Use of asset share in Malaysia

From 2005, the regulator in Malaysia made it mandatory for life insurance companies to use asset share to determine the cash value and maturity value of their participating policies. This is to ensure that the policyholders get a fair value on their policies based on the actual experience of the fund.

Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.

The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.

After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.

I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.