Alvin Soong’s Blog

This chart is to show the cash adequacy of each insurance companies(TMasialife, NTUC INCOME. AIA, Prudential). Please right click to view:
mas-form-23-from-a-few-life-ins-companies-3.pdf

The recent flash floods have been a wake-up call for Singaporeans, particularly those who have ignored the importance of insuring their properties, businesses, building contents and cars against flood damage. The General Insurance Association of Singapore (GIA) does not have figures for the more recent floods. But for floods that occurred on June 16, the number of claims has risen to 159 for property damage and business interruption so far, with an estimated total claim amount of $4.2 million. There are another 103 motor claims due to flood damage, amounting to $3.8 million.

These claims have kept loss adjusters such as claims service provider Crawford & Company International very busy in recent weeks. The firm investigates and validates claims when insurers approach it for help.

Because of the frequency and magnitude of the recent floods, those living in flood-prone areas have been warned of a potential rise in future premiums and deductibles in property and motor insurance. A deductible is the portion of a claim that the policyholder has to bear before the insurer pays any benefits. Here are some considerations:

1 Get suitable flood coverage
For home owners, you should consider a fire insurance plan that is extended to cover other perils which include flooding. The other commonly included perils are bursting or overflowing of water tanks or pipes, lightning, explosions, theft, hurricanes, cyclones, earthquakes and riots. In addition, the insurer may provide other benefits such as the payment for removal of debris and alternative accommodation or loss of rent.

For property owners, fire policies are usually required by the bank where the mortgage loan is taken. This type of policy is meant to cover the cost of rebuilding the building if it is destroyed or repair of the damage in the case of a damaged building. However, it does not cover the renovations and contents of the building.

This is where another type of insurance called contents insurance comes in handy. You can protect your household contents such as furniture, electrical appliances and personal possessions against the same perils as under the fire policy or under ‘all risks’. The latter covers the insured for all perils other than what are specifically excluded such as theft and malicious damage or vandalism.

GIA encourages business owners to buy a business insurance package which includes business interruption cover. The latter insures the business owner against loss of income when the business comes to a standstill due to the damage. The package can be insured under ‘fire and perils’ or ‘all risks’ and the premium calculation takes into account the firm’s turnover. After the floods on June 16, many operators at Lucky Plaza realised that though they had bought fire insurance, which typically includes flooding, some had unfortunately neglected to include the contents and business interruption cover because of the additional premiums. As a result, their damaged goods and any loss of business would not be covered.

Insurers usually provide flood damage cover at no additional charge, except in locations with a history of damage. In such cases, an additional loading may be imposed, said GIA. Some insurers may apply a deductible. Depending on the policy, it starts from $200 for home insurance and $500 for business insurance.

If you are a car owner, go for comprehensive cover so that damage to your own car is covered. Like most property policies, flood protection for vehicles is currently included free.

2 Declare your past claims experience
GIA said it is in the customer’s best interest to honestly declare to the insurance firm his past claims experience. This is because failure to do so may prejudice a future claim and insurers may repudiate liability as a result. Insurers may even choose not to insure the risks if the past claims experience is unfavourable.

3 Understand the basis for claims settlement Ensure that you cover all your property and that the sum insured is adequate. If you underinsure, insurers will apply the principle of ‘average’ which means you are unable to claim fully. Know what the deductibles are for flood, if any, in your plans.

In addition, do bear in mind that there are a few ways that insurers can rectify your loss or damage. They are: cash payment, repair, replacement and reinstatement. GIA said that the policies would cover an insured property against flood up to the replacement value, which is the value of the property after deducting wear and tear.

For home insurance, some policies cover new for old, that is, without deduction of wear and tear. Some insurance policies exclude or apply a per article limit on valuables such as works of art, jewellery and musical instruments unless they are declared specifically to the insurer.

4 Maintain an inventory list of contents
It is prudent to make a list of your home contents or goods in your shop or restaurant. it is advisable to home owners and business owners is to start documenting what they have. In the event that insured items are damaged or lost, the inventory list will come in handy.

5 Do not throw damaged items away
Some people think that just because they have insurance, they can throw away their damaged items and expect cash payments or item replacements from the insurer. Well, think again. Policyholders are required by the policy contract condition to ‘take reasonable and necessary’ precaution to mitigate their loss. This means that if the contents or goods can be dried and cleaned, the insurer would expect you to do so and pay you for the labour cost of cleaning. Therefore he cautioned policyholders against throwing away stock without an insurer’s approval.

‘Don’t throw away goods that are still in good condition. Instead, get your staff to clean them and include a time sheet for that labour cost,’ said Mr Chan, chairman of GIA. After all, if you had no insurance, you would in all likelihood try your best to save your goods by drying them if possible. For instance, a shop owner selling sandals that are kept in individual plastic packaging can still try to salvage the sandals, assuming it is only the packaging that was damaged.

Another way of mitigating the loss is for the insurer to pay the claim and then try to sell the damaged stocks which still have value. The amount realised by the insurer will help to make up in part for the claim it has paid out.

6 Services provided by restoration specialists
Insurers also mitigate their losses by using the services of restoration specialists. By using a dehumidifier, the specialist was able to extract the water and moisture from underneath the furniture and fittings after a day or more. This helps to mitigate the damage claim as there is no need for the shop owner to tear out and replace the shop’s flooring. Failure to do so may lead to the wooden floor deteriorating and to the growth of termites.

7 Move your contents and goods to a higher level
As most of the flooding incidents take place in the early morning like 3am to 4am, it is prudent to transfer your goods to a higher level before you close your shop for the day. Said GIA: ‘To avoid large losses, they should place property that is prone to water damage at a higher level. Do not use carpet or parquetry for flooring.’ Move your stocks to an elevated area before you close shop and take them down again when you open your store.

8 Check your gutters and drainage
Mr Chan warned that it is not just street-level flooding that people need to be aware of but also flooding caused by water from the rooftop.

He explained that roof gutters are designed to contain a certain level of rainwater. This means that in the event of unusually heavy rainfall, water in the gutter may overflow. It becomes a double whammy if there is debris like dead leaves on your roof which will clog the downpipe. This may lead to water flowing back to the building and damaging the contents. This was what happened to a shophouse in Serangoon which had its store area destroyed because the gutter water overflowed into the shop.

Info. summarised and extracted from Sunday Times 24th July 2010 on “Rising Waters, Rising Worries”

This is an article from Straits Times 24th July 2010 that creates awareness for public. Please choose your financial planner wisely.

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After taking ‘free’ first-year cover, many AXA customers dropped out. INSURER AXA Life is seeing red after one of its distributors offered free insurance cover for the first year as a gimmick to attract customers. With no premiums to pay for a year, many signed up. The problem is that customers did not renew the policies once the first free year ended.

But in the meantime AXA paid the distributor, financial advice firm

Finexis

, millions of dollars in sales commissions and bonuses for marketing the product. Now, AXA is trying to claw back more than $7 million of this money, according to market sources. Amid the dispute, AXA’s Singapore chief executive Gilbert Pak resigned with immediate effect on Thursday. He had been at the insurer since October 2008. According to AXA, Mr Pak cited personal reasons for his departure.

The product sold, FutureProtector, is a term insurance plan that provides cover in the event of death or total and permanent disability for a set period ranging from five to more than 15 years.

In a bid to boost sales, Finexis, which has about 500 advisers, last year effectively gave away the product for free by marketing it at steep discounts of up to 100 per cent off first-year premiums. Sources say the discounts have dropped to 50 per cent since April. Despite the huge discounts, the transactions were still profitable to Finexis, as the substantial sales attracted millions of dollars in commissions and volume bonuses from AXA.

However, the plan backfired when the aggressive selling led to a high lapse rate once the first year was up.

Industry players are concerned over whether proper ‘needs-based selling’ was carried out to ensure that such products matched customers’ financial needs.

Life Insurance Association (LIA) president Tan Hak Leh said while there is no specific regulation on commissions and discounts, the LIA does not condone the use of these kind of rebates as an inducement or basis for a purchase. Both LIA and the Monetary Authority of Singapore (MAS) said that advisers are required to have a reasonable basis for making investment product recommendations to customers.

‘They should not unduly influence the financial decisions of customers by offering rebates,’ said an MAS spokesman.
It is believed AXA’s previous deal with Finexis for the FutureProtector included a first-year commission of 117 per cent to advisers plus another level of commissions called volume bonus to the firm for satisfying sales quotas.

This means that even if FutureProtector was given free for the first year to customers, Finexis and its advisers could still earn some commission. One market observer said the first-year commission that can be earned from selling this product is now 93.6 per cent. Sources say AXA is unhappy with the high policy lapse rate and is demanding that Finexis return the sales commissions plus volume bonuses.

When contacted, AXA said it does not disclose details of its commercial terms and business arrangements. It said an appropriate level of term insurance protection is the foundation of comprehensive financial plans, and wants to ensure customers’ needs are fully met.

However, Mr Patrick Lim, associate director at financial advice firm PromiseLand Independent said the FutureProtector is not even on its recommended product list, as the rates are not competitive when compared to similar products. For instance, Mr Lim said, for a sum assured of $500,000, the annual premium imposed by FutureProtector for a male, non-smoker, aged 30, is $730. Rival insurers such as Aviva and TM Asia Life charge lower premiums of $470 and $515 respectively for similar cover. He said his firm does not give discounts.

MAS said it expects advisers to ensure that their investment product recommendations are needs-based and that they meet MAS’ guidelines on fair dealing.

It has also issued guidelines requiring financial advice firms to put in place systems and processes to monitor and deter improper switching activities. It will not hesitate to take appropriate regulatory action against financial institutions which contravene its requirements.

Mr Tan added that LIA members are committed to probe any policy lapse that could adversely affect policyholders’ interests, and to take appropriate action. When policyholders ask to terminate a policy, LIA members are required to warn them of the disadvantages of doing so.

I was at the Phuket Conference recently to share with some of the attendees who are doing investments back in Malaysia. I realised they might not have strategies to do their investments rebalancing for their clients. It inspires me to write this short blog.

There are various ways to look at rebalancing one investments for my clients. These are the approaches I took:

1. Top Down Approach
This means getting the big picture first and then drilling down to individual stocks. You may be considering demographics and population trends. You may also be looking for clues about the strength and direction of the economy, taking into account indicators such as interest rates, employment and inflation.

The flaw is if your analysis is wrong, your portfolio may be underexposed to certain sectors and you could miss out on an opportunity.

2. Bottom-up approach
The investor zeroes in on the best companies regardless of how the economy is doing. He concentrates on the fundamentals of the company - its sales growth, profitability, cash flow, debt ratio, price-earnings valuations and dividend payouts, among other variables. He then compares the company’s financials with those of its peers to decide which stock offers more bang for the buck.

The flaw is if you were to ignore major economic trends and to look only at a company, it is more vulnerable to upheavals than the investor believes.

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The best way is to marry both methods together, as there are other factors, including one’s investment objectives and time horizon. I would then meld them into a system that makes sense to them.A great investment approach is like a road map that can be simple.

If you have investments that currently likes to be reviewed, you can drop me an email at asoongch@gmail.com

A lot of people do not realise that our home loans need to be insured too.Mortgage insurance offers decreasing coverage over the duration of your policy to align itself with your outstanding mortgage loan. Cover can also be extended to cover permanent disability, critical illness and unemployment.

Aviva’s MyProtector Mortgage in some of its schemes, thereby protecting its customers in the event of death, total and permanent disability and critical illness. Although the insurance does not come free, it saves home owners the hassle of looking for their own mortgage insurance. Experts believe mortgage insurance is an important part of an overall financial plan.

The family can pay off the housing loan in a lump sum or continue the mortgage instalments. In this case, there is a surplus of insurance proceeds over the outstanding loan which the family can use for their needs. If there had been no policy, the family could have lost their home if they were unable to meet the loan repayments. This type of policy is widely available from most insurers and contains a feature of reducing insurance cover over a period of time.

Mortgage insurance is not to be confused with fire insurance which the banks do require home loan customers to take up, and this may be provided free by the banks in the first year.

Tips on mortgage insurance
1. The amount of cover
Aviva suggests that consumers should consider if they already have existing insurance plans that can cover the outstanding mortgage loan liabilities before buying mortgage insurance.

Some people may decide to buy mortgage insurance to cover a portion of the loan amount as they may have other insurance or other means to meet repayments if needed, said Mr Ng, a mortgage specialist. ‘But if you do not have any other funding source, it is best to cover 100 per cent of the loan amount instead,’ he added.

Another consideration is whether you want to be covered for just death or to include total and permanent disability, terminal illness and critical illness as well.

2. Buy on a joint life basis

If you own a property jointly with another person, it is prudent to get mortgage insurance on a joint life basis so that it pays out the sum assured if either owner dies. Getting a separate insurance cover for each owner would result in a much higher premium, said Mr Ng.

3. Buy early

The older you are, the higher the premium you have to pay.

For example, a 20-year $500,000 mortgage reducing term assurance plan will cost a male property owner aged 50 an annual premium of $2,305. The same policy will cost a 40-year-old male just $814 in annual premiums. The difference of $1,491 is the cost of a 10-year procrastination, Ms Anne from OCBC Wealth Management added.

4. Interest rate assumption
The sum assured and the time period of a mortgage reducing term assurance plan are usually matched to the mortgage loan amount and tenure. As the coverage is on a reducing basis, how fast or slowly the loan reduces over time is based on the assumed loan interest rate, which is decided at the inception of cover.

Mr Ng suggests that policyholders assume 4 per cent so that the sum assured will be reduced at a slower pace than a lower interest rate. If the interest rate is assumed too low, there is a risk that the insurance proceeds might not be enough to pay off the outstanding loan.

5. Guaranteed premiums
It is worth checking if the annual premiums are guaranteed upon renewal, said Mr Lim. He noted that in the case of AIA’s mortgage reducing term assurance plan, the product summary states that the premiums are not guaranteed. But this is not the norm as the premiums for the basic mortgage plan are usually priced to be non-reviewable and guaranteed.

6. Check the supplementary benefits
One area of concern is the cap on benefits such as total and permanent disability. Mr Patrick Lim, another expert pointed out that permanent disability is capped at $2 million at AXA Life but $3 million at AIA. Another consideration is when the benefits expire. For most insurers, the total and permanent disability benefit expires on the policyholder’s 65th birthday.

Aviva’s MyProtector Mortgage extends the benefit expiration to just before the 70th birthday. At Overseas Assurance Corp (OAC), it is the 66th birthday, said Mr Lim.

Also, check the definition of what constitutes total and permanent disability and whether the payout comes in a lump sum or as instalments spread out over a few years. Lump sums are better. Most experts recommend that consumers go for a mortgage cover that offers to waive the premiums if the insured is diagnosed with critical illness.

7. Other home-related insurance covers
Besides mortgage insurance, home owners should consider fire insurance that covers the building structures, and home contents insurance. The latter also covers personal belongings that are taken outside the home like hi-fi systems, said the General Insurance Association of Singapore.

8. Don’t burden family members
Our home is most likely our biggest purchase and financial commitment in our lifetime. It is important to ensure that, in the event of unforeseen circumstances, our family members will not be burdened with the cost of outstanding home repayments, or worse, face the possibility of having to sell their home.’ An expert from AVIVA said

Disclaimer:
Names are truncated to ensure objectivity of this article. Points are summarised from Sunday Times 18th July 2010