insuranceFileIf the insurance business is saturated, shouldn’t Singaporeans be adequately insured by now?

For many people who join the insurance and financial planning business, they are frequently told by their relatives and friends that this industry is saturated, they know of at least 2 or three insurance agents or financial planners, assuming that everyone else is similarly crowded with such people.

The simple truth is that although there are many who join the business, there are more thaty fall out of the business. Since 2006, there is only a 1.2% increase (from 12,841 in 2006) in insurance agents. This is not in line with our population growth and wage increase numbers.

Another interesting fact is, according to national statistics, the average coverage of working adults is only $165,628 marginally up from $118,000 in Dec 07. A study done by Prof David Yee (NTU) commissioned by the Life Insurance Association, shows an average working Singaporean adult will need $495,000 protection against death. This points to gross under-insurance and a huge market for life insurance.

Study from Prof David Yee in Power Point Slide Show (prepare for long download)

The more scary issue is that when you look at what makes up the $118,00 of average coverage Singaporeans have, the bulk is from Dependent Protection Scheme $47,000, Company Group Insurance $47,000 and the remaining $20,000 or so as personal insurance!

Another look into this report is that the statistics used are based on an adult aged 40, of median family expenses of $40,819pa with one child and supporting one elderly parent or non-working adult. Which means if someone falls into a family of higher expenses from lifestyle, more children or elderly parents, they are at a even higher risk.

Any good financial planner, with a look at the report details also can tell you that this study is done on a very conservative estimate basis that under-estimates the actual protection needs required.

On the other hand, if somone is single, young and with no dependents will not actually need that much protection to start with.

A simple rule of thumb used is 10 times annual income. According to Prof David Yee, that number should be 11.3.

You would think that with about 13,900 (source: LIA) tied agents and approximately 3,400 FA representatives in Singapore, Singaporeans would have a higher protection sum by now. But the truth is that it’s not about how many agents or planners are there, it’s about two important issues:

  • Perception of Consumers about Life Insurance and
  • Selling practices of Insurance practitioners.

According to a consumer survey by Saffron Hill, consumers were:

  1. Largely ignorant (or choose to be) about how much protection they need and what they have
  2. Of those who think they are adequately insured had only $100,000 – $200,000
  3. Of those who are not inclined to insure more, 49% think it’s too expensive
  4. finally, there is a higher interest in investing and savings towards protection

As a practitioner I find the situation rather perplexing and saddening, especially when I see reports of how families suffer due to a lack of responsibility on the part of consumers to know more and of financial planners that do not take their role seriously.

Firstly, let me debunk the issue of “Too Expensive”. SAFRA and SAF group term policies insure their members for as little as $200pa per $100,000 coverage. That’s affordable even for a low income earner. Commercially available term policies may cost slightly higher at $300pa or $400pa depending on the entry age. Even then we are talking about just over $2,000 per year for $500,000 coverage. >> If you want high protection at low cost, go for term.

This issue about “costly” insurance could have been propagated partly by the focus on savings through endowment policies which is the worst in terms of protection to premium dollars. Judging by the number of endowment and investment cases, it seems that the industry has a tendency to recommend products that generate higher commissions instead of meeting the protection needs of the consumers.

This phenomena can be prevalent in road-shows where to entice people to save through endowments, they are even offered gifts. As far as I know term plans, and high protection plans are few and far between implemented at such events.

Enough about me bashing the industry, check out this report that is asking for the commissions structure to align clients interest and needs with the compensation to insurance advisers.

Would there be a shake-up in the industry? Let’s hope so for the good of consumers and the larger portion of us that provide objective and cost-effective advice.



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