A better way to regulate housing agent

26 March 2009

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A better way to regulate housing agent

Senior Minister of State Lim Hwee Hua reported in Parliament that the Government is reviewing ways to strengthen the regulatory framework for housing agents. This is in response to complaints about malpractices by housing agents.

The measures being considered are:
1. raise professional standard of agents
2. quality and training requirements
3. dispute resolution framework
4. enforcement framework

This is similar to the regulatory framework used for the sale of life insurance and investment products. It has failed to deal with the problem of the mis-selling of credit linked notes and other financial products that are bad for consumers.

This approach relies on the principle of the free market - provide information for consumers to make their decision. The crux of the problem - the information is provided by the seller, who makes a bigger profit or commission by mis-informing the consumer. There is a serious conflict of interest.

If this approach is adopted, the regulator has to look after the interest of the consumers, and to take appropriate action against "cheating". Cheating is a crime - and include making an unfair profit by misleading the other party.

In my view, a better alternative is to have a strong regulator to set the rules for the market. An example is the regulation on the sale of medicine and food products. These products are tested to be safe and suitable for consumption. The regulator can carry out the test or engage independent experts to do the work. But the regulator take the responsibility to put the stamp on the product.

I prefer a system where the regulator licenses the agents and sets the professional standards of ethics and conduct. If the agents fail to meet the standard, they should be removed. This is similar to the licensing of doctors, lawyers and other professionals.

The regulator has the option to outsource the actual assessment to a professional or self-regulatory body, but this body should have the "teeth" and backing of the regulator. I wish to say that stronger regulation actually benefits the majority of ethical agents and create a better market for all parties.

I hope that the Government will consider the above suggestions.

Tan Kin Lian

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Big increase for motor insurance claims - the reasons

The General Insurance Association, representing the insurance companies, have introduced a Motor Claim Framework in May 2008, with the aim of controlling the inflated claims. It did not work and has, in fact, resulted in more claims being submitted to the insurance companies. Here are the reasons.

1. In the past, insurers encourage private settlements if the damage was small, i.e estimated repair cost less than $1,000. This was so that motorist can continue to enjoy their NCD. Under MCF, all accidents have to be reported to the insurers and claims will as a matter of course, be made. We all know that when insurers are involved, the workshops jack up the repair cost. From a repair of a few hundred dollars, the price is now a few thousand dollars.

2. The assumption is that the appointed workshops help the insurers to control the repair cost. This is not true because they in fact are out to make a good profit from the insurers. They put up high estimates. And some of them bribe motor surveyors to overlook many items which may be overpriced or which repairs/replacements may not be necessary. The trick is to overblow their repair estimates for the appointed surveyor to go through the motion of cutting a few items. This give the appearance that the surveyor has done his job. The going rate, I understand is for workshops to pay $100 per case to surveyors to gloss through the repair estimates. That is why the tender system is still the best to get around this.

3. Workshop owners work with lawyers and educate motorists on their legal rights with respect to personal injury claims. In the past, small injuries or soft tissue injuries may be overlooked. Now workshops refer them to lawyers to claim. I know of a person who was involved in an accident two years ago when a taxi collided into the rear of his car. He and his wife suffered slight pain in the neck. The workshop owner told them to claim for the injury and referred them to a lawyer to assist. That is why personal injury claims (especially for soft tissue injuries) have increased in recent years. I think most of these claims are genuine. In the past, they did not surface because people did not think of seeing a doctor and claiming if the injury was not serious.

Freddy Neo
(Mr. Freddy Neo was previously the general manager for general insurance in NTUC Income. )

Urban Public Transport

Read my views here.

NTUC is less pro-society now

Hi Kin Lian,
Are you aware of how NTUC Insurance has evolved since you left?

I entered the industry (as an independent advisor) the same year you left NTUC in 2007. I'm a newbie here. But it does not prevent me from observing (with a sigh), that NTUC, the company you led for a long time, has changed since you left - from an organisation that prides itself for being pro-society to a somewhat changed "organism".

NTUC used to be tolerant towards people whose health are not in "tip-top" conditions. I attribute it to its role of being a pro-society co-operative, putting more emphasis in social goodness rather than profit/loss (that's what the guys there always say). It's a humane organisation.

Of course, ultimately bottomline counts. But now, for unknown reasons, the same organisation is suddenly turning its back on the people it's supposed to serve. So much so that it has tightened its procedures so drastically, resulting in people being rendered uninsurable for slight ailments, ie, not in tip-top conditions. It wants to have a sure-win situation?

That's why I say its a systemic problem. Because if this toughness continues, many Singaporeans, especially the older folks, will be without insurance/ medical coverages. Imagine how huge an issue it can be, in an era of aging population, increasing medical expenses etc. I can't comment whether it's due to a change in management philosophy. But for any person who cares (& I think you might), I would say that this is a Mini-bond in the making. Some time, some how, things will blow up. And it can be quite disasterous.

REPLY
I suggest that you write to the secretary general of NTUC, Mr. Lim Swee Say. I hope that he will respond to your feedback.

Survey: How will you vote in the General Election (1)?

The hot topic now is the next general election, which may be held in 2009. How will you vote? Give your views in this survey.

Please pass the word around to your friends and invite them to give their views in this survey. I like to have many people to participate, so that the results can be more representative of the population.

UPDATE

Here are the survey results based on 206 replies. The results are quite close to the results based on 149 replies. This shows that the results are not affected by the size of the sample, provided that the initial sample is quite large (say 50 replies)

How Can I Find Affordable Life Insurance For High Risk Individuals?

Read this article.

Tutoring, temp work can pay off

Advice to graduates looking for a full time job during a global recession. Read this article. Go to this portal.

MAS Consultatation paper - simple insurance products

To MAS

This consultation paper is for regulation on investment products. I suggest that the regulation should make clear that life insurance products that provide only insurance protection (and do not have any saving or investment return) do not require to have any adviser. 

This will allow life insurance products, such as term insurance, accident insurance and medical insurance, can be marketed without the involvement of a financial adviser. This will reduce the cost of distributing the simple insurance products. 

It also avoids the conflict of interest, where unethical advisers may influence the consumer to buy an unsuitable product that pays a bigger commission to the adviser.

Tan Kin Lian

MAS Consultation Paper - Toxic Investment Products

Under the consultation paper, the issuers are required to provide more clearer information about complex financial products. But, the question is, will this approach prevent the sale of toxic products?

The credit linked notes, which were allowed to be sold, were toxic because they carry 5 to 8 times the risk of ordinary bonds. The issuer was able to package these toxic products and offer a low rate of return to the unsuspecting investors.

It will be difficult for the ordinary people to understand the risk of these products. They have to rely on the adviser. If the adviser is not aware of the risk, then the chance of mis-selling is high.

There is already an existing requirement for the issuer to provide relevant information about the product that is registered for sale to the public. If the authority is not willing to enforce this requirement under the existing regulation, will the "better disclosure standard" prevent a similar problem from recurring several years into the future?

A better solution is to have independent experts to certify the risk of the product. This independent experts must be appointed by the approving body and not by the product issuer.
If the independent experts cannot certify the products to be fairly designed and described, the authority should not allowed the product to be sold.

This is similar to the certification of drugs. If the drugs is not tested to be safe and effective, it is not allowed to be sold to the public.

I hope that MAS will consider this point. I shall be submitting this suggestion in reply to the consultation paper.

Survey: Politician Ratings

Who will you vote in the next general election? Survey.

Here are the preliminary survey results, based on 49, 112 and 178 replies. The latest rating has a more balanced distribution by age group.

Disclaimer. The people who participate in this survey do not reflect the population at large. This survey attracts a larger proportion of people who are unhappy with the Government.

It is more important to look at the relative ranking of the politicians in the PAP and the alternative parties.

AUD, NZD on way of recovery

The AUD and NZD dropped by about 30% a few months ago. It stayed at that level for a few months. They are now starting to recover. I saw that NZD had increased 10% during the past week .The AUD has recovered by 5%. Perhaps, the previous drop was too sharp and it is now reaching its fair level. But interest rate in AUD and NZD are now quite modest (compared to the high rates previously).

Proposal to solve the global crisis

Here is my proposal to solve the global crisis. I hope that the US government will be considering an approach along a similar line. The strategy is to stabilise housing prices at replacement cost, less depreciation.

Buying a new HDB Flat

A Singaporean who worked in China for nearly 10 years. While in China, be bought a private property. He sold it on returning back to Singapore, after completing his contract.

He is barred from buying a new HDB flat due to the following condition. I find this condition to be unfair to him. I advised him to consult his Member of Parliament.

Ownership / Interest in Property
You, your spouse, any occupiers listed in the Application Form or their spouses must not own or dispose any other flat, house, building or land* or have an estate or interest at any time within 30 months before the date of application, or between the date of the application and the date of taking possession of the new flat.

* includes but is not limited to HUDC flats (whether privatized or not), properties acquired by gift, properties inherited as beneficiaries under a will or as a result of the Intestate Succession Act, private properties, commercial properties and industrial properties, as well as properties owned / acquired / disposed through nominees regardless of whether any of these properties are located in Singapore or overseas.

Save money with a basic Medishield plan

Hi Mr. Tan,
I find that the premium for private Shield has become more expensive at the older ages.  My father is 76 years old and my mother is 69 years old. Shall I continue to insure them under Incomeshield M Plans, or switch back to Basic MediShield? If there is a need, we can visit a private hospital and pay out of our savings.

REPLY
If your parents find the premium for private Shield to be too expensive, it is better to switch back to Basic Medishield. They can go to subsidised wards in Government hospitals, rather than private hospitals. You can switch back to basic Medishield at anytime, even after gae 70.

Read this FAQ.

Fraud alert - insurance claim

Dear Kin Lian,

I like to report to our motor insurer about a suspicious accident with this vehicle on 19 Mar 09; (detail provided). The driver; man aged 50 something.

I notice from my right side mirror, he approached very close towards my right side and appears to deliberately hit my right rear side and bumper.

I got down checking and finding that his vehicle already had a bad pre-existing damage on his front lefts side that supposes to collide with me (it is a deep dent and paintwork scratches) but my car was only slightly scrapped. I confronted him and he drives off after a verbal exchange.

I was suspicious because I have been in front of him all the time and keeping on a straight path within my lane. And also my vehicle slightly damaged but he and his female passenger kept blaming me for cutting into his path.

He probably attempt to induce fraudulent insurance claim for his existing damage. To protect other motorist; any similar accident claim involving this vehicle should be carefully investigated.

REPLY
I suggest that you lodge a report with the Police. It is their duty to investigate such matters.

Financial planning for newborn

Hi Mr. Tan,
I'm doing some financial/insurance planning for my newborn. I plan to purchase a Vivolife Policy (Sum Assured: $50K), with monthly premium of $86 payable over 10 years. And another term insurance (Sum Assumed: $100K), with monthly premium of $12. Is it recommended to do so?

In addition, to start a saving plan to accumulate his education fund in 20 years time. I would need some advise on which is the better option below;

Option 1: Monthly premium of $100 into Investment-Linked Product or Endowment Plan (PayMyUni under Income) ?

Option 2: Initial sum of $5K for Investment-Linked Product, with yearly top-up of $1K. Btw, which is the product worth investing in?

Option 3: Lump sum of $10K into SAIL (Income Policy), with projected return of $24K in 20 years.

REPLY
I am not familiar with the Vivolife product, but I understand that it has high charges (to pay commission to the agent) and gives a poor return to the policyholder. You can search my blog for comments from people who are familiar with this product.

Read this FAQ about saving for your child's education.

Worse than being retrenched

Dear Mr. Tan, 

I was forced out by my ex-company(a listed local company) recently, without any form of compensation. I had been there for X years and the reason they gave was that the company has not planned for such exercise and even they do, they do not give it to ‘non-performing’ employee like me. While I did not agree to my ex-supervisor’s appraisal rating on me, I had no choice but to resign on my own or else my company will dismiss me!

Mr. Tan, do u think I have ground to approach MOM for help in seeking some form of remuneration package from my ex-company?

REPLY

I suggest that you talk to Ministry of Manpower and get their advice. You can also talk to your Member of Parliament.