Last week, Mr Low Kwok Mun, Executive Director of Insurance Supervision of MAS spoke at the Life Protection Seminar organised by Life Insurance Association (LIA) and the Singapore Actuarial Society (SAS).
Among the points he bought up were:
- The necessity of life insurance and the fact that most Singaporeans were under-insured.
- This is due to a few reasons:
- Inertia of consumers or a false belief that misfortune would not befall them. This can result in hardship for their dependents should a misfortune really happen.
- Ignorance of insurance products or buying the wrong kind of products. Typically, most people buy plans with some form of savings element which are more costly. This usually results in insufficient coverage.
- The inadequacy of the current commission structure which might encourage the financial adviser to push the product that generates the most commission to him rather than what is needed by the consumer. A lot of products have commissions that are front loaded and thus does not give an incentive for the adviser to maintain a long-term relationship with the client.
Going forward, Mr Low hopes that LIA and the insurance companies will work together to ensure that their commission structures do not cause advisers to form a bias towards recommending specific products.
I think this will be a tough act as it will take a brave insurance company to make the first move of changing their tried and tested commission structure. Any change will probably have to come as a result of top down intervention. The speech by Mr Low is a strong hint though.
In the meantime, everyone should continue to educate themselves so that they are not taken for a ride by unethical insurance agents. A good place to start would be to read the insurance guides published by MoneySense.