Weighted regular premiums increased by 35% while, Health insurance sales fell 13%.

Banks accounted for 37% of sales (up 14%), a significant portion of which from single-premium endowments, while Financial Adviser (non-tied) distribution added 12%.

Other important statistics: Sales with partial or full Fact Find improved to 77%. Tied insurance agents numbers declined from 13,581 to 12,869.

Authors’ Comments:

While Financial Advisers (non-tied) portion of insurance sales remain fairly stagnant, the bank’s share of the insurance pie has significantly increased. With the observation of much revenue actually derived from Single-Premium endowments, you can see that the bank’s capture client base has a big potential for insurers, thus competition for FAs and tied-agents.

For practitioners, it’s important to note that sales involving partial or full fact-find has increased very significantly to 77%. Do you benchmark your practice to achieve this? More importantly, is the spirit of the fact-find: to have a reasonable basis of recommendation.

Original Article: Robust Q1 growth in life insurance sales,  Life insurance industry starts 2011 on a high note

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A study in year 2007, by the Life Insurance Association showed that the average Singaporean is under insured by an amount of $362,000. Mr. Goh believes this is a notion that comes from the average Singaporean that they cannot afford a full fledged insurance policy to cover their lives.

SM Goh has requested to the insurers to minimize the premium values so that more and more of Singapore’s citizens can be placed under the purview of personal insurance. Mr.Goh also requested the insurance companies to put more importance on the polices that offer pure protection such as the term insurance plans rather than the policies which are more costly like the whole life policies.

The suggestions given by Mr.Goh has created a bit of furor as the Strait times are carrying debate whether the insurers should do better by concentrating on offering policies which will provide more cover at reduced rates rather than offering policies which are more profitable for the insurers.

Mr.Goh’s comments also illustrated the relativity less popularity of term vs whole life insurance policies, with whole like policies backed with investment components are more popular with the average Singaporean. Over 47% of the total insurance policies had a investment element linked with it. Only 19% of the total insurance policies in force were term insurance policies. Mr.Goh also addressed the needs of the consumers by attracting their attention to the guides that are released by the MAS and the LIA for their benefits so that they can better understand what there individual insurance requirements are.

Consumers are becoming more aware that insurance does not need to be expensive and term insurance should form a major part of their insurance cover in order to ensure the family and dependents are taken care of in the event they are not around. They have also become more wary of agents who do not implement term policies, as they (1) may not be well-trained or (2) have intention to sell higher commission products.

Many agents are “brain-washed” that term has no cash values, and therefore you should always recommend either investment-linked or traditional life. The truth is that there is a place for term policies or a term rider, simply because for lack of budget, coverage will not be adequate otherwise.

Based on a NUS study, an average working adult should have at least 10 times income in coverage. Supposing a 35 year old male earns $100,000pa, he needs $1m cover. Typically a Singaporean spends 50% of income, uses another 25-30% for mortgage, 5-8% for tax, leaving only 15-25% for savings, investment and insurance.

$1m whole life policy would cost easily $25,000-$30,000, leaving little for investing. Life Policies generally only return 2-3% pa.

$1m investment-linked can be structured with $10,000, with just premium-recovery after 30 years. Still with little left for investing.

A more cost-effective way to plan would be to combine the merits of different types of insurance (even decreasing term), to manage the costs. Also directing spare budgets to recurring single premiums (as it is known to insurance agents) or RSP pure investments for financial planners with wrap platforms.

Any comments welcome from practitioners…

Original Article: 24 Nov 2010, Straits Times: Life Insurance Cover: 5^th in Asia

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I’m not bashing insurance agents here, but merely stating a fact, and trying to suggest ways to improve the quality of advice for practitioners.

Here’s the comments I posted in Straits Times Forum:

But agents exert powerful sway over buyer’s choice
SENIOR Minister Goh Chok Tong’s observations about keeping life insurance coverage affordable focused on the conventional practice of recommending whole life or savings plans instead of term insurance (‘Keep insurance affordable: SM Goh’; Oct 23).
This practice is evident in a finding published by the Life Insurance Association of Singapore, which stated that Singaporeans are under-insured by 67 per cent, or by as much as $329,223 based on average household expenses; when term insurance is, by contrast, far more affordable. One aspect of Mr Tan Kin Lian’s comments on Wednesday (‘Two key factors insurance buyers don’t know’) describes the inherent conflict of interest between a fatter commission and the consumer’s immediate protection needs.

Usually, if a proper financial needs analysis is done prior to making the sale, a buyer’s required insurance protection may well amount to hundreds of thousands of dollars. Instead, what usually happens in an insurance sale is that the recommended products, while meeting the buyer’s budget constraints, do not satisfy his protection needs.

In fact, private bankers or insurance agents who sell savings plans with embedded insurance protection often use the savings elements to attract and keep consumers to a long-term commitment of their budget, thereby depriving them of a future budget for protection needs and giving them the impression that insurance protection is costly.

If responsible advisers recommend term insurance, consumers can easily meet coverage needs without resorting to high-premium, low-coverage products like whole-life or endowments. Last Friday’s reply by Mr Jeffrey Tan, president of the Insurance and Financial Practitioners Association of Singapore (‘Choice of insurance plan hinges on affordability, buyer’s needs’), omitted an agent’s powerful influence on the client’s choice. There are three ways to better police recommendations:

• Agents should be trained to offer needs-based advice rather than just product advice.
• Conduct compliance checks on an agent’s recommendations to meet protection needs;
• Check whether a client who picks a savings plan over protection needs has been given a booklet which tells him about the benefits of term insurance within the free-look period, so he can reconsider his choice.

Brendan Yong

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These test ideas were initiated by the financial regulators and fielded to financial industry players for comments.  Now, these moves will be studied and implemented. The latest test rule was introduced after bank relationship managers were blamed for mis-selling the mini bonds of Lehman Brothers in 2008.

Misleading information by the bank managers was one of the factors, that led to investors losing millions of dollars in the the Lehman Brother’s debacle. These tests will set an example in banking industry and will aid to reform the banking sector to deliver fair outcomes for consumers.

Other changes were also mentioned in the Summit such as, a compulsory training sessions for bank directors and launching workshops to train the staff. These changes are sincere efforts to improve the growth of banking industry, while protecting consumers.

Author’s Comments:

The focus of regulators continue to be ensuring “fair dealing”. Whatever measures ultimately takes place, it’s very important for financial professionals in positions to advice clients on insurance and investment or other financial matters to ensure fair dealing. Wrongful advice given could eventually be tested against ethics above all.

In fact from my conversations with RMs, the compensation scheme also is being re-vamped to move away from revenue based to encompass more factors like: client service, compliance and assets management growth.

Update (27 Apr 2011):

As per my comment about the remuneration for RMs, it used to be personal/privileged bankers are paid a basic plus a commission, that is a percent of the total revenue they bring in, if they meet certain revenue targets:

1) product category related targets: unit trusts, bancassurance, currency, treasuries etc

2) product specific targets

From reliable sources, many banks have reduced the percentage of reliance on 100% on revenue dollars to include some allocation to customer service, compliance/documentation, asset management growth as well. And some have removed the product specific targets or the rarer: category targets as well.

This bodes well for the professionalism for the industry. With the RNF framework, errant RMs can also be blacklisted for inappropriate advice, instead of being able to move from bank to bank.

Original Article: 20 Apr 2010, Straits Times: Test for bank relationship managers

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This includes a proper remuneration framework for the sales staff, working on the training & supervision, better enhancement of the Sales and Advisory Process, conducting a better and more improved investment risk profiling and client suitability profile and providing a clearer and transparent product information for customers and clients alike.

The Monetary Authority of Singapore also stipulates that the management and the Directors can be held accountable for whatever failures are occurred while meeting these commitments. In the present case, The Monetary Authority of Singapore has helped in rectifying the flaws occurred by the three banks and put them back on track.

The Monetary Authority of Singapore is taking stringent measures to make sure that the banks work in a decorum set, and there’s no further fiasco and customer unrest as had happened with the DBS Bank, London-based Royal Bank of Scotland (RBS) and May bank. The probe initiated by the monetary authority of Singapore was a seven month probe and almost ten financial institutions had been found not passing the basic requirements and criteria’s. Some of the banks were badging controlled products with a lower risk of rating than what they had been warranted. They were given bans which ranged from a minimum of 6 months to a maximum of almost 2 years.

Consumers of today are becoming more proactive as far as understanding of their rights is concerned.  Protests by customers complaining they have been mis-sold complex structured products, raised investigations that uncovered banks failures in: Labeling structured products with a lower risk rating than they warranted, and failing to ensure that sales staff were adequately trained with accurate and complete information.

For Consumers: Do you know your rights as a consumer? Do you know what are the Fair Dealing Guidelines under the Financial Adviser Act?  Do you know how the banks have to deal with you in fairness, example a 3-day cooling-off period for investments and 7-day cooling period for insurance?

Implications for Financial Advisers:

Is your financial advice complying with Fair Dealing Act? Do you adopt a recognized Financial Planning approach like Certified Financial Planner, procedures? Email to find out more.

Original Article: 14 Feb 2010, Straits Times: MAS lifts ban on three banks

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The increase in complaints indicate that people have become more litigious. This trend should serve as a red flag for financial advisers too.

Consumers have increasingly become more aware of their rights, this is largely due to the Guidelines on Fair Dealing Act which was On 3 April 2009 by the Monetary Authority of Singapore (MAS). The Guidelines on Fair Dealing Act aim to achieve the following five fair dealing outcomes:

1. Customers have confidence that they deal with financial institutions where fair dealing is central to the corporate culture.
2. Financial institutions offer products and services that are suitable for their target customer segments.
3. Financial institutions have competent representatives who provide customers with quality advice and appropriate recommendations.
4. Customers receive clear, relevant and timely information to make informed financial decisions.
5. Financial institutions handle customer complaints in an independent, effective and prompt manner.

The Fair Dealing Act gives consumers the right to ask as many questions as they like regarding any financial product they might be inclined to purchase, until they are satisfied with the information they are given. The Fair Dealing Act protects the consumers against any false promises or claims by financial institutions the same way the lawyers involved in most complaints were not too careful with what they had promised their clients.

Implication to consumers:

The Fair Dealing Act empowers consumers to exercise their rights. However, in many cases, consumers fail to ask the right questions during the sales process. Also they may inadvertently sign off their rights to pursue action, when they sign off as needing only product advice or no advice needed.

Implication to financial advisers:

As far as possible, the financial situation of the client must be considered, otherwise there will be issues when it comes to complaints. The factors that could come to play:

1) Facts of the case: adequate disclosure, suitability of the product to client’s situation, objectives, risk profile etc.

2) Competency and track record of the adviser: not sales but financial advisory competency/record, example qualifications like Certified Financial Planner, or quality of advice, percentage of partial or full fact find. Obviously a adviser with mostly product advice will be frowned upon. LIA recorded average of 70% partial or full fact-find.

3) Clear, relevant and timely information: Especially if you deal with investments, the issue of being “timely” could give you a lot of trouble. I always execute sell-orders very fast. Imagine if the client’s $100,000 portfolio drops 3%, as you procrastinate, that’s $3,000 potential loss he/she can pin on you! Always document and keep emails, even SMS if necessary.

The importance of documentation, is to record all facts, disclosures of risks, remuneration etc, as required. If there is a complaint, ensure that it is handled promptly, and get your compliance department involved. They can advice on how to resolve the complaint.

Finally you should also get a Financial Professionals Professional Indemnity as soon as possible, either through your association or company.

Is your financial advice complying with Fair Dealing Act? Do you adopt a recognized Financial Planning approach like Certified Financial Planner, procedures? Email to find out more.

Original Story: 08 Feb 2010, Straits times: Complaints against lawyers on the Rise

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As customers become more affluent and discerning, competition for products become keener and information becoming easier to obtain, the expectation of customer service standards will rise. In the western developed countries, with a rich history, they have been through the phases and have come to embrace customer service standards as a key Strategic advantage.

In Singapore, one just needs to survey the job market for sales-staff, promoters and you will see many part-timers and people who are not well-trained. It also does not help that they are not necessarily well-paid.

Another aspect that is lacking is Management and Leadership in the company to adopt excellence in Customer Service as a key component of their business.

In the financial planning arena, as consumers have more choices, become more well-informed, they naturally start to compare. At first, price and value would be a concern. However, when there is a lack of differentiation or keener competition, it may boil down to customer service as one of the key strategic advantages.

This forces many Financial Advisers to reconsider their business model. Does their model rely on new clients’ business or retaining old clients? How well do they service their old clients? Is the longer-term strategy of excellent customer service  more profitable and yet have more time freedom in the long run?

Like it or not, the market is evolving, and eventually customer service standards will be one of the key sustainable factor for any Financial Advisory Business.

See articles on Customer Service standards:

“Customers today harder to please“, Straits Times 29 Oct

“Customer satisfaction drops again“, Straits Times 28 Oct

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The article is however unclear as to whether they are also providing financial advisory services as registered under MAS Financial Advisers Act.

Read it in this article here.

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Read the full article here.

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This means one less insurer for Financial Advisory firms who rely on a breadth of products to complete their suite of products. A quick check with some financial planners from these companies reveal that nnot many UOB products are not on the highly recommended lists. Information reveals that UOB Life’s competitive products are in the Mortgage Insurance and Single Premium Endowment plans (especially guaranteed interest types). The life insurer’s Life funds investments are also not amongst the best in the industry. You can say that their departure will not be missed.

To existing policy holders, they will be unaffected, just like when Keppel Insurance was bought by HSBC Insurance. The new insurer will honor the rights of the policy owners.

What about other insurers? Is there going to be any consolidation?

The next smallest life insurer in terms of local assets is HSBC Insurance, coincidently also the “non-core” arm of a bank.  The advantage is that HSBC has their own distribution arm. As to whether HSBC sees the insurance unit as a potential growth sector remains to be answered.

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