Reasonable Expectation

Mr. Tan,
What do you mean by policyholder's "reasonable expectation"?

REPLY
In a participating life insurance policy, the contract states that a bonus will be added each year based on the profit for the year and distributed in a manner that is approved by the board of directors, acting on the advice of the actuary.

To prevent abuses, the Monetary Authority of Singapore (MAS) has issued guidelines to require the insurance company to declare its bonuses fairly and equitably, to meet the "reasonable expectation" of the policyholder.

Take the example of a policy with a benefit illustration stating that a bonus of $X will be added yearly to the policy, subject to the investment yield at 5.25%.

If the insurance company earns much more than 5.25%, the policyholders would expect the bonuses to be increased. It would not be fair for the directors to reduce the bonus. The policyholder can object to this reduction as a breach of "reasonable expectation".

If the yield is lower, the policyholder will have to accept that the bonus will be reduced, but they can insist that the reduction has to be applied fairly across all the policies. The insurance company cannot cut the bonus for some policies and increase the bonus for other policies.