Truth about insurance payouts
POLICYHOLDERS across the Causeway may be getting more from their life insurance payouts upon surrender and maturity than Singaporeans. It involves a golden egg called 'asset share', which is the proportional share of the total life fund related to each policy (see 'What do they mean').
In Malaysia, regulation requires insurance companies to pay policyholders the asset share of their policies or close to it when they surrender their participating life policies.
'The rationale is to ensure fair treatment to policyholders,' explained Ms Nancy Tan, the executive secretary of the Life Insurance Association of Malaysia.
Similar codes of practice can also be found in countries like Britain and Australia.
But unlike what is required in Malaysia, insurance companies in Singapore are not compelled by regulations to pay back to their policyholders an amount close to the asset share.
The practice was held up to the public eye in June by The New Paper's columnist, Dr Larry Haverkamp ( Dr Money). It has since created more waves.
More are now asking: Why is this not the case in Singapore?
Mr Tan Kin Lian, the former chief executive of NTUC Income, believes Malaysia's practice is 'fair to policyholders'.
The current regulation here is not enough to ensure that policyholders get a fair distribution of bonuses, he said.
Current Monetary Authority of Singapore (MAS) regulations require the bonus distribution to be recommended by each insurance company's appointed actuary and approved by its board of directors.
It also requires the insurance company to have a detailed document which lists the principles on which the distribution is based.
Complicated
'There is an underlying assumption that the life insurance company and its management will act fairly in distributing the bonuses based on the actual experience of the life fund,' said Mr Tan.
But the actual payouts to policyholders of terminated and matured policies appear to be far short of what Mr Tan believes should be the amount.
He said that the cash value given to a policyholder upon termination is much less than the asset share.
And what is the value of the policyholder's asset share?
Life insurance companies simply do not disclose this to policyholders. And for policyholders who keep their policies to the maturity date, there is no guarantee that their payout will be close to their asset share either, said Mr Tan.
Their actual payout is based on the sum assured plus annual bonuses plus terminal bonus.
'The terminal bonus is calculated in a complicated way, and varies for different groups of policyholders, based on many criteria,' he said.
'There is no way that the policyholder can know if they are getting a payout based on the asset share, even on maturity.'
Mr Nick Rhodes, NTUC Income's former appointed actuary, explained that there may be some controversy over how asset share is calculated.
This is because paying back full asset shares on life insurance and endowment policies would make them behave like investment-linked policies.
'In the UK, for this type of with-profit policies, we calculated a smoothed asset share. If the market goes up suddenly, the asset share doesn't go up as fast, and vice versa when the market goes down.
'This is fine-tuning. Different companies may do different things, but they should be open about what they are doing.'
Mr Tan went one step further and argued that insurance companies should disclose the individual asset share to policyholders.
Ms Tan said that Malaysian regulations were developed from the best practices in other countries and adapted for local practices.So, what is the response of Singapore insurers?
The New Paper contacted the top four life insurers, NTUC Income, AIA, Great Eastern Life and Prudential, for their views.
They did not respond individually. Instead, the Life Insurance Association (LIA) returned with a collective response. It said it believes 'there are adequate requirements in place for managing par business'.
LIA's executive secretary, Ms Pauline Lim, said: 'Asset share is an actuarial tool which is used by some insurers to determine policy values. The emphasis is on 'tool' ? it is one, but not the sole consideration in determining policy values.'
She pointed out that under MAS guidelines, insurers have to put in place policies to determine how bonuses are determined.
These include risk sharing rules, determination of asset backing participating products and reserving for future bonuses.
Other observers say whole life and endowment policies are to meet long-term financial needs and it wouldn't be wise to pay out the entire assets on early withdrawal.
The Singapore Actuarial Society thinks it is good to calculate asset shares, not of each policy but on the broad asset share of policy groups.
Its president, Mr Frank McInerney, said: 'The calculation of asset shares is only one of a number of investigations the appointed actuary will carry out before making a bonus recommendation to the Board.'
On whether information on asset shares should be made public, he said it was an issue for individual companies to decide.
POLICYHOLDERS across the Causeway may be getting more from their life insurance payouts upon surrender and maturity than Singaporeans. It involves a golden egg called 'asset share', which is the proportional share of the total life fund related to each policy (see 'What do they mean').
In Malaysia, regulation requires insurance companies to pay policyholders the asset share of their policies or close to it when they surrender their participating life policies.
'The rationale is to ensure fair treatment to policyholders,' explained Ms Nancy Tan, the executive secretary of the Life Insurance Association of Malaysia.
Similar codes of practice can also be found in countries like Britain and Australia.
But unlike what is required in Malaysia, insurance companies in Singapore are not compelled by regulations to pay back to their policyholders an amount close to the asset share.
The practice was held up to the public eye in June by The New Paper's columnist, Dr Larry Haverkamp ( Dr Money). It has since created more waves.
More are now asking: Why is this not the case in Singapore?
Mr Tan Kin Lian, the former chief executive of NTUC Income, believes Malaysia's practice is 'fair to policyholders'.
The current regulation here is not enough to ensure that policyholders get a fair distribution of bonuses, he said.
Current Monetary Authority of Singapore (MAS) regulations require the bonus distribution to be recommended by each insurance company's appointed actuary and approved by its board of directors.
It also requires the insurance company to have a detailed document which lists the principles on which the distribution is based.
Complicated
'There is an underlying assumption that the life insurance company and its management will act fairly in distributing the bonuses based on the actual experience of the life fund,' said Mr Tan.
But the actual payouts to policyholders of terminated and matured policies appear to be far short of what Mr Tan believes should be the amount.
He said that the cash value given to a policyholder upon termination is much less than the asset share.
And what is the value of the policyholder's asset share?
Life insurance companies simply do not disclose this to policyholders. And for policyholders who keep their policies to the maturity date, there is no guarantee that their payout will be close to their asset share either, said Mr Tan.
Their actual payout is based on the sum assured plus annual bonuses plus terminal bonus.
'The terminal bonus is calculated in a complicated way, and varies for different groups of policyholders, based on many criteria,' he said.
'There is no way that the policyholder can know if they are getting a payout based on the asset share, even on maturity.'
Mr Nick Rhodes, NTUC Income's former appointed actuary, explained that there may be some controversy over how asset share is calculated.
This is because paying back full asset shares on life insurance and endowment policies would make them behave like investment-linked policies.
'In the UK, for this type of with-profit policies, we calculated a smoothed asset share. If the market goes up suddenly, the asset share doesn't go up as fast, and vice versa when the market goes down.
'This is fine-tuning. Different companies may do different things, but they should be open about what they are doing.'
Mr Tan went one step further and argued that insurance companies should disclose the individual asset share to policyholders.
Ms Tan said that Malaysian regulations were developed from the best practices in other countries and adapted for local practices.So, what is the response of Singapore insurers?
The New Paper contacted the top four life insurers, NTUC Income, AIA, Great Eastern Life and Prudential, for their views.
They did not respond individually. Instead, the Life Insurance Association (LIA) returned with a collective response. It said it believes 'there are adequate requirements in place for managing par business'.
LIA's executive secretary, Ms Pauline Lim, said: 'Asset share is an actuarial tool which is used by some insurers to determine policy values. The emphasis is on 'tool' ? it is one, but not the sole consideration in determining policy values.'
She pointed out that under MAS guidelines, insurers have to put in place policies to determine how bonuses are determined.
These include risk sharing rules, determination of asset backing participating products and reserving for future bonuses.
Other observers say whole life and endowment policies are to meet long-term financial needs and it wouldn't be wise to pay out the entire assets on early withdrawal.
The Singapore Actuarial Society thinks it is good to calculate asset shares, not of each policy but on the broad asset share of policy groups.
Its president, Mr Frank McInerney, said: 'The calculation of asset shares is only one of a number of investigations the appointed actuary will carry out before making a bonus recommendation to the Board.'
On whether information on asset shares should be made public, he said it was an issue for individual companies to decide.
