Good healthcare system
Singapore has one of the best healthcare systems in the world. Reasons commonly given include:
(i) large degree of emphasis on the individual (or the individual's employer) to take responsibility of the individual's health care; and
(ii) a stable political system.
(http://www.watsonwyatt.com/europe/pubs/healthcare/render2.asp?ID=13850)
Some of the ‘compulsory’ elements in the Singapore healthcare system are undoubtedly the most important ones. As Watty describes , “[i]n practice, Medisave covers approximately 85 per cent of Singapore’s population.” (link) Furthermore, both Medishield and Eldershield cover very serious illnesses. Compulsory annuities are also set to play an important role in Singapore's healthcare system.
underinsured
However, it is often said that Singaporeans are underinsured.
As Mr Low Kwok Mun, Executive Director (Insurance Supervision Department), MAS , recently described,
http://www.mas.gov.sg/news_room/statements/2008/Speech_by_Mr_Low_Kwok_Mun_at_LIA_Annual_Luncheon.html
reasons
One important reason why Singaporeans are underinsured is the tendency to purchase costly investment linked insurance products instead.of a cheaper term insurance.
Singapore has one of the best healthcare systems in the world. Reasons commonly given include:
(i) large degree of emphasis on the individual (or the individual's employer) to take responsibility of the individual's health care; and
(ii) a stable political system.
(http://www.watsonwyatt.com/europe/pubs/healthcare/render2.asp?ID=13850)
Some of the ‘compulsory’ elements in the Singapore healthcare system are undoubtedly the most important ones. As Watty describes , “[i]n practice, Medisave covers approximately 85 per cent of Singapore’s population.” (link) Furthermore, both Medishield and Eldershield cover very serious illnesses. Compulsory annuities are also set to play an important role in Singapore's healthcare system.
underinsured
However, it is often said that Singaporeans are underinsured.
As Mr Low Kwok Mun, Executive Director (Insurance Supervision Department), MAS , recently described,
“According to a NTU study commissioned by LIA in mid-2006, the average Singaporean working adult is under-insured by nearly 75%. This means that should the average adult pass away prematurely, the payout from his insurance policies will only cover 25% of what the surviving members of his family require for their expenses and living needs.”
http://www.mas.gov.sg/news_room/statements/2008/Speech_by_Mr_Low_Kwok_Mun_at_LIA_Annual_Luncheon.html
reasons
One important reason why Singaporeans are underinsured is the tendency to purchase costly investment linked insurance products instead.of a cheaper term insurance.
Mr Low, in his speech, described why this is the case. Firstly, he said people “mistakenly believe that by purchasing these products, they are adequately protected even though such products have relatively low protection coverage.”(link)
Another reason given is “the product which the insurance adviser would be more keen to push would naturally be determined by the amount of sales and thus the total commissions that he could hope to receive.”(link)
Thirdly, “[t]he way in which many insurance products are currently designed and marketed does not provide the consumer with any idea of the proportion of premiums paid that is used to purchase protection coverage.” (link)
Another reason given is “the product which the insurance adviser would be more keen to push would naturally be determined by the amount of sales and thus the total commissions that he could hope to receive.”(link)
Thirdly, “[t]he way in which many insurance products are currently designed and marketed does not provide the consumer with any idea of the proportion of premiums paid that is used to purchase protection coverage.” (link)
(Hey, now we know why some people really dislike some insurance agents)
proposed solutions
As part of the ongoing MAS policy to educate the public of the availability and attractiveness of term insurance, Straits Times had a report in moneysense recently. (Lorna Tan, Finance Correspondent, Why I became a convert to term insurance) She wrote,
“Once upon a time, I was no different from other Singaporeans who pooh-poohed the idea of buying a term cover. Back then, it did not make sense to me that I would not get anything back from the insurance premiums that I had paid. It was like throwing money down the drain. Only in the past few years have I become a term life convert. I realised I was putting the cart before the horse. I was mixing investment needs with protection needs and when they were bundled together, my priorities became clouded.” (link)
Apart from ‘educating the public’ in this fashion, MAS plans to ‘promote greater transparency in product disclosures’ and will like to get the insurance companies to ‘re-think their business strategy.’ (link)
doubts
I wonder how many people who read moneysense do not already know that term insurance is a better proposition than an investment linked insurance product. Can 'educating the public', and getting the industry to rethink the business strategy really work? Does the state have so much influence on the insurance companies? Furthermore, how does MAS intend to promote greater transparency in product disclosures and to get rethink insurance companies to ‘re-think their business strategy’ when the incentive of the agent is to sell the product which gives him or her more commission.
Perhaps if we can make a new rule which makes it mandatory for an insurance agent to tell us exactly how much of our money goes to a) the investment linked funds (and the commission charged), b) the term insurance component (and the commission charged) c) the expected coverage and returns respectively, we might be able to make a better choice. But I cannot imagine that this will be easy to enforce if insurance agents (and their companies?) have a greater incentive to not provide such information.
A suggestion
Indeed, if term insurance is good for Singaporeans, why don’t the state enter the term insurance business themselves and make it compulsory (ahem)? We already have Medisave/Medishield. Extending the Medisave/Medishield by increasing the premiums vis-à-vis the CPF to cover death does not seem too complicated. Private insurers can then be compelled in this fashion to provide disclosure and competitive prices in order that they might be ‘eligible’ to compete side by side with a public plan, and people should have the option to opt out of the public plan, and elect a private one. This will be easier to enforce as the state provide a minimum standard and act as gatekeeper. CPF had previously managed to come up with the various criteria for funds to be part of the CPF investment scheme, and I believe they have the capability to do so for term insurance. (However, this suggestion will be unpopular with Singaporeans consider the debate surrounding the compulsory annuities)
doubts
I wonder how many people who read moneysense do not already know that term insurance is a better proposition than an investment linked insurance product. Can 'educating the public', and getting the industry to rethink the business strategy really work? Does the state have so much influence on the insurance companies? Furthermore, how does MAS intend to promote greater transparency in product disclosures and to get rethink insurance companies to ‘re-think their business strategy’ when the incentive of the agent is to sell the product which gives him or her more commission.
Perhaps if we can make a new rule which makes it mandatory for an insurance agent to tell us exactly how much of our money goes to a) the investment linked funds (and the commission charged), b) the term insurance component (and the commission charged) c) the expected coverage and returns respectively, we might be able to make a better choice. But I cannot imagine that this will be easy to enforce if insurance agents (and their companies?) have a greater incentive to not provide such information.
A suggestion
Indeed, if term insurance is good for Singaporeans, why don’t the state enter the term insurance business themselves and make it compulsory (ahem)? We already have Medisave/Medishield. Extending the Medisave/Medishield by increasing the premiums vis-à-vis the CPF to cover death does not seem too complicated. Private insurers can then be compelled in this fashion to provide disclosure and competitive prices in order that they might be ‘eligible’ to compete side by side with a public plan, and people should have the option to opt out of the public plan, and elect a private one. This will be easier to enforce as the state provide a minimum standard and act as gatekeeper. CPF had previously managed to come up with the various criteria for funds to be part of the CPF investment scheme, and I believe they have the capability to do so for term insurance. (However, this suggestion will be unpopular with Singaporeans consider the debate surrounding the compulsory annuities)
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