I had an interesting conversation with an adviser from a large life insurance company. Here are his comments about his company's business practice:
* their top management is measured by head office, mainly on new business
* a significant part of the new business comes from getting their customers to terminate their existing policy, and buy a new policy
* this is bad for the customer, as they lose on the heavy charges
* but it is good for the company's profits and the agent's commission.
The adviser felt bad about this practice and was not willing to take advantage of his customers. He is not active in sales now.
I commend this adviser for his ethical approach. It is important for the insurance company to set a good example, so that the advisers can emulate it.
Saturday, July 14, 2007
Private medical practice
Someone said, " The consumer (patient) goes to the doctor with total trust, submits to the various procedures recommended and seldom questions the fees that are being charged".
As private medical practice is so lucrative, it is difficult to keep good doctors in the public sector.
What is the underlying problem?
* we allow medical practice to be a business
* we leave to the free market
* the consumers are at a disadvantage
* the doctors have a conflict of interest
What is a better solution?
* medicine should be a profession (not a business)
* doctors should operate on a code of ethics (i.e. look after the patient's interest)
* consumers need access to impartial, independent advice
* some suitable body (the government?) should monitor the conduct of doctors
* the interest of consumers should be better protected
My remark applies to many other services, including the marketing of financial services.
As private medical practice is so lucrative, it is difficult to keep good doctors in the public sector.
What is the underlying problem?
* we allow medical practice to be a business
* we leave to the free market
* the consumers are at a disadvantage
* the doctors have a conflict of interest
What is a better solution?
* medicine should be a profession (not a business)
* doctors should operate on a code of ethics (i.e. look after the patient's interest)
* consumers need access to impartial, independent advice
* some suitable body (the government?) should monitor the conduct of doctors
* the interest of consumers should be better protected
My remark applies to many other services, including the marketing of financial services.
Difficult to find a good law minister?
Today paper had an editorial about the difficulty of finding a good law minister in Singapore. The underlying problems, and possible solutions, are explained in detail in the article.
My view?
The root cause is our system of selecting ministers. They have to be selected from among the elected members of parliament. This reduces the pool of potential candidates considerably. (We follow the British system).
What is the alternative?
We can consider the American system. The citizens elect their members of Congress (ie Parliament) and a President.
The President picks his ministers (i.e secretary of the various departments) from the entire population. The nominated perons have to be approved by the Congress.
Many other countries also follow the American system. It gives a wider choice of suitable people.
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My view?
The root cause is our system of selecting ministers. They have to be selected from among the elected members of parliament. This reduces the pool of potential candidates considerably. (We follow the British system).
What is the alternative?
We can consider the American system. The citizens elect their members of Congress (ie Parliament) and a President.
The President picks his ministers (i.e secretary of the various departments) from the entire population. The nominated perons have to be approved by the Congress.
Many other countries also follow the American system. It gives a wider choice of suitable people.
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Singapore system - good, bad and ugly
My friend has been invited to speak on several occasions at international conferences. His topic? The Singapore system - good, bad and ugly.
I asked him:
* what is good about the Singapore system?
* what is bad?
He shared his views with me. (But, I do not wish to quote him, without his permission.)
Here are my views about what is good with the Singapore system:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
What is bad about the Singapore system?
I shall share my views in a few days time!
I asked him:
* what is good about the Singapore system?
* what is bad?
He shared his views with me. (But, I do not wish to quote him, without his permission.)
Here are my views about what is good with the Singapore system:
* low corruption
* meritocracy
* economic development
* efficiency
* stable and good government.
What is bad about the Singapore system?
I shall share my views in a few days time!
Cycling on pedestrain walks
There is some debate on whether cyclists should be allowed to ride on pedestrain walks.
Let us look at the underlying problems:
* there is insufficient bicycle paths
* cyclists cannot ride on the roads (as it is dangerous)
* so, they ride on pedestrain paths (which is harmful to pedestrains).
Can bicycle be used for local transport?
* it is not practical, due to our weather
* there is a need for storage space at MRT or bus stops
The solution?
* have low cost, feeder service for local transport.
Let us look at the underlying problems:
* there is insufficient bicycle paths
* cyclists cannot ride on the roads (as it is dangerous)
* so, they ride on pedestrain paths (which is harmful to pedestrains).
Can bicycle be used for local transport?
* it is not practical, due to our weather
* there is a need for storage space at MRT or bus stops
The solution?
* have low cost, feeder service for local transport.
Fuel economy
Here is the key points of a survey report of car owners, as reported in the newspaper.
* Only 1% of Singaporeans bother to learn about fuel economy of their car, ie how many kilos can be driven for 1 litre of petrol. This is among the lowest in the countries surveyed.
* Only 25% of Singaporeans bother about the impact of cars on the environment, compared to 60% in the other countries.
Lesson: After paying so much for the upfront cost of owning a car, Singaporeans are more concerned about the convenience of using the car. They do not bother about fuel economy. Maybe it does not make much difference, after paying for the ERP charges?
* Only 1% of Singaporeans bother to learn about fuel economy of their car, ie how many kilos can be driven for 1 litre of petrol. This is among the lowest in the countries surveyed.
* Only 25% of Singaporeans bother about the impact of cars on the environment, compared to 60% in the other countries.
Lesson: After paying so much for the upfront cost of owning a car, Singaporeans are more concerned about the convenience of using the car. They do not bother about fuel economy. Maybe it does not make much difference, after paying for the ERP charges?
Adviser gave misleading information
My friend and I visited an insurance booth at an exhibition. The insurance adviser promoted "buy term and invest the difference" (Good!).
They have good marketing materials. The adviser showed the performance of the different funds, and how they fit into the different risk profile. (Good!)
My friend asked about the cost of the funds. The brochure showed an upfront cost of 3% and an annual fee of slightly less than 1%. (Good!)
My friend asked, "What about the distribution cost?" The adviser pretended to be ignorant, and pointed to the investing cost shown in the brochure (ie 3% and 1%).
I asked, "what percentage of the regular premium is allocated for investment?"
The adviser reluctantly brought up another thick booklet (also nicely printed), turned to a page. It showed that 20% was invested in the first year, and other percentages were invested the next few years. The total deduction is more than 150% for the initial years. It is a costly product.
Lesson: It is quite sad that insurance companies design costly products and train their advisers to hide the fact. Indeed, the adviser give a misleading impression and show only part of the total cost.
Who is the blame? The insurance company? The adviser? The marketing system? The regulators?
They have good marketing materials. The adviser showed the performance of the different funds, and how they fit into the different risk profile. (Good!)
My friend asked about the cost of the funds. The brochure showed an upfront cost of 3% and an annual fee of slightly less than 1%. (Good!)
My friend asked, "What about the distribution cost?" The adviser pretended to be ignorant, and pointed to the investing cost shown in the brochure (ie 3% and 1%).
I asked, "what percentage of the regular premium is allocated for investment?"
The adviser reluctantly brought up another thick booklet (also nicely printed), turned to a page. It showed that 20% was invested in the first year, and other percentages were invested the next few years. The total deduction is more than 150% for the initial years. It is a costly product.
Lesson: It is quite sad that insurance companies design costly products and train their advisers to hide the fact. Indeed, the adviser give a misleading impression and show only part of the total cost.
Who is the blame? The insurance company? The adviser? The marketing system? The regulators?
Friday, July 13, 2007
Consumer information - from Australia
I found the website of the Online magazine produced by the Australian consumer association. It is impressive. Take a look at it.
Reduce offer for Excess and Loss of Use
Hi Mr Tan
I see from your blog that you are answering reader's doubt on insurance issue. I like to get your advice on a case involving our company lorry.
Our lorry was travelling straight along Rochor Road. a car suddenly turn left from the extreme lane and hit our lorry's door.
Both vehicles are insured with X. The own damage claim (before GST) was settled.
There is a claim for loss damages and expenses. X gave us a release form to accept this as a full and final settlement, and we did.
X's lawyer later called for a mediation meeting between the drivers, and offered a lower sum to close the case.
We follow up with X's claims officer and were told when lawyer is involved, we can make a counter offer, but to insist on the full sum may mean incurring expenses to hire our own lawyer.
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REPLY:
The items that you are claiming fall under the category of "third party claim". You are making a third party claim against the other party on the basis that they are entirely at fault.
If there is no dispute on the fault, then the insurer should pay for this claim in full, and not try to negotiate a lower sum.
I suggest that you talk to the lawyer and ask for the reason for the reduced offer. You can also approach your insurer for their advice and assistance. They should render this assistance as part of their customer service.
If your insurer does not provide good service, you should look for a new insurer on your next renewal.
You also have the right to make a complaint against your insurer. The body to receive your claimant is the FiDREC (Financial Industry Dispute Resolution Center). Here is their website.
I see from your blog that you are answering reader's doubt on insurance issue. I like to get your advice on a case involving our company lorry.
Our lorry was travelling straight along Rochor Road. a car suddenly turn left from the extreme lane and hit our lorry's door.
Both vehicles are insured with X. The own damage claim (before GST) was settled.
There is a claim for loss damages and expenses. X gave us a release form to accept this as a full and final settlement, and we did.
X's lawyer later called for a mediation meeting between the drivers, and offered a lower sum to close the case.
We follow up with X's claims officer and were told when lawyer is involved, we can make a counter offer, but to insist on the full sum may mean incurring expenses to hire our own lawyer.
-----------------------
REPLY:
The items that you are claiming fall under the category of "third party claim". You are making a third party claim against the other party on the basis that they are entirely at fault.
If there is no dispute on the fault, then the insurer should pay for this claim in full, and not try to negotiate a lower sum.
I suggest that you talk to the lawyer and ask for the reason for the reduced offer. You can also approach your insurer for their advice and assistance. They should render this assistance as part of their customer service.
If your insurer does not provide good service, you should look for a new insurer on your next renewal.
You also have the right to make a complaint against your insurer. The body to receive your claimant is the FiDREC (Financial Industry Dispute Resolution Center). Here is their website.
Profession or business?
Law, medicine and education were the hallmarks of the professions.
The professionals act honestly in the interest of their client, are trusted by them, and receive a good income for their expertise. However, they do not receive the exceptional profits of businesses.
In recent years (especially in the developed countries), many of these professions are being converted into businesses. As a business, they aim to make a big profit - the bigger the better.
Business pressures may force these professionals to cut corners and (in order to survive), they may resort to "cheating" the clients.
I hope that the professions continue to be practised on ethics, fairness and high standards. They should not be turned into businesses.
The professionals act honestly in the interest of their client, are trusted by them, and receive a good income for their expertise. However, they do not receive the exceptional profits of businesses.
In recent years (especially in the developed countries), many of these professions are being converted into businesses. As a business, they aim to make a big profit - the bigger the better.
Business pressures may force these professionals to cut corners and (in order to survive), they may resort to "cheating" the clients.
I hope that the professions continue to be practised on ethics, fairness and high standards. They should not be turned into businesses.
CASE to start a blog?
POSTING IN MY BLOG (BY WILLIAM)
As a consumer, I detest this opt-out scheme and also telemarketers who somehow have your mobile number making sales pitch at you.
Hmm.. Mr Tan, maybe you should consider running for President of CASE. I think you are quite suitable for that position. :) Or maybe CASE should start a blog to communicate with their intended audience, the consumers, on decisions that affect their everyday life.
This is my 1st post here but I must say I have enjoyed reading your posts.
On an unrelated topic, it goes to show that Passion wins over $$. You are not paid to blog but you blog because you want to share your passion of insurance and finance.
Hmmm..Wait.. I think you can even run for President next time round. ;) Jazz up our Presidential election a little.
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REPLY:
Thank you for your nice words.
I don't think that I am suitable as President of CASE or President of Singapore. They are too many people who dislike me.
I have been using some materials from the Consumer Magazine (produced by CASE) for my blog. I simplifed the materials, so that the key message comes across. For those who are interested in the magazine, you can pay a subscription to CASE.
As a consumer, I detest this opt-out scheme and also telemarketers who somehow have your mobile number making sales pitch at you.
Hmm.. Mr Tan, maybe you should consider running for President of CASE. I think you are quite suitable for that position. :) Or maybe CASE should start a blog to communicate with their intended audience, the consumers, on decisions that affect their everyday life.
This is my 1st post here but I must say I have enjoyed reading your posts.
On an unrelated topic, it goes to show that Passion wins over $$. You are not paid to blog but you blog because you want to share your passion of insurance and finance.
Hmmm..Wait.. I think you can even run for President next time round. ;) Jazz up our Presidential election a little.
-------------------------------------------
REPLY:
Thank you for your nice words.
I don't think that I am suitable as President of CASE or President of Singapore. They are too many people who dislike me.
I have been using some materials from the Consumer Magazine (produced by CASE) for my blog. I simplifed the materials, so that the key message comes across. For those who are interested in the magazine, you can pay a subscription to CASE.
Renewal fee on credit cards
Many consumers have several credit cards. We enjoy the waiver of the annual fee on the credit card for the initial few years.
We may not be aware about the expiry of this waiver period. They will renew it automatically and charge an annual fee (which can be quite hefty).
What can we do?
I suggest that you should check the expiry date with the credit card company and put a reminder in your diary or PDA. Prior to the expiry date, you should decide if you wish to renew it. If not, you can tell the bank.
Alternatively, you can write a letter to tell the bank that you do not wish to continue the card on its expiry.
I hope that the authority should require the issuing bank to get specific approval from the customer for introducing an annual fee on the expiry of the initial period. We should encourage fair business practice.
We may not be aware about the expiry of this waiver period. They will renew it automatically and charge an annual fee (which can be quite hefty).
What can we do?
I suggest that you should check the expiry date with the credit card company and put a reminder in your diary or PDA. Prior to the expiry date, you should decide if you wish to renew it. If not, you can tell the bank.
Alternatively, you can write a letter to tell the bank that you do not wish to continue the card on its expiry.
I hope that the authority should require the issuing bank to get specific approval from the customer for introducing an annual fee on the expiry of the initial period. We should encourage fair business practice.
Questionable marketing practice
I read a news report about the following marketing practice:
* the bank sends a letter to offer you a credit line
* if you do not want it, you have to tell the bank
* if you do not opt out, the bank offers it to you
* the charge is waived for the first year
* in subsequent years, the bank automatically add the charge to your account
* it is quite a hassle to remove this unwanted facility
I hope that the authority can act strongly to stop this practice. Here are some of the difficulties faced by the consumer:
* the product brochure sent by the bank is complicated (not easy for consumer to understand)
* the terms may be unfair to the consumer (as it is written on a one-sided basis)
* the consumer may overlook the charge on this statement (for something that is not needed).
I hope that businesses can be runned ethically to serve consumers, and not to make profit at the expense of consumers.
* the bank sends a letter to offer you a credit line
* if you do not want it, you have to tell the bank
* if you do not opt out, the bank offers it to you
* the charge is waived for the first year
* in subsequent years, the bank automatically add the charge to your account
* it is quite a hassle to remove this unwanted facility
I hope that the authority can act strongly to stop this practice. Here are some of the difficulties faced by the consumer:
* the product brochure sent by the bank is complicated (not easy for consumer to understand)
* the terms may be unfair to the consumer (as it is written on a one-sided basis)
* the consumer may overlook the charge on this statement (for something that is not needed).
I hope that businesses can be runned ethically to serve consumers, and not to make profit at the expense of consumers.
Tribute to Dr Goh Keng Swee
THIS WAS FIRST POSTED SIX MONTHS AGO. AS THERE ARE LETTERS IN THE NEWSPAPER ABOUT THE CONTRIBUTION OF DR GOH KENG SEE, I AM RE-POSTING THIS BLOG.
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I wish to pay tribute to one great man, whose vision led to the formation of NTUC Income. He is Dr Goh Keng Swee, finance minister of Singapore in 1970.
After NTUC Income was formed, he served as chairman of the board of trustees for 10 years and provided the strategic direction that led to our success. I met Dr Goh when I joined NTUC Income in 1977 and worked under him for two years.
Dr Goh also served in various capacities in the government, including education minister, defence minister and deputy prime minister. He retired from government service about 15 years ago.
Dr Goh is now over 90 years old. He has not been well for some time. I wish to say a big "thank you" to Dr Goh, on behalf of nearly two million policyholders and their families.
---------------------------------------------------------------------
I wish to pay tribute to one great man, whose vision led to the formation of NTUC Income. He is Dr Goh Keng Swee, finance minister of Singapore in 1970.
After NTUC Income was formed, he served as chairman of the board of trustees for 10 years and provided the strategic direction that led to our success. I met Dr Goh when I joined NTUC Income in 1977 and worked under him for two years.
Dr Goh also served in various capacities in the government, including education minister, defence minister and deputy prime minister. He retired from government service about 15 years ago.
Dr Goh is now over 90 years old. He has not been well for some time. I wish to say a big "thank you" to Dr Goh, on behalf of nearly two million policyholders and their families.
Get good value products from an adviser
A few visitors commented that insurance agents sell products that give them the highest commission. These products many not meet the needs of their clients.
When I was CEO of NTUC Income, I made sure that all the products are designed to meet the following:
* have modest loadings for commission
* offer good value to the customers
The insurance agents (advisers) from NTUC Income are able to recommend suitable products to their clients, with the knowledge that the products give good value and provide a reasonable level of earnings for their sales effort. They earn more, by increasing their sales productivity.
I am happy to recommend the insurance advisers and products from NTUC Income to the general public. I know that the consumers will get a good deal.
If you visit this website, you can compare the front-end load of the endowment and investment-linked products between NTUC Income and the other insurance companies.
A small number of consumers are savvy and can make their investments without the help of an adviser. They do not need to take my advice anyway. My tips are for the general consumers.
When I was CEO of NTUC Income, I made sure that all the products are designed to meet the following:
* have modest loadings for commission
* offer good value to the customers
The insurance agents (advisers) from NTUC Income are able to recommend suitable products to their clients, with the knowledge that the products give good value and provide a reasonable level of earnings for their sales effort. They earn more, by increasing their sales productivity.
I am happy to recommend the insurance advisers and products from NTUC Income to the general public. I know that the consumers will get a good deal.
If you visit this website, you can compare the front-end load of the endowment and investment-linked products between NTUC Income and the other insurance companies.
A small number of consumers are savvy and can make their investments without the help of an adviser. They do not need to take my advice anyway. My tips are for the general consumers.
Thursday, July 12, 2007
Voiding of warranty on car
COMMENT POSTED IN MY BLOG
I wonder how distributor workshop void warranty if car is not repaired in their workshop after an accident. Can warranty on engine be voided when repair is only on bumper? Wonder if any motorist's warranty has been penalised this way so far.
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REPLY:
The distributor state in their warranty, that the warranty is voided if any repair is done by a third party workshop.
I believe that the distributor will not be able to get away with voiding the warranty, when minor repairs are carried out at third party workshop which did not affect the parts of the vehicle that are covered by the warranty.
Although the distributor "threatens" to void the warranty, I believe that they have not done so for minor repairs. They have to act fairly and take care of their customer relations.
I wonder how distributor workshop void warranty if car is not repaired in their workshop after an accident. Can warranty on engine be voided when repair is only on bumper? Wonder if any motorist's warranty has been penalised this way so far.
-------------------------
REPLY:
The distributor state in their warranty, that the warranty is voided if any repair is done by a third party workshop.
I believe that the distributor will not be able to get away with voiding the warranty, when minor repairs are carried out at third party workshop which did not affect the parts of the vehicle that are covered by the warranty.
Although the distributor "threatens" to void the warranty, I believe that they have not done so for minor repairs. They have to act fairly and take care of their customer relations.
Insurance as a mutual arrangement to pool risk
Many people think of insurance as a legal contract. You enter into a contract with an insurance company. You pay a premium under the contract. The insurance company promises to pay you the specified payments under certain defined conditions. As the contract wordings are usually not clear, a dispute could arise quite often.
In the "old days", insurance was usually operated as a mutual arrangement. A large number of people join the pool. They agree to contribute towards the pool to compensate the members who suffered the defined losses. Usually, all the members are covered under the same benefits, which are generally understood through practice over the years.
The mutual arrangement is usually run as a non-profit. There are many advantages of the mutual arrangement (rather than a commercial contract) to take care of pooling of risks.
In some countries, the mutual arrangement is still strong. In most other countries, insurance are now being operated as "for profit" organisations.
In the "old days", insurance was usually operated as a mutual arrangement. A large number of people join the pool. They agree to contribute towards the pool to compensate the members who suffered the defined losses. Usually, all the members are covered under the same benefits, which are generally understood through practice over the years.
The mutual arrangement is usually run as a non-profit. There are many advantages of the mutual arrangement (rather than a commercial contract) to take care of pooling of risks.
In some countries, the mutual arrangement is still strong. In most other countries, insurance are now being operated as "for profit" organisations.
Invest in a low cost fund
When you buy term insurance, you still have to invest the difference in a suitable fund.
Look for a fund with low upfront fees and annual fees.
This website shows you the fees charged by various insurance companies on their investment-linked products. Most of the fees are far too high.
Look for a fund with low upfront fees and annual fees.
This website shows you the fees charged by various insurance companies on their investment-linked products. Most of the fees are far too high.
Ballet Under The Stars
Singapore Dance Theatre
Ballet Under the Stars
20 to 22 July
Fort Canning Green
Gates open from 5.00pm for picnic
Schools Performances from 6.30pm.
Main Performances from 7.30pm.
Renowned as one of Singapore’s most popular outdoor arts event, Ballet Under The Stars (BUTS) enters its 12th year and has attracted a diverse crowd with its casual, outdoor picnic setting. The informal setting has attracted families, gatherings and company outings to BUTS.
With its wide outreach, BUTS offers the perfect grounds to meet SDT’s objective of reaching out to the general public. SDT is offering schools a platform to showcase their works, thus gaining invaluable experience and exposure.
Find out more.
Ballet Under the Stars
20 to 22 July
Fort Canning Green
Gates open from 5.00pm for picnic
Schools Performances from 6.30pm.
Main Performances from 7.30pm.
Renowned as one of Singapore’s most popular outdoor arts event, Ballet Under The Stars (BUTS) enters its 12th year and has attracted a diverse crowd with its casual, outdoor picnic setting. The informal setting has attracted families, gatherings and company outings to BUTS.
With its wide outreach, BUTS offers the perfect grounds to meet SDT’s objective of reaching out to the general public. SDT is offering schools a platform to showcase their works, thus gaining invaluable experience and exposure.
Find out more.
Wednesday, July 11, 2007
Buy a low cost product
Hi Mr Tan,
Why do you advocate "buy term and invest the difference" and, at the same time, advise people to buy life insurance products? Are you contradicting yourself?
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REPLY:
There are two separate markets:
1. Those who are financially savvy can "buy term and invest the difference". They know how to select the right fund that have low cost.
2. For most ordinary people, they will find it more convenient to invest in a endowment or whole life policy. I advise them to buy a low cost policy (ie with a low margin for commission), rather than a high cost policy.
Lesson: Buy a low cost product.
Why do you advocate "buy term and invest the difference" and, at the same time, advise people to buy life insurance products? Are you contradicting yourself?
--------------------
REPLY:
There are two separate markets:
1. Those who are financially savvy can "buy term and invest the difference". They know how to select the right fund that have low cost.
2. For most ordinary people, they will find it more convenient to invest in a endowment or whole life policy. I advise them to buy a low cost policy (ie with a low margin for commission), rather than a high cost policy.
Lesson: Buy a low cost product.
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