Tan Kin Lian, an upset Income customer

Former CEO owns policies affected by insurance firm’s ‘arbitrary’ cut of annual bonus

OUTSPOKEN insurance veteran Tan Kin ian has lashed out at his former employer, NTUC Income, for cutting the annual onus on its life insurance policies. The upset customer, armed with four decades of product knowledge, is using his blog to criticise the reduction as “arbitrary” and unfair to policyholders.

In response, Income argued that the bonus “restructuring” could result in higher total bonuses and values. Mr Tan’s grouse concerns a policy change that may be baffling to laypeople: The annual bonus on participating policies incepted after 1993 will be “proportionately reduced”, while the special bonus will be “increased over time”, Income had said in a media statement last month and is now informing 310,000 customers via letters.

What does this mean?
An annual bonus, also known as a reversionary bonus, is a regular addition to the sum assured under your policy. On the ther hand, a special bonus is paid only upon death, maturity or termination. Both bonus rates are dependent on the performance of a life fund’s underlying investments.

Under the changes, holders of Income life and endowment plans will receive lower annual bonuses from this year, while the projected rate of their special bonus will grow gradually.

Mr Tan, who says he has two life policies affected by the cut, calculated that the bonus reduction is about 45 per cent. “It is better for a policyholder to have a higher rate of annual bonus, as it is vested immediately each year. The special bonus is not guaranteed and may be withdrawn at a future date before it is paid,” he said in a blog posting dated April 28.

In fact, he argued, Income is cutting the annual bonus in a year when the investment yield is at an “exceptionally high” 10.7 per cent, thanks to last year’s bull run in financial markets.

He also said that the company did not state how it would increase the special bonus in future and has “unilaterally changed the bonus distribution unfairly”. Said Mr Tan, whose 30-year leadership at Income ended in February last year: “This varying special bonus rate appears to me to be created in an arbitrary manner.”

On Friday, Income — now headed by Mr Tan Suee Chieh — trotted out figures and detailed reasons to refute the allegations. Its agents have also received a set of frequently-asked-questions to answer customer queries.

Income chief actuary Ken Ng told TODAY that the bonus “restructuring” would not change policyholder benefits. While the annual bonus rate will fall to 1.3 per cent of the sum assured, from 2.3 per cent, the special bonus will rise from the old rate of 25 per cent of accumulated bonus to a new range of 30 to 120 per cent, he said.

The combination is intended to “give a return in surrender value or death claim equal to what was intended in the past”, said Mr Ng. Some policies’ surrender or maturity values may even be higher under the new rates (see table).

Business-wise, the changes would strengthen the insurance cooperative’s financial position, giving it “better solvency and flexibility”, said Mr Ng.

This is because when high annual bonuses are declared, Income has to support the guarantee by setting aside reserves and investing in low-risk, low-yield instruments such as bonds. The money put aside could have gone into higher-yielding investments
to produce better returns and attractive bonuses in future, goes the reasoning.

Neither is it “financially sound” to dish out high annual bonuses just because investment gains in a certain year were good, said Mr Ng. The new structure is therefore prudent and “in line with industry practice”, he said.

According to the Singapore Life Insurance Association’s (LIA) online guide on participating policies, insurers may hold back bonuses in good years, “so that they can be maintained when conditions are less favourable”. This “smoothing” of bonuses over time avoids large fluctuations in the yearly bonus declared, said LIA.

However, the distribution of high annual bonuses had been a source of pride for former Income-boss Tan Kin Lian. The disgruntled customer now plans to lodge a complaint with the Monetary Authority of Singapore and Income chairman Ng Kee Choe.

Source: Today

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Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
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