Dialogue with annuitants

I held a dialogue with our annuitants. 400 people attended.

We discussed the various series of annuities issued by NTUC Income during the past years. There was a lively Q&A session. It went well.

I told the annuitants about how the annuity pool works. All of the annuity investments are put into a pool. We invest the pool prodently to earn a fairly attractive return. Most of the surplus are used to declare bonus to the annuitants.

When we declare the bonus, our aim is to be fair to all parties. Annuitants who bought the annuity earlier and enjoyed a higher guaranteed return, will earn a lower rate of bonus. The annuitants who enjoy a lower rate of guranteed return, will enjoy a higher rate of bonus.

Our aim is to be fair to all the annuitants. We do not want to favour any group of annuitants at the expense of another group. This is the concept of pooling of risks.

The annuitants generally appreciate that we have done our best to be fair to all annuitants, and to give the best possible return to them.

The dialogue went well. It was also attended by journalists from two papers. I hope that they will cover the event.

Tip: save 10% of your monthly salary

The training manager of a large company told me that they have 5,000 employees, who earn an average of $1,500 a month. Most of them do not have any savings. They spend all of their earnings.

What is my advice for them?

Here is my reply.

- Save 10% of your monthly earnings
- You may need the savings in an emergency, eg loss of job or pay medical bill
- Do not buy a life insurance plan - it penalise you when you take out the savings
- Invest in a flexible plan, such as the Ideal plan from NTUC Income
- 100% of your savings is invested from the first month
- you can earn an attractive return, ie better than bank deposit

The training manager was convinced. He wanted to arrange for his employees to attend my educational talk.

We give 26% discount for off-peak car

Editor
Forum page
Straits Times

Insurance premiums for off-peak cars are too high. Time to lower them

I refer to the letter written by Mr Winston Ng, "Insurance premiums for off-peak cars are too high..." (St Times Online, 19 Nov 2005).

Mr Ng felt that insurance premiums for off-peak are cars too high. He said that these cars spend less time on the road, contribute to less accidents and should enjoy a lower rate of premium.

We agree. In fact, NTUC Income now offers a discount of 26% to off-peak car owners.

NTUC Income insures nearly 40% of all cars in Singapore. We are able to use our large base of insured vehicles to calculate a fair premium rate for each category of risks, based on their actual claim experience. Our discount for off-peak cars is based on the actual claim experience for this category.

NTUC Income now insures 5,300 off-peak cars. This represents about 50% of the 11,000 off-peak cars in Singapore.

We are able to offer competitive premium rates because of our pro-active management of claims and satisfactory service. Generally, our premiums are about 10% lower than the market. The additional discount of 26% for off-peak cars make us even more attractive to this class of owners.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Your comments are now welcomed

I now allow visitors to posting comments into my blog. You can also give feedback directly to me at tankl@income.com.sg.

I have found a way to stop spamming by using the "comment moderation" feature of this blog.

Tan Kin Lian

How NTUC Income reduce our repair cost

Editor
Forum Page
Straits Times

I refer to the letter from Sam Yeow entitled "It cost more to use insurer's outlet" (St Times, 19 Nov 2005).

Mr Yeow said that insurers who insist that repairs be done at their authorised workshop may pay more for their repair. He quoted his own case, where he could arrange his own repair for $300, but his insurer eventually paid $3,580 for the same repair done at its authorised workshop.

I agree with Mr Yeow. This is a common situation and result in higher repair cost and higher premiums.

NTUC Income does not use the method described by Mr Yeow. We adopt a multi-faced approach to reduce the repair cost, as follows:

- If the damages are slight, we encourage our policyholder to pay for his own repair, and protect the No Claim Discount. The saving in premium, due to the discount, can be more than the repair cost.

- Alternatively, we are willing to offer a cash settlement for the policyholder to arrange his own repair. The policyholder can find a workshop to repair for less, and keep the difference.

- If we have to pay for the repairs, we will invite our quality workshops to tender for the repair, and observe our quality standard. In this situation, the workshop will not submit an inflated bill as the repair will not be awarded to them.

We have implemented the above approach quite successfully over the past few years. This has allowed us to reduce our repair cost and offer competitive premiums to our policyholders. Our premiums are about 10 percent lower than the market.

Tan Kin Lian
Chief Executive Officer
NTUC Income

NTUC Income has the best call center in Singapore

NTUC Income has the best call center in Singapore.

On 18 Novemeber, we received the award of the best call center in Singapore. We won against the call centers operated by the telephone companies, banks and other large organisations.

Our subsidary, Call Center One (which offers outsourced call center service to other business organisations) also received the top award in its category.

Why?

If you call our hotline 6788 6616 at any time (24 hours X 7 days), you are answered promptly by a human voice. You do not have to wait or interact with a voice recording machine.

You get personal attention immediately.

And there are many other reasons!

Motor premium does not depend on value of car

ISSUE:

A motor policyholder asked why his renewal premium was not reduced according to the depreciation in value of his car. He cited that other insurance companies also practice the same thing.

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MY REPLY:

You have taken the right approach, which is to find out the most competitive premium rates from a few insurers.

Each insurer will have to decide on what is its appropriate premium rate, taking the relevant factors into account. I hope that you find our premium rate to be competitive and our service to be satisfactory, and will renew with us.

We are not able to reduce the premium rate based on your argument. Please allow us to practice what is practical for us.

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POLICYHOLDER'S REPLY:

Dear Mr Tan,

Probably you're the only CEO of a prominent organisation who always pay attention to small issues. And easily accessible by common people like me. I appreciate that.

From your email, I have a perception that once a premium reach its lower threshold, then other factors outside the insured parameters (such as; insurer's operational and indemnity cost) will play a significant role.

Frankly speaking, I still found that NTUC Income i! s still the most competitive among those big players in motor insuranc e.

I did have good experience with Income in the past, no doubt about it.

NTUC Income gives a better return than other insurers

A policyholder was unhappy that his return was lower than the illustration made at the time that the policy was sold 15 years ago.

My manager gave her explanation (reply 1). I followed up with a further explanation (reply 2).

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REPLY 1 (FROM MANAGER)

You have bought our endowment policy in 1990. The illustrated maturity figure was based on the bonus rates at that time, and on the high return from our investments.

However, for years 1997, 2001 and 2002, we were forced to cut our bonus due to difficult market conditions. For 2003 and 2004, we have done better and have reflected this by restoring partially the bonus cuts in the earlier years. The bonus rates for Year 2004 is about 83% higher than for 2002.

Your policy matured this year. The average yield works out to be 5.91% per annum. This is considered very good. If you have set aside the same yearly amount with a bank over the same period, you would have received much lesser.

Our terminal bonus of 25% is a generous amount. Even in our bad years, we have dipped into our reserves to maintain this. We do so because we do not want policyholders with matured policies to forfeit this due to a few years of poor results.

We have given you a good and fair return on your insurance policy. You cannot compare this with equities. They are totally different classes of products.

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REPLY 2 (FROM CEO)

I confirm that you have obtained a fairly attractive return. If you have insured with another insurance company, your return would have been much lower.

My manager will send you a letter written by another policyholder, printed in the Straits Times, where she complained about the poor return from another insurance company. She said that the return from NTUC Income was much better.

I hope that you will, after reading this letter, send us your appreciation for the good return that we have given to you, during the past years, when the investment climate has been quite difficult.

If NTUC Income is not a cooperative, will it behave differently?

A visitor sent the following questions to me, about cooperatives in Singapore. Here are the questions and my reply.

COMMENT BY VISITOR

Visited your blog earlier and indeed the commentaries there have been very informative. I’m not sure it is appropriate to ask you to comment on co-operatives in Singapore (NTUC Income, I believe, is the largest). But I would be grateful if you could share your enlightened views on

A) The general status of cooperatives in Singapore:

Reply: A few cooperatives have large operations and are doing well in Singapore.

For example, NTUC Fairprice runs a large and successful chain of supermarkets. They commend a large market share and are able to bring the prices down for consumers.

NTUC Income runs a large insurance operation and serves 2 million people. With our large market share, we are able to provide insurance coverage at low and affordable premium.

B) Would NTUC Income be significantly different if it were not constituted as a cooperative?

Reply: Yes, NTUC Income will be significantly different, if we were not constituted as a cooperative.

We would be charging higher premiums, to increase profit for shareholders. We would also find reasons to challenge claims and avoid paying them, also to increase profits. These are the reasons why I do not want NTUC Income to be profit driven.

C) How would you see cooperatives heading in the future (such as more cooperatives competing against each other)?

Reply: I wish to see more cooperatives making a big impact in the future. I hope that they will form a larger market share than today.

If more cooperatives are formed, there is the risk that they might compete against each other. This does not really matter.

In practice, they are likely to target different segments of members, so the risk of competition and conflict is small. Even if there is competition, the conflict should be minimal, as all cooperatives follow the same cooperative principles

A human voice answer your call

9 November 2005

Editor
Forum Page
Straits Times

I refer to the article "Readers air grouses with banks" (ST, 8 November 2005). Several of your readers expressed their unhappiness with automated telephone answering services from banks.

I wish to share our experience in operating our call center for the past 20 years.

NTUC Income is a large insurance cooperative serving 1.8 million policyholders. We handle an average of 300,000 inbound and outbound calls each month. Our call center operate 24 hour a day, seven days a week.

Over the years, we took a conscious decision not to place an answering system between our policyholders and our call center officers. We allow the policyholders to reach our officers directly and be served immediately, with minimal hassle. Callers are greeted warmly with a human voice instead of a recorded message.

Our policyholders can make enquiries or handle transactions through our call center. We have recently introduced separate hotline numbers so that our policyholders can be answered immediately in the language of their choice, namely English, Mandarin and Malay.

We are able to provide to achieve a high level of productivity of our call center officers through a good employee training and retention program. We introduced an escalation system that allows difficult issues to be escalated to the supervisors and experts. This reduce the stress on our call center officers and create a more conducive working environment. Our turnover rate is about half of the average for the call center industry.

We are able to provide friendly service at an economical cost, despite the higher wage level in Singapore. Our call centre operation is entirely based in Singapore. We believe that our policyholders will be better served by call center officers with local knowledge.

We strive for excellence in customer service and delight our customers with fast, effective and reliable service. We will be happy to share the experience of our call center with other business organisations and help to build a high standard of service quality in Singapore.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Fixed the price of land for the integrated resort

I agree with the decision of the government to fix the price of land for the integrated resort.

Here are my reasons:

- the government is in a better position to determine what is the fair market value for the land.

- it avoids excessive speculation on the price of land

- the choice of the winner will be based on the design concept and other factors.

I hope that this principle will apply to other areas of pricing, including:

- certificate (COE) for ownership of vehicles

- land for public and private housing

Four decades ago, the government fixed the price of HDB flats and shops. This allowed the services to be provided at a low cost and keep the cost of living low. This was a period when the Singapore economy grew well.

When the government decided to let the market forces determine the prices, it caused the prices to escalate (due mainly to excessive speculation). This has resulted in a high cost of living in Singapore.

We can move back to the good old days where the prices are determined by the government (with access to professional valuers). This approach can allow the prices that reflect the market, but avoid excessive speculation.

Tan Kin Lian
(in my personal capacity)

MHS (managed care) policyholder ask for clarification

FROM MHS POLICYHOLDER

Thank you very much, Mr Tan, for your time and advice. Really appreciate the fact that as CEO, you take the trouble to address my concerns.

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PREVIOUS ENQUIRY:

I'm however confused about the recent policy changes with regards to Medishield and my current status. I was not under medishield after I retired because I continued with MHS.

1) Is the MHS considered an enhanced plan or a Medisave-approved private integrated plan? If so, am I automatically also covered under medishield, in addition to my MHS? Does that mean, I now have a basic medishield plus MHS?

Reply: You only have MHS. You have the option from NTUC Income to move to Incomeshield at any time in the future. You are NOT covered under Medishield - as you have been excluded from it. With MHS, you already get more coverage than Medishield, so there is no need for you to buy Medishield and waste money.

2) If I am now only covered under MHS, is it advisible to opt in for the basic medishield ( I understand that the govt is encouraging us to do so). Or am I by default opted in already after the new policy change?!

Reply: Yes, if you wish to give up MHS (due to its high cost), you can opt for Incomeshield (and not basic Medishield). Incomeshield covers everything that Medishield covers and more than that. What the government has done is to require the insurer to "re-insure a portion of their shield back to CPF". This is a matter to be sorted out between us and CPF and should not concern you.

2) Yes, I agree with you that the premium is rather high for MHS for a retiree like myself. For this reason, can't I use Mesisave to pay for thepremium? With the liberaliation and privatisation of Medishield plans, it is a step backward (and frustrating) to realise that I cannot utilise my own funds to protect myself during the time I need it most.

Reply: You can use Medisave to pay for Incomeshield, but not MHS (from 2007). This is the decision of the government. They have their reason. Let us accept it.

Reverse Mortgage for retirees

QUESTION FROM JOURNALIST"

Dear Mr Tan,

I am writing a feature article on home equity. 47 per cent of total assets in the household sector are invested in residential properties.

1) Can you tell me more about Income's proposal for a reverse mortage plan that will suit HDB flat owners?

2) What are the main obstacles to Singaporeans monetising their assets, namely their HDB flats? What would you say are the best ways to overcome these obstacles?

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REPLY:

At present, HDB does not allow its flats to be used for reverse mortgage. This is the main obstacle. If HDB relax on this rule, some owners may wish to use their HDB flat to get a reverse mortgage.

You have to ask HDB for their reason to impose this rule. It has been the rule for many years. HDB is not prepared to relax this rule up to now.

If HDB relax its rule, the financier will still have to address the following obstalces:

- how much should be granted as a monthly income?
- what interest rate to charge?
- how long to grant the loan?
- what happens when the property value drops below the borrowings plus interest?
- should the scheme be insured, ie guarantee payment of the income for the lifetime of the mortgagee?
- who owns the residential interest in the property at the time of death of the mortgagee?

The reverse mortgage offered by NTUC Income is an "uninsured" mortgage. It works as follows:

- we agree on a monthly payment to the mortgagee
- interest is charged at the current rate (around 4-5% per annum)
- so long as the total borrowings, with interest, does not exceed 80% of the value of the property (ie the 20% is to be a buffer), we will contiue the arrangement
- when the total borrowings reach 80% of the value of the property, we ask the mortgagee to make other arrangements, eg to sell the property and repay the loan
- if a small amount is taken out monthly, the arrangement is likely to continue for 20 years or longer
- when they sell the property, they repay the loan and keep the balance.
- if they die, the property is sold, and the balance of the property, after repaying the loan and interest, will go back to the estate.

In practice, we believe that many mortgagees are likely to sell their property after 5 or 10 years and to repay their loan. They can find another place to stay, eg rent a flat, stay with their children, or stay in a home for the elderly.

We also give an option for the mortgagee to allow a family member, eg son or daughter, to take over the property and the loan.

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Here are some examples of the amount that can be drawn down:

- Non-insured, fixed period loan (20 years)
- All flat owners (fully paid up) over age 70 are eligible
- Interest rate 5% fixed
- Sample monthly drawdown amount (0.2% of initial property value)

Flat type   Property       Monthly     
            Value           Drawdown
   
3-room      $160,000       $320   
4-room      $240,000       $480   
5-room      $320,000       $640    
Exec Apt    $480,000       $960   

- Borrowers can continue to stay in flat
- Early repayment and downgranding to smaller flat allowed (repay loan)

Direct Discount for Motor Insurance

FROM STRAITS TIMES JOURANALIST:

QUESTION:

I understand Income is offering 5-10% loyalty discounts, as well as 10% discount if customers come direct to you (bypassing broker).

How has the promotion been in terms of success so far? What is your exact market share this year, compared with last year?

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REPLY:

We offer a discount of 10% for a motorist who register with us and take the motor insurance directly with us, i.e they do not go through an insurance agent.

This direct discount of 10% incorporates the loyalty discount of 5% or 10%. The "direct" motorist receive a total discount of 10%, inclusive of the loyalty discount of 5% which is given to a motorist who stays with us for 3 years and 10% for 7 years or longer.

We have received extremely good response for the direct channel.

The number of direct motorists increased from 15,200 at the beginning of 2005 to 21,800 now. It now represents 14% of all motor cars insured with us. The other 86% are brought in by our insurance agents.

Earlier this year, an average of 300 cars insured directly each month. After the introduction of the 10% discount, the number than insure directly has increased by more than 3 times. In September, 1,100 motorists insure their cars directly with us.

We also offer the same 10% discount for motor cycles and commercial vehicles that insure directly. They also received good response. I do not have the figures for these two category of vehicles that are insured directly with us.

We believe that more motorists will choose to insure directly with us in the future. We have a network of seven branches located all over Singapore. They can also call us directly over the telephone. We will arrange for the policy document to be sent to their home for a small administration fee of $5.

The 10% discount represents an average saving of $80, based on an average premium of $800 for a motor car. If the premium is higher, the saving is more substantial.

Our market share of motor insurance has dropped from 42% last year to 39% now. This drop of 3% is contributed by the following factors:

- a few insurers have aggressively reduced their premium rates to match or go below our competitive rates.

- many people are scrapped their old cars to buy new cars this year due to the low COE. They are compelled to insure with another insurer through a tied arrangement with the distributors for the first year.

- some insurance agents diverted the motor insurance to other insurers, as they are unhappy with our direct channel.

We are confident that our market share will increase next year for the following reasons:

- many motorists who bought new cars will come to us when they renew their insurance on the second year

- our competitors will not be able to sustain the low premium rates, as they have not been able to manage their repair cost effectively.

- more people will come to us to enjoy the 10% discount

Our special discount of 10% for motorists who insure directly will apply up to the end of this year only. We may reduce the direct discount to 5% from next year.

To enjoy this 10% discount, the motorists can call our hotline now, and register with us before th end of this year.

Tan Kin Lian
CEO, NTUC Income

MHS provides better coverage than Medishield

QUESTION FROM A POLICYHOLDER

Dear Mr. Tan,

I'm 65 this year and presently insured under the HMS. Recently, there are some drastic changes in the Medishield polcies.

My understanding is that I am not protected under the Medishied because of MHS. That was before the changes.

As of Jul 2005, private insurers have launched their medical insurance plans as enhancement plans to the reformed MediShield. Does that mean I will automatically become a medishield policyholder and enjoy the benefits on top of MHS?

If I'm presently only with MHS, am I taking a great risk not opting for Medishield? Or should I sign up for incomeshield and MHS to be safe? But that would be a burden financially because I'm retired.

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REPLY

Dear

You do not need to be worried.

The MHS provides a more comprehensive coverage compared to Medishield. It covers medical treatment at the GP, specialist and hospital. It has a co-payment of only 10% and pays from the first dollar (ie no deductible). So a higher percentage of the hospital bill is covered under MHS.

The only disadvantage of MHS is that it can be quite costly when you get older. If you find the premium to be too expensive, you can opt to be converted to Incomeshield, which covers hospital treatment, and is subject to a deductible and co-payment of 15%. This coverage is still better than Medishield.

You do not need to be worried about your coverage, as it is much better than Medishield.

Tan Kin Lian
CEO, NTUC Income

Investing the annuity pool

Dear Mr. Tan,

I think it is great that you make such an effort to communicate with your customers and potential customers. I have just been reading your blog...

I understand that the money for a particular annuity series is put into an insurance pool, which is then invested. What I'd like to do is to understand the nature of the investments.

QUESTIONS:

1. Do you buy and hold bonds in your investment pool? What kinds? If so, what is the duration of the portfolio generally (i.e. just to get an idea of how
often the bonds turnover)?

Reply: we invest about 65% in bond and fixed income investment, and 35% in equity and property investments. The duration of the bond is between 3 to 7 years. We like to have longer duration. We tend to keep the bond for the longer term, and avoid active trading.

2. If there is a general shift in interest rates, how long before this
rise shows up in returns (bonuses) to policy holders?

Reply: If there is a shift in interest rate, we expect to see a higher yield on the reinvestment of our bonds. If there is an increase in interest rate, we expect the yield to increase gradually over the next few years.

3. I understand that there may be an upfront load/fee. What are the recurring ones? i.e. your cut of the returns from the investments.

Reply: Our expense of investment is about 0.5%. This is a reduction from the gross yield.

4. How often do you start a new series on average?

Reply: We introduced a new series due to the severe drop in interest rate. Our current series of annuity is priced at 2.5% per annum.We expect to keep this series for several years. If we earn a higher return, we will pay a higher bonus.

Are you getting better repair when you pay more?

ADVICE TO MOTORISTS

Some owners insist on getting their cars repaired by the distributor's workshop. They think that the quality of repair is better.

On average, the distributor's workshop charged 2 times of the price of repairs carried outside.

We investigated on how several distributors carry out the repair. Do they provide better quality?

Our finding? Many of the distributors outsource the repairs to external independent workshops. They charge the full price for the parts and add 35% on the bill of the external workshops.

If you (the owner) go to the external workshop directly, you can get a discount on the genuine parts and pay the market rate. You get the same quality of repair.

So, if you are paying for the servicing and repair of your car, you do not need to go to the distributor and pay so much more.

Tan Kin Lian
Chief Executive Officer
NTUC Income

Only 1% of repair affect the engine

We carried out a detailed analysis of 200 motor repairs arranged by us during a week.

Only 1% of the repairs affect the engine. Under our repair practice, we send these cases to the distributor as it involves the use of specialised equipment, that are available from the distributor.

5% of the repairs require "mounting of the engine" but not repair to the engine. This means that the engine has to be removed to allow repairs to be done to other damaged parts, and mounted back. This can be done by external workshop without any risk at all.

The remaining 95% do not affect the engine or mounting of the engine. They are usually on minor dents and replacement of exterior parts of the vehicle. They can be done by external workshops quite easily. Many of the people working in these external workshops had their experience working for the distributors previously.

Conclusion? You only need to pay a high price for 1% of repairs that has to be done by the distributor. For 99% of cases, you can go to an external workshop and enjoy up to 50% saving and get satisfactory quality of repair.

Tan Kin Lian
Chief Executive Officer
NTUC Income