transport Authority and Ministry for Transport. Are they listening?

Read my article on "Suggestions are not welcomed".
http://theonlinecitizen.com/2008/06/suggestions-are-not-welcomed/

Often, I do not get any reply. This is our Singapore.

A divine right

A very attractive young girl was about to enter the church in a topless dress when the vicar ran towards her.

"I'm very sorry, miss," said the vicar, "but I cannot possibly allow you to go into Church like that."

"But I have a divine right," protested the young girl.

"Yes," agreed the vicar, "buy you have a divine left too, but I still cannot let you into my church like that."

Encourage more people to take public transport

Editor
Forum Page
Straits Times

During the past year, I take the MRT train regularly to visit most places in Singapore. I find the train to be more convenient that driving a car. I avoid paying high ERP and parking charges and driving in congested roads.

I wish to give the following suggestions to make it more convenient for commuters to take the MRT train:

1. Have a digital display above each door of the train to announce the previous, current and next train station as the train moves along the journey. The names of the stations can be displayed in English and Chinese. This system is used in the Taipei system and is helpful for passengers.

2. Have a green light at each door, to indicate the left or right door that will open at the next station. This system is adopted in Hong Kong.

3. Mark the space near the door with a yellow box. Passengers standing in this box should make way for disembarking passengers.

4. Display a map prominently at the exit of the MRT station, showing all buildings and bus services serving each bus stop within 2 kilometers of the station. This will make it easy for a commuter to take a connecting bus to their final destination.

5. Allow independent operators to use a light bus to run a feeder service to serve the catchment around each MRT station. This service can be operated at a low cost, with a short waiting time.

The first four suggestions are low cost and easy to implement. It will make it more convenient and enjoyable for commuters to take public transport, instead of driving a car.

Tan Kin Lian

Give adequate wages to low income workers

I wrote an article with this title in Online Citizen. It is drawing a lot of discussion and comments.

http://theonlinecitizen.com/2008/06/give-adequate-wages-to-low-income-workers/#comments

Tolerance for mistakes

I posted this comment in www.theonlinecitizen.com regarding the case of a father who went through the immigration checkpoint using his son's passport (by mistake).

I am appalled at the attitude of Singaporeans to mistakes that must occur from time to time.
The photograph on the passport is usually taken a few years ago. It may be difficult for the immigration officer to detect the difference between a father and son from the photograph. It is sometimes diffiult to judge a person's age from his physical appearance.

If our immigration officers have to screen through 350.000 Singaporeans and visitors each day, an error rate of 1% of 1% means that 35 people will have to be missed daily.

Is there a big security risk? I doubt it. If I am a criminal trying to flee Singapore, there are better and easier ways to leave this place than using a wrong passport.

I do not like to see over-reaction that will lead to stricter measures that will create a lot of inconvenience to ordinary people who has to travel.

I do not tolerate complacency. I am very irrated to see customer service officers chatting among themselves, rather than serving the customer. This also applies to immigration officers. They should pay attention to their work, rather than chat among themselves to relieve the boredom. I hope that the supervisors can instill this discipline.

Let us accept mistakes as they occur and do not try to exaggerate their impact. We are not a perfect society. Let us focus on the more important things in life.

Jubilee Series 8 Notes

Hi Mr. Tan
What do you think of the above investment?
> Standard Chartered Bank is pleased to offer you higher fixed rate interest on your deposits and investments.
> The Jubilee Series 8 Notes, which pays 3.15% p.a%, interest payable quarterly,
EC

REPLY
There is an analysis of this product in this blog:
http://www.lioninvestor.com/merrill-lynch-jubilee-series-8-notes/

I usually advise people to avoid structured products.Read this FAQ:
http://www.tankinlian.com/faq/sinvest.html

Are restructured products fair to small investors?

Are structured products fair to small investors? The evidence is "no". Many people have been disappointed with the poor yield on structured products. What can be done to deal with this problem?

Here are my views:
http://www.tankinlian.com/articles/structuredi.html

Lucky draw on a donkey.

Here is one of my favourite jokes which has some relevance to insurance.

A young man bought a donkey for $100 from a farmer. The donkey died. The owner thought of a way to get his money back. He arranged a lucky draw for the donkey, sold 100 tickets at $2 and collected $200.

The winner of the draw came to collect the donkey, found that the donkey was dead and made a complaint. The owner refunded back his $2.

The moral? Some insurance companies collect your premium. When you make a claim, the reject the claim (or refund back your premium) on the grounds of non-disclosure or other reasons. Look for an insurance company that is honorable in paying claims, and in treating customers fairly.

Waiting for Permission

Four young men - American, French, Indonesian and Singaporean were shipwrecked on an island. The local girls were friendly.

After a while, the American, French and Indonesian found their partners. The Singaporean was waiting for permission from his boss back in Singapore.

Waiting to be introduced

An Englishman, an Irishman, a Scotsman and an American, hitherto complete strangers to each other, were shipwrecked on a desert island. The natives were friendly and in a short time the American was doing show business, the Scot was running a store, the Irishman was training an army, while the Englishman was waiting to be introduced.

Wasteful competition

SMRT offers a free bus ride from Dhoby Ghaut station to Chinatown on Sundays and Public Holidays.

Why? I seems to be SMRT's way of diverting passengers from their competitor (ComfortDelgro) which operates the North East Line serving Chinatown.

Why is SMRT so wasteful, in creating unnecessary capacity? It will be better for SMRT to save this expenditure and reduce the train fares for their customers.

I hope that the Public Transport Council will disallow SMRT from raising their train fares, if they can afford to be wasteful.

Disembarking the MRT train

The passenger has to disembark the MRT train using the right or left door, depending on the station. Although I am a regular traveller, I have to look out of the windows to see which side has the platform.

It will be useful for the train to display a green light on the door that will open at the next station. This helps the passenger to get ready to use the right door.

New poll on Restructure of Bonus

Someone has started a new poll on the restructure of bonus in this forum:
http://forum.channelnewsasia.com/viewtopic.php?t=157026&highlight=ntuc

Like a bird

"Doctor, I'm worried about my wife. She thinks she's a bird".

"Well, you better bring her to see me."

"I can't. She's flown south for the winter."

Unable to comment on specific products

Hi, Mr. Tan,
I have signed up for the following life insurances:

1. Life Protector Plus is uniquely designed to give you maximum and permanent life protection at a very affordable rate. It provies up to 140% extra coverage in addition to your chosen sum insured till age 65. Protection for loss of life, terminal illness and total and permanent disability (TPD). In the event of TPD, a lump sum benefit will be paid. Choice of supplementary benefits available for additional benefits and protection.

2. Nest Egg is a regular premium participating endowment plan which allows me to participate in the performance of the participating fund in the form of bonuses that are not guaranteed.There will be no bonus paid on death or TPD claim. IRR for a sum assured 50k, cover term of 20years and premium term is 15 years is 3.6%

Are these products suitable for me?
P

REPLY
I am not able to comment on these two specific products. Generally, I dislike them due to the high upfront cost to pay commission to the agent.

I advise consumers to buy term insurance and invest the difference in a low cost investment fund.

Read these FAQs:
http://www.tankinlian.com/faq/fptips.html
http://www.tankinlian.com/faq/savings.html

Living Policy give poor value

Someone asked me why I now advise against the Living policy - when I previously encouraged its sale as CEO of Income.

When Income kept its expenses low and distributed its bonuses fairly to policyholders, its Living policies and other products gave good value, compared to similar products in the market.

I bought two Living policies during the past years. Recently, I found to my great disappointment, that the cash value on one of the policy has still not reached the breakeven point after 12 years. This was due to the bonus cut during the crisis years.

Although the investment yield has improved significantly (with an average yield of 7.8%), the bonus cuts have still not been restored.

In fact, the cash value is far short of the "asset share" of my policy. The asset share is computed based on the premiums paid and investment income earned, less the actual expenses of the policy.

If insurance companies continue to treat their policyholders unfairly, incur high expenses and give a poor cash value that is is far below the "actual experience", I have to advise people to avoid all life insurance products - except for term insurance.

Life insurance is not a means for agents to earn high commissions and insurance companies to earn high profits, by giving a poor deal to customers.

Sand and stone

TWO FRIENDS WERE WALKING THROUGH THE DESERT.
DURING SOME POINT OF THE JOURNEY, THEY HAD AN ARGUMENT,
AND ONE FRIEND SLAPPED THE OTHER ONE IN THE FACE.

THE ONE WHO GOT SLAPPED WAS HURT,
BUT WITHOUT SAYING ANYTHING,WROTE IN THE SAND
'TODAY MY BEST FRIEND SLAPPED ME IN THE FACE'.

THEY KEPT ON WALKING,UNTIL THEY FOUND AN OASIS,
WHERE THEY DECIDED TO TAKE A BATH.

THE ONE WHO HAD BEEN SLAPPED GOT STUCK IN THE MIRE
AND STARTED DROWNING, BUT THE FRIEND SAVED HIM.

AFTER HE RECOVERED FROM THE NEAR DROWNING,HE WROTE ON A STONE:
'TODAY MY BEST FRIEND SAVED MY LIFE'.

THE FRIEND WHO HAD SLAPPED AND SAVED HIS BEST FRIEND ASKED HIM,
'AFTER I HURT YOU, YOU WROTE IN THE SAND
AND NOW,YOU WRITE ON A STONE, WHY?'

THE FRIEND REPLIED
'WHEN SOMEONE HURTS US WE SHOULD WRITE IT DOWN IN SAND,
WHERE WINDS OF FORGIVENESS CAN ERASE IT AWAY.
BUT, WHEN SOMEONE DOES SOMETHING GOOD FOR US,
WE MUST ENGRAVE IT IN STONE WHERE NO WIND CAN EVER ERASE IT'.

LEARN TO WRITE YOUR HURTS IN THE SAND
AND TO CARVE YOUR BENEFITS IN STONE.

THEY SAY IT TAKES A MINUTE TO FIND A SPECIAL PERSON,
AN HOUR TO APPRECIATE THEM,
A DAY TO LOVE THEM,
BUT THEN AN ENTIRE LIFE TO FORGET THEM.

Insurance for kidney failure patient

Hi Mr. Tan,

Hope that you can advise me. I am a kidney failure patient. and have two young children. What kind of insurance policy should I take up for them using my name or my wife's name? And also what type of insurance should I get for myself in my condition.
CH

REPLY
I hope that you are personally covered under Medishield or a private Shield plan. It is important that you have this cover for your own medical expenses.

You can buy a Medishield plan for your children. There is no need to buy life insurance for them. You should have savings to take care of your future needs. Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/fptips.html

You will find it difficult to get life insurance due to your medical condition. Perhaps you can buy personal accident insurance. Read this FAQ:
http://www.tankinlian.com/faq/pa.html

Call the hotlines for a lower quote on Motor Insurance

Hi Kin Lian,

Just to share with you my personal experience on the above. Faithfully, I drive safely for my personal and passengers' safety and earn no claim discount on my insurance premium. It reached the maximum of 50% within the first few years of owning/driving a car.

After 25 years of paying insurance premium, I feel like one of the loyal contributors to the pool for the sake of other not-so careful motorists and unfortunate injured persons. Insurers love to have us as we just pay and don't have to claim. But they don't differentiate us from other motorists.

Insurers made losses from motor insurance of which I did not have anything to do with it, yet I have to bear with adjustments in premium that they enforce to all insured parties.

Beside giving up owning a car, do you have any advice for me to look into for the sake of saving in motor insurance premium?
PT

REPLY
If your insurer increase the premium, you can look for another insurer who may be able to offer you a lower premium. The hotline numbers are shown in the FAQ:
http://www.tankinlian.com/faq/motord.html

Suggestions are not welcomed

I wish Singaporeans to be more open to new ideas. They should be comfortable about interacting with other people who gives suggestions.

Why are Singaporeans so afraid of new ideas? How can they be overcomed? You can read my views in

www.theonlinecitizen.com
http://theonlinecitizen.com/2008/06/suggestions-are-not-welcomed/#comment-12182

Out of the Box

I write an article each week in the Online Citizen, www.theonlinecitizen.com. It appears in the column, "Out of the Box" You can visit this website to read about my views on life in Singapore..

Someone suggested that I should print a book of my articles. I am considering this suggestion.

Harassment by third party lawyers - action by CASE

Many motorists have received letters from third party lawyers that can be considered to be "harassing". The letters were written in legal language and were threatening. As the motorists have reported the accident to their insurance company, there is no need for the third party lawyer to harrass the motorist. They should write to the insurance company directly and sort out the claim.

I am a life member of Consumer Association of Singapore (CASE). I have asked CASE to take it up with the Law Society and they agreed. I hope that CASE and the Law Society can work out a protocol, so that the ordinary motorists will not be unnecessarily harrassed on third party claims in the future.

Bonus should be based on actual experience

Dear Mr. Tan,
Sorry if my posting seem to attack you, but i just want to clear the issue of the statement you said about me of " taking consumer for a ride".

I did mention that as a consumer, if the insurance company can provide me the projected maturity return at the end, I will be happy. (Higher return seem like a dream, lower return I will not trust that company anymore).

I do not support the insurance companies but accept that it thing we can't change. I never bought growth plan from ntuc income before, therefore want to find out whether did you previously as CEO of NTUC provide consumer higher than the projected return. (I know you gave good return for regular endowment).

Finally, I'm not an agent or manager from Income, but ex-agent from your competitor.
vfocus

REPLY
During my 30 years as CEO, Income give a good return to policyholders as follows:
> expenses are kept low
> 98% of the surplus are distributed as annual and special bonus to policyholders

During the 1980s and early 1990s, the bonus rates were increased every few years - made possible by the good investment yield. From 1998 to 2003, the bonus rates were reduced due to the low interest rate environment and two financial crisis.

Since 2004, the investment yields have been exceptionally good. In my view, the surplus is more than adequate to restore the bonus cuts in recent years.

This approach should be applied to all participating policies, i.e. regular and single premium policies. All participating policies should be treated fairly.

Do not terminate your policies

An Income agent said that several of his policyholders have terminated their policies as they have lost trust in Income. I wish to advise policyholders not to terminate your policies for this reason, as you will be incurring a large loss due to the high upfront charge.

The chairman of Income have given three assurances regarding the restructure of the bonus. His speech is posted in Income's website:
http://www.income.com.sg/aboutus/2008Bonus/chairman.asp

Para 17 and 18 of his speech are reproduced below:

17. Some policyholders have raised specific concerns on the special bonus in blogs. Allow me to address them.

> While special bonuses are not guaranteed, they are designed to ensure that the reduction in annual bonus is compensated. As I have indicated earlier, the new bonus structure is aimed at improving, the total payout to policyholders.

> Should the special bonus in future reduce due to adverse financial conditions, we are committed to restoring it when conditions improve.

> I have stated that this Board will look after the policyholders’ interests. Towards this end, the Board will ensure that the bonus allocated to policyholders result in payouts is fair and consistent with the experience of the Life Fund.

18. I hope I have managed to give you a better understanding and appreciation of the position regarding the bonus restructuring. We will not hurt policyholders and shareholders. And we shall also not allow NTUC Income to be hurt.

I have written to Income that the payout on a 5 year Growth policy that is reaching maturity this year is rather low and does not meet the standard of "fair and consistent with the experience of the Life Fund". This probably applies to many other Growth policies that is maturing in the near future.

Let us give some time to Income to sort out this problem.

I will also be writing to Income to suggest that higher bonuses be allocated to existing policies (even if they are in non-guaranteed form) to reflect the good experience of the Life Fund in the recent years. I hope that the final outcome will give a better return for Income policyholders.

Offensive Postings

There are a few postings from zhummmeng that are offensive to insurance agents and to NTUC Income. I am not able to edit the views to remove the offensive words, so I have to block the entire posting.

I have also blocked a posting by vfocus that attacked me personally. If vfocus (who is probably an agent or manager for Income) uses his real identity, I will be happy to post his comments and give a reply. It is not ethical for a person to attack another person under the cloak of anonymity.

Adrian Khiat expresses some views which disagree with my views. He uses his real name and does not have to attack me personally. I respect Adrian Khiat and allows his views to be posted.

Harrassment by lawyer acting for third party

Dear Mr. Tan,
It my pleasure to see such a senior and high ranking person who is willing to contribute your knowledge and experience to help public continuously after your retirement. You offer an excellent channel for ordinary people such as me to seek help on problems related to insurance.

In February, my car grazed another car at a turning point in a car park. Both of us have made reports to our insurance company accordingly.

After that, I received three letters, pertaining to the claim issues, from a lawyer appointed by the third party. The first letter is to me, the second is to my insurance company and copied to me. However, the third one in June is to me and inform me that they have filed a civil claim loss and damage. The proceedings is against me.

My insurance agent always told me those are all normal procedures until the last letter while she asked me to collect the Writ myself and then pass to insurance company. I am not sure whether it is the right way for me to do so, is there any legal impact?

Should the appointed solicitors of the insurance company accept service of the Writ of Summons on my behalf instead of me? What are the possible consequences if the issue is escalated to Court? Can I get back my insurance premium if I have to present in the Court and compensate the third party? Who should pay the legal charges?
BH

REPLY
Your insurance company is required to handle the third party claim. After you have informed your insurer about the accident and notified the third party about the identity of your insurer, there should be no need for the lawyer acting third party to harrass you with these matters. I suggest that you should lodge a complaint with the Law Society and let them decide if the lawyer is acting in a professional manner.

It is all right for you to accept the writ and pass it to your insurer to handle the third party claim. Your insurance company will pay the legal expenses as well.

Products that give poor value to consumers

Some life insurance companies design complicated products that are difficult for the consumer to analyse.

It is easy for the agent to get the consumer to buy the product, as the agent can make a misleading presentation of the product. In some cases, the product is designed to take advantage of the ignorant customer.

After buying the product, the consumer is stuck with it for 20 years or longer, as they have already incurred a large upfront cost.

I hope that the regulator will look after the interest of the consumers and disallow these types of poor value products from being marketed to the general public.

My advice to consumers: Avoid all these types of complicated products, as they are likely to give you a poor return. Do not trust any company that market these types of products.

A complicated product, with low yield

Dear Mr Tan,
I brought a 25 years anticipated endowment plan from P in Year 2003. This plan with monthly premium of S$137.67 allows annual cashback of S$1,000 (from 2nd year onwards).

The guaranteed surrender value start from S$1,000 on the 2nd year and increased up to S$1,413 on the 15th year, and then decreased to S$1,000 on the 25th matured year.

The Non-guaranteed surrender value start from S$110 on the 3rd year and increased up to S$24,811 on the 25th matured year (based on 2.78% projected investment yield to maturity).

I have done a quick calculation as follows:

Annual Premium = $1,652.04
Total Premium paid for 25 years = S$41,301
Total Cashback received (from 2nd years onwards) = S$24,000
Guaranteed maturity benefit = S$1,000 (5% of sum assured)
Total guaranteed benefit with total cashback received = S$25,000
Total Non-guaranteed maturity benefit: S$24,811 (based on 2.78% projected investment yield to maturity)

After 25 years, if the 2.78% projected investment yield to maturity is met, I will only received a total of S$8,510 after deducted the total premium paid, or even lower if the actual investment yield decreases.

After coming to 5 years of enforcing this plan, I have realised that I may have make a wrong choice to buy this policy as the returns seems rather low. I would like to seek your advice on the followings:

1) Do you think I should continue with this plan till 25 years?
2) What plans are there with better guaranteed returns?
TY

REPLY
I find it difficult to analyse this complicated product. The maturity benefit is uncertain, as a large part is not guaranteed. I also do not know what is the loss that you have to face, if you decide to terminate the policy now.

If you decide to terminate the policy, you can buy a decreasing term insurance policy for the insurance protection and invest the difference in a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html

Business Ethics

In olden Chinese society, the respected occupations were the government officials, teachers, doctors, farmers and craftsmen. The merchants were considered to be near the bottom of the ranking. Why were the merchants given so low a ranking in the past?

Today, the merchants (i.e. businessmen, entrepreneurs, traders, bankers) are the most lucrative occupations. They earn large amounts of money, especially in financial services and corporate dealings.

Even the professionals (i.e. doctors, lawyers, accountants and teachers) want to be converted into businesses to make more money.

The drive to "make more profit" has resulted in a deterioration of business ethics. Nowaways, businesses find it all right to "skim off the consumers" to increase their profits, so long as they do not break the law. It has become an acceptable business practice to take advantage of the ignorant or weak consumers to maximise profits. .

I believe that there will be a backlash. I hope that the business community will understand that fair treatment of consumers is for the long term benefit of the free market system.

A poor yield on single premium endowment

My wife's single premium endowment will mature in 2 months time. She will get a yield of 3.06% for the past 5 years.

During the past 10 years, the insurance company reported that the averge yield was 7.8%. I found the yield of 3.06% to be unsatisfactory, for a participating policy.

Here are some key figures:

Single premium $50,000
Insurance company earned 7.8% for 5 years, giving a total of $72,800
Maturity benefit: $58,100

By giving a low payout of $58,100, the insurance company kept $14,700 for the 5 years, or $2,940 a year. That is a lot of money to keep from the policyholder for the small insurance protection provided by this policy. The actual expenses for this policy are quite low anyway.

If the insurance company had earned a low return, they would have reduced the payout (i.e. cut the annual and special bonus). As the insurance company had actually earned a high return, they should increase the payout to the policyholder on the maturity, instead of keeping a large part of the unexpected gain in the fund. This is the "promise" of a participating policy.

I have raised this matter with the insurance company. I believe that they payout has not meet the standard of "fair and consistent with the actual experience".

Sudoku

Sudoku is a popular game. It appears in many daily newspapers around the world. It appears in Today and MyPaper in Singapore.

I have asked many people in Singapore. Over 90% said that they are not familiar with the game. I taught them the technique of solving the Sudoku puzzle in 5 minutes. Many of them found the game to be stimulating and interesting.

It takes only 5 minute to learn a skill that can be useful in life. If you are interested to learn this skill, click here:

http://www.tankinlian.com/logic9/

Incontestable Clause

Most life insurance companies have an "Incontestable Clause". It states that the insurance company will not contest any claim after two years, except in the case of fraud. Some insurance professionals claim that they can contest a claim if there is material non-disclosure, on the grounds of fraud.

I hold a different view - that the insurance company has to prove that there is fraudulent intent, in order to reject a claim after two years. I find that insurance professionals are too ready to reject a claim, even on weak grounds.

My position appears to be supported by this chapter from a textbook on "Principles of Risk Management and Insurance" by George Rejda.

The incontestable clause states that the insurer cannot contest the policy after it has been inforce two years during the insured's lifetime. After the policy has been in force for two years, the insurer cannot later contest a death claim on the basis of a material misrepresentation, concealment, or fraud when the policy was first issued. The insurer has two years in which to discover any irregularities in the contrct. With few exceptions, if the insured dies, the death claim must be paid after the contestable period expires.

The purpose of the incontestable clause is to protect the beneficiary if the insurer tries to deny payment of the claim years after the policy was first issued. Because the insured is dead, he or she cannot refute the insurer's allegations. As a result, the beneficiary could be financially harmed if the claim is denied on the grounds of a material misrepresentation or concealment.

The incontestable clause is normally effective against fraud. If the insured makes a fraudlent misstatement to obtain the insurance, the compnay has two years to detect the fraud. Otherwise, the death claim has to be paid.

However, there are certain situations where the fraud is so outrageous that payment of the death claim would be against public interest. In these cases the insurer can contest the claim after the contestable period runs out. They include the following:

> The beneficiary takes out a policy with the intent of murdering the insured.
> The applicant for insurance has someone else take a medical examination.
> An insurable interest does not exist at the inception of the policy.

Rejection of Shield claim

Dear Mr. Tan,
I am writing to you to seek your advice on how I should go about seeking redress with regards to my claim with Y.

I bought the Shield plan from Y. I was hospitalised 9 months later for angioplasty (ballooning). Y had written to state that they are not covering me because my hospital discharge summary indicates the diagnosis as : Primary - Ischaemic Heart Disease, Secondary - Hypertension and Hyperlipidemia and that I did not declare that I had high cholesterol.

I did a health screening with my GP and results showed that my cholesterol level was slightly high. My GP advised me to do more exercise and lead a healthier lifestyle. He deemed it was not necessary for me to be on medication. I carried on my life as usual without making much changes at all as I didn't take the condition seriously.

I did another health screening a few years later. My GP told me that my cholesterol level had improved slightly. It was not necessary for me to go on medication.

All this while, it has never occurred to me that I have high cholesterol because I was not on medication. As a layman, I sincerely and honestly didn't know the seriousness of having high cholesterol which may lead to heart disease.

When I was asked questions about my health during the proposal, I had declared whatever I know (ie, on medication for high blood pressure which was under control.) In Y's proposal form, there was no question asked about cholesterol. If it is an important factor in risk assessment, I think it is only fair to include this question.
CY

REPLY
I suggest that you write to Y and pose them the facts that you have presented. If they wish to reject your claim due to non-disclosure, it is their duty to prove that you have deliberately hidden a material fact.

As they did not ask about your high cholesteral, and you were not aware about its significance, you have a right to press for your claim to be approved. Let us see what is their reply to this matter.

If you feel that your claim has not been handled fairly, you can lodge a complaint with FiDREC. They will appoint an independent assessor to look into this matter. Their contact is:
http://www.fidrec.com.sg/website/faq.html

Loss of goodwill

A met an Income policyholder at a cocktail party. He told me that in the past, he did not have to think twice about buying insurance from Income, as he was sure that being a cooperative, he would get a lower price and better return.

With the recent change, he is not not sure whether Income will continue to give the same good value. He is worried about the higher expenses and the recent change in bonus to make Income follow the practice of other insurance companies. He would check carefully before he buy a policy from Income.

He said that a lot of goodwill is being lost through the recent changes.

Saving for an early retirement

Dear Mr. Tan,
I am in my mid 20s. I need your advise on planning for retirement, savings and life protection. Frankly speaking, I have checked many products and are confused with what I need. I do not have much spare cash in the past as I have dependants.

My current pay allows me to set aside about 20% for savings. If I have $500 a month, what are the insurance/ savings I should save? Can I plan for a comfortable retirement at 50 years old?

My agent recommended me Vivolife, limited payment for 10 yrs. But I am also not sure if the critical illness portion is guranteed. Based on my savings, should I buy Vivolife? Or go into endowment? Or save up as cash? Or medical?

REPLY
Please read these FAQs
http://www.tankinlian.com/faq/fptips.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html

Personal insurances - making the right choice

Here are some tips about making the right choice on your personal insurance, i.e. life, medical and accident insurance.

http://www.tankinlian.com/faq/choice.html

Financial Planning Tips

I have often be asked to give advice for a specific situation. I am not able to find the time to do a proper job.

I often refer my readers to the FAQs contained in my website, as follows:
http://www.tankinlian.com/faq/

The popular FAQs are:

> Financial Planning for the Young
> Financial Planning for Seniors
> Investing your Savings
> Benchmark Premium Rates
> Buy Term Insurance Directly
> Buy Motor Insurance Directly

There are many other FAQs contained in this website that may be relevant to you.

A few financial advisers have indicated that they are willing to provide advice for a flat fee, based on time. I plan to introduce them at a later date, after I have the chance to discuss with them on their proposed mode of operation.

See if you're getting a GOOD DEAL

Are you getting a good deal from your participating policy. Dr. Money has this advice:
http://newpaper.asia1.com.sg/columnists/story/0,4136,167015,00.html?

Read more about Dr. Money's articles in:
http://www.tankinlian.com/drmoney/

He who pays the piper

In recent years, we had several corporate scandals, involving accounting irregularities. The accounting firms were appointed by the management of these companies. These professional firms received large fees and were suspected of not doing their work diligently in discovering the irregularities.

In more recent years, we have the subprime crisis. The rating agencies were appointed by the issuers of the collateralised debt obligations. They are now suspected of having a conflict of interest in giving a favourable rating to these complex structures.

Consultants are appointed by management to give advice on business strategy. These consultants are likey to be selected to give advice that are favourable to the management's thinking.

There must be a better way to have access to independent professional advice, especially on matters involving the public interest. The current approach is not working well. As the saying goes, "He who pays the piper calls the tune".

What is a better way to protect the public interest?

Town Transport in Java

I passed through a few small towns in Java during my trip to Bandung from Jakarta. In each town, there is a service called "Angkutan Kota" or "Town Transport".

This service uses a passenger van that can take 6 to 8 passengers. The service runs along a designated route. The driver can pick and drop passengers anywhere along the route. The fare is from 50 to 80 cents.

This is similar to the light bus service in Hong Kong. I find it to be quite practical and useful. It has several of the advantages of a taxi and is much more affordable.

I hope that Singapore will adopt a similar service to serve the local town and to bring commuters to the MRT station, bus terminus or town center.

Insuring the risk of high inflation

Can people buy insurance against the risk of high inflation?

My answer is "yes". But it cannot be done by commercial insurance companies. It requires a new way of thinking on the role of governments and the free market system.

I shall give my views on this matter within the next few weeks, either in this blog or in www.theonlinecitizen.com

Civil servants and part time jobs

I read a news report that the Malaysian Government now officially allows its civil servants to do part time work to earn a supplemental income to meet the rising cost of living.

There is a risk that the civil servant may abuse their official position for personal advantage. I wonder how they will manage this risk?

But the underlying problem is the need to give higher wages, at a time when the Malaysian Government face a budget constraint.

What is the solution? Can the free market capitalist system find a solution? Financial speculation, which is a key part of this system, appears to be the major source of the problem.

Terminal bonus lead to Equitable Life's failure

Hi Mr Tan,

Guarantees cost more money. Why does terminal bonus (with less guarantees) contributed to the Equitable Life's failure?

1) Penrose report, chapter 14, para 185 and 186 analysed some financial data :

185. In 1983, the investment reserve was approximately 37% of the long-term liabilities. In 1999, it was approximately 17%. Over the period 1986 to 2000 terminal bonus payments increased by more than 14 times. Further from 1983, the mix of reversionary to terminal bonus shifted in favour of terminal bonus.

186. ...the accelerating growth in terminal bonus payments was fairly consistent over time... Had the Society recognised terminal bonus in its statutory accounts and regulatory returns on any basis consistent with PRE, its financial weakness would have been exposed throughout the 1990s.*

This shows that the Equitable was diverting free assets into terminal bonus payments. More importantly, it implies that reversionary bonus that requires prudent reserving (ie setting aside money) for all generations of policyholders is a fairer approach and helps to avoid misappropriation of funds.

2) Lets see what a policyholder had to say (http://www.emag.org.uk/index.htm?documents/assessment_28112003.html~content) :

.... throughout the 1990s Equitable declared bonuses well in excess of the value of assets to improve its marketing appeal. In consequence it was paying out departing policyholders in excess of their asset value with money from new investors. This pyramid selling left a hole of some £3bn which all policyholders who did not leave before July 2001 have paid for in savage reductions in policy values...

3) How did Equitable declare bonus in excess of the value of assets? My understanding is as follows :

- management was driven by growth (ie new business)
- terminal bonus is not guaranteed and is more flexible to increase/decrease
- so management started to shift more to terminal bonus, projecting high terminal bonus (to attract customers)
- these bonuses were not sustainable, but the terminal bonus had become a marketing tool (decreasing it will lose market share)
- so management misused the investment reserve, using it to pay high bonuses to maturing policyholders at the expense of younger generations
- management thought that since terminal bonus is not guaranteed, they can always decrease it
- management thought that when the investment market booms, all problems will be solved but investment did not boom
- effectively, they had a ponzi scheme running which did not hold up in the courts

4) How reversionary/annual bonus could have prevented the collapse?

- imposes more discipline, ie set aside provisions for bonus, ensure unsustainable bonus are cut, control new business growth
- fairer way to share profits with all generations of policyholders and not just the maturing/claiming ones

5) Why do different actuaries have different opinions?

Quoting a friend : "the one who pays the piper calls the tune".

Yew Ming

Principal Guaranteed, Principal Protected

Hi Mr. Tan,
Let me explain what I know about the difference since I have held some of these products before:

Principal Guaranteed – The issuer (not necessary the bank selling you the notes) guarantees it. As long as the issuer does not go bankrupt you should be safe. However the issuer of such notes are usually special vehicle companies set up by reputable banks such as Merril Lynch. So the vehicle goes bankrupt the bank itself is not affected. Not sure if that is their intention but I read it as so. But generally I think it is quite safe.

Principal Protected – Usually the issuer takes your money and go purchase a zero coupon bond and so get a discount upfront. It is protected as long as the bond issuer do not default. As I understand it the bonds invested are usually rated A+ and above (does not really mean much as Lehman Brother bonds are also rated A+). The money they get from the original discount is then used to “invest” in a risky way , i.e. options, currency and whatever. Once they have lost all your money thru these risky stuff and taken their fees, then they tell you now you are sitting on a zero coupon bond and waiting the next 5 years with zero payment.

Basically my point is that these products are TOTALLY NOT TRANSPARENT and USUALLY DO NOT EVEN give return of FD over the 5 years. If the investor wants to get that 1-2% more than FD, I suggest they go buy bond themselves and invest the rest. Sorry just my 2 cents....I do get quite passionate about this as I have seen many people suckered into such deals.

C

REPLY
Thank you for the explanation. I agree with your explanation.

Can you read this?

Only people with minds can read this
This is weird, but interesting!

fi yuo cna raed tihs, yuo hvae a sgtrane mnid too
Cna yuo raed tihs? Olny 55 plepoe out of 100 can.
i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg. The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a wrod are, the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset ca n be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe. Azanmig huh? yaeh! and I awlyas tghuhot slpeling was ipmorantt! If you can raed tihs forwrad it.

Another new structured product

Hi Mr Tan,
I received an email about Jubilee Series 8 Notes. In the factsheet, it is stated that principal is 100% protected if held until maturity date. May I know the difference between Capital Protected and Capital Guaranteed? What other risks that I should be made aware of?

I received this reply from the marketing officer:

Good News as the interest rate has been revised from the original 2.7% to currently 3.15%. Its selling out fast. Please call my mobile phone now. Principal protected - there is a condition. You have to hold this note till maturity date of 2.5 years. Principal guaranteed - misleading that its guaranteed at all times under all conditions, even upon early termination. No hidden risks. Only thing is have to hold till maturity to avoid principal loss. Interest rate is guaranteed.

JP

REPLY
From my reading, "principal protected" means that it is "not guaranteed". So, I do not really understand what "principal protected" really means. Someone explained to me previously that it means "we will do our best to protect your principal, but we do not give any guarantee". I always avoid investments that I do not understand.

I avoid structured financial products. I do not let the issuer of the structured product take away my investment gain through their high charges. My views are explained in this FAQ:
http://www.tankinlian.com/faq/sinvest.html

I prefer to invest in Government bonds (low risk, 3% or more), or well rated corporate bonds (4-5%) or shares (high risk, high reward). I pay low cost and get the actual return (commenusrate with risk).

Read this FAQ:
http://www.tankinlian.com/faq/savings.html

Public Facilities need to be improved

Read my article in The Online Citizen:

www.theonlinecitizen.com

http://theonlinecitizen.com/2008/06/public-facilities-need-to-be-improved/#comments

New Zealand Dollar Deposit

Dear Mr. Tan,
I will like to have some advise from you. Now NZ$ exchange rate is 1.0447 bank rate for deposit in FD. Do you think is it the right time to deposit NZ$ fixed deposit now? Thanks.
M

REPLY
I am sorry that this is not my area of expertise. It is difficult to time the market.

I have some of my money on NZD deposit. I think that the current level (which represents a fall from the recent high) should be okay, and the interest rate is above 8% per annum. All the best.

Comment - risk of high terminal bonus

Hello --
It is an excellent point, Mr. Tan.

Obviously, terminal bonuses are higher than annual bonuses. Doing that -- pushing most of the bonuses to the end the policy -- puts the policyholders' fund at risk IF the courts would decide the company cannot simply walk away from its obligation to pay its terminal bonus, as promised.

That is what happened in the case of Equitable Life in UK. Equitable couldn't pay and it went broke.

Are Singapore insurers also at risk?

Well, it depends. In the case of NTUC Income, it gave its assurance at its recent AGM (May 30) that it would not walk away from its terminal bonus. It would pay it.

In a way, that is good for policyholders.

On the other hand, such a statement sounds very much like "an obligation".

Requiring NTUC Income to keep its promises (to meet its obligations) could be expensive for the company.

As mentioned, it was prohibitively expensive for Equitable Life in UK.

Sincerely,
Larry Haverkamp

Danger of unfunded terminal bonus

The collapse of Equitable Life in UK was quoted as the reason to restructure the bonus of Income. The consultant recommended that the annual bonus rate was too high and supported the restructure to a lower rate of annual bonus, to be compensated by a higher rate of terminal bonus.

Tan Yew Ming, a local actuary, studied the report on the collapse of Equitable Life. He found that the problem of Equitable Life was the high rate of terminal bonus promised to policyholders that were not reserved.

When the court decided that Equitable Life had to pay the terminal bonus, Equitable Life faced financial difficulties and had to cease transacting new business. This concluson was also reported by BBC in a commentary.

If Equitable Life had declared a higher rate of annual bonus, they are required to set aside reserve for the bonus. This would have given them a stronger financial position.

I hope that Income will study this matter carefully and avoid the risk faced by Equitable Life, i.e. promise high terminal bonus rates that are not funded.

Heavy burden of debts

A few young people have approached me for help to solve their heavy burden of debts. They owed $20,000 or more, on credit card and other borrowings. They are not able to repay the debts.

I advised them to consult this organisation: Credit Counselling Singapore
http://www.ccs.org.sg/

Some of the debtors told me that they had already tried this channel, but the assistance was limited.

I wish to share this advice with many year people. Avoid borrowing on credit cards or other sources. Save now and spend later. You can lend the past savings to yourself in the future, and save on 24% interest.

Read this FAQ:
http://www.tankinlian.com/faq/return.html

Lessons from Equitable Life - high terminal bonus

An article appeared in the Straits Times: 'Salutary bonus lessons from the UK'
(http://www.asiaone.com/Business/My%2BMoney/Starting%2BOut/Insurance/Story/A1Story20080528-67478.html)

Tan Yew Ming studied the detailed report by Lord Penrose, who headed a comprehensive investigation into the reasons for Equitable’s debacle. This report can be found at : http://www.hm-treasury.gov.uk/independent_reviews/penrose_report/indrev_pen_index.cfm

Here are the key Below are key extracts from Part 7 (conclusions and lessons) of the report, regarding the bonus policy of Equitable Life:

38 ... from the early 1980s the Board’s bonus policy became increasingly driven by the pursuit of growth in new business...
45 ... the Society maintained a bonus record that enabled it to achieve consistent growth in new business premium income, ... growth could not have been achieved without the support of a bonus allocation and distribution policy that produced high policy values and high policy proceeds.
49 ... The Society followed the general view that terminal bonus was not guaranteed and did not have to be provided for in mathematical reserves or technical provisions.... By disregarding accrued terminal bonus, the Society was able to over-allocate bonus beyond its available assets at market value, and in particular to make payments on claims that exceeded the relative available assets at the time.
80 ... The failure to cover future terminal bonus by the retention of funds, given the expectations generated by representations, and by the Society’s sustained practice of paying such bonuses on maturities and other claims, contributed significantly to its ultimate weakness...
95 ... It is appropriate to comment in the first place on bonus policy.... Having adopted a rational approach to bonus distribution policy in 1973 that involved prudent reserving for future reversionary bonuses and related terminal bonus to sums standing at credit of investment reserve, the Board as constituted over the material period began progressively to reduce the reserves held for future reversionary bonuses from 1983 until that aspect of the previous reserving policy was abandoned entirely in 1985. In and after 1983 the amount allotted as terminal, later final, bonus was progressively increased.

240 ... The following may be regarded as the key conclusions arising from this report:

(3) The Society adopted a policy whereby unguaranteed terminal or final bonus became an increasing proportion of total allocations. This was in line with industry trends, but had the intended effect of reducing over time the share of benefits which required to be reserved for or recognised as liabilities in the Society’s statutory accounts and regulatory returns.

(4) As a consequence of this shift towards terminal bonus, and in the absence of any coherent or consistently applied smoothing policy, the Society began to over-allocate from the late 1980s onwards, with the effect that the realistic financial position (as reported regularly on internal systems and therefore known to the executive management) was progressively weakened, and policy claims progressively withdrew funds in excess of prudently calculated policy values. By the end of 2000, the position reached could only be dealt with by radical re-alignment of policy values, as happened in July 2001...

Here is my understanding from the Penrose’s report:

- Equitable wanted to pursue new business growth and high bonuses was used attract customers.
- Reversionary/annual bonuses require prudent reserving as opposed to Terminal/special bonuses. Since they are at the full discretion of the company, not guaranteed nor reserved, Terminal/Special bonus was an ideal “strategy” for Equitable’s management to promise high returns (to attract new customers).
- Over the years, Equitable shifted from the prudent reversionary bonus to the obscure terminal bonus, effectively setting up a Ponzi scheme to payout high bonuses at the expense of other customers.
- The actuary also adopted dubious valuation methods to release unearned profits to support the bonuses.
- Eventually all Ponzi schemes collapse.

To grow, all businesses need capital. Capital is scarce, ie limited. How to get capital besides asking from stakeholders (ie shareholders and policyholders)? More fundamentally, is growth at the expense of current stakeholders?

Yew Ming

Money Market Fund - drop in price

Dear Mr. Tan,
I deposited $300,000 in their Money Market Fund. It generated about 3% interest at the end of the first year (2007). But this year the MMF is not doing well. For the first time, the units bid price went down from 1.088 to 1.087. I am not sure whether I should continue to leave my money in the Fund or should I look elsewhere to park my cash. What's the next best alternative that could preserve my capital sum and give me reasonable amount of interest.

As I am depending on this saving for my old age, I can't afford to make a wrong decision. As I can't afford to pay for professional advice, I hope you could kindly help me.
P

REPLY
I suggest that you talk to the insurance company and ask for their explanation. I suspect that the drop in the price of MMF is due to the recent increase in interest rate. The existing investments are locked in at the old yield. When interest rate increase, the bonds have a small drop in price.

The good news is that the future yield should be higher, say 2.5% or 3% (compared to 2% previously). In the absence of other better alternatives, it is all right to keep invested in the MMF.

Cash value on education policy

Dear Mr. Tan
My child's education policy matured lately. However, the increase in cash value is lower than the previous three years. I though that the value should increase more, according to the duration.

Below are the cash values:

Year  Cash value   Increase
2005   $37,956
2006   $44,734      $6,778
2007   $49,461      $4,727
2008   $52,397      $2,936  (maturity)

Is the maturity amount applied to everyone in the same age group and sum insured? In 2003, the insurance company send a letter stating that the estimated maturity amount is higher than the $52,397.
JT

REPLY
I suggest that you write to ask the insurance company. Their actuary should be able to give you an explanation.

Personal savings to supplement our CPF

Are you saving enough for your retirement? Is CPF sufficient? If not, what can you do about supplementing CPF?

Read the tips in this article:
http://www.tankinlian.com/articles/savings.html

Personal accident insurance

If you need a large amount of insurance protection, say $500,000, and have a limited budget, you can consider a personal accident insurance. It may not cover sickness, but the big risk for most young peopls is accident.

Read this FAQ:
http://www.tankinlian.com/faq/pa.html

Investing in Foreign Currency Deposits

Here are some tips. Read this FAQ:
http://www.tankinlian.com/faq/foreigncurr.html

POEMS (Phillips Securities)

Someone asked me how to access the foreign currency rates offered by Phillips Securities.

You have to register as a subscriber to their online portal, POEMS. You can get the foreign currenct rates from the tab, FOREX/GOLD, FX/INVEST.

There may be an easier way. You can call Phillips Securities and ask them how you can use this service.

Tips for Seniors on Investments

Many seniors ask for my advice on how to invest their savings.

I wish to give you two tips, set out in the following FAQs. You have to read them and see which is more appropriate for your situation.

> Financial Planning for Seniors:
http://www.tankinlian.com/faq/seniors.html

> Investing Savings at 60:
http://www.tankinlian.com/faq/age60.html

Financial Speculators

There is a growing body of opinion that financial speculators are the major cause of the large increase in oil and commodity prices. These new financial bubbles will burst one day. In the meantime, the speculators make a lot of money and the ordinary people have to pay for their greed, through the high inflation and cost of living. The capitalist, free market system is falling apart. It will not stay long in this manner.

Life insurance up to age 65

Should you buy term insurance up to age 65 or whole life insurance?

The best plan is a decresing term plan, ceasing at age 65 or covering 25 years only. You do not need life insurance after age 65, as you are likely to have retired from work, and there is no lost income to be covered.

Read this FAQ:
http://www.tankinlian.com/faq/age65.html

Here are the benchmark premium rates:
http://www.tankinlian.com/faq/benchmark.html

Financial Planning and Inflation

The past 15 years have been a period of relatively low inflation. Inflation rate has picked up this year. It is likely to stay high in the future.

We now have to factor inflation into our financial planning. This article contains some tips on how you can take inflation into account.

http://www.tankinlian.com/articles/financial.html