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Insurance firms must be made to justify higher premiums: TODAY voices

A reader of TODAY wrote in to the publication regarding his thoughts about the increase in insurance premiums:

I see two current issues regarding insurance that impact cost of living. One is the wide range of premiums for health insurance offering similar hospitalisation coverage and the ability of insurers to hike premiums by a large quantum upon renewal.

He is quite astute to note that the cost of insurance policies does impact cost of living — significantly so, I might add. I get this feeling that most Singaporeans do not seem to notice this fact at all, seemingly buying policies without much thought or research, perhaps out of a misplaced trust in the person selling them these policies. When it comes to increasing food prices or transport fares, the same people are understandably upset at the rising costs of living, but they seem oblivious to the fact that a bad insurance portfolio can cost them so much more over their lifetimes.

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When Boyfriends Give Bad Financial Advice

I’ve had a few friends who went through breakups with their significant others over the past year, and incidentally, two of them had boyfriends who are in the financial advisory industry. Coincidentally, both are from the same Licensed Financial Advisory (LFA) firm. While better than tied insurance agents because of their capacity to recommend a good and proper financial portfolio, I regard this company (like many others, actually) to be a sales-focussed firm. They even made the newspaper for certain dubious business practices.

I have always been curious about the kind of recommendations my friends’ boyfriends would give them, and I have not had the opportunity to find out until their break ups. I was shocked but perhaps not entirely surprised to see that both had poorly constructed financial portfolios. One of them was underinsured and encumbered by the monthly premium obligation. The other was quite adequately insured but at a high cost, and her investment portfolio consisted largely of endowment and investment-linked policies that had very high charges compared to the alternatives I can think of. She too could not keep up her premium obligations despite having a relatively well-paying job. Both of them eventually lapsed some policies as they could not keep up with the high financial obligations.

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Keep Commission Model, Say Financial Advisers, Managers

A friend highlighted this article to me a few days ago and I had quite a reaction to it.

The following are quotes from the article (bold emphasis added by me) and my comments:

An ad-hoc alliance of about 15,000 financial advisers and managers are hoping to sway a review panel, which is considering, among other things, doing away with the commission model that most insurance and financial advisory firms use.

It is entirely expected that all 13,000 tied agents would fight tooth and nail against the ban of commissions. Why? It’s simple – nobody would want to pay a fee to a person who is a sales representative of a product manufacturer. The old model worked because it was merely the transaction of products – advice is given “free” and the client will take up the product if he is persuaded enough, earning the agent commissions. The other 2,000 advisers probably come from financial advisory firms which are new-age financial sales agencies, just that they have more products to sell.

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Oversupply of Financial Practitioners And Its Effects

Singapore has a population of about 5 million while the number of practitioners in the financial advisory industry can be estimated to be about 20,000 to 30,000. This includes tied insurance agents, Financial Adviser firm representatives and banks’ financial services personnel. It is a considerably large number for our population size. How so?

Let’s look at how we compare to other countries:

Country Population No. of Advisers1 Ratio
United States 311,000,000 310,000 1,003:1
Australia 22,000,000 18,000 1,222:1
United Kingdom 62,000,000 20,000 3,100:1
New Zealand 4,430,400 1,963 2,257:1
Singapore 5,183,700 20,000 259:1

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