Dear lord,

This is a PSA. I hope it doesn't get taken down. While ILP and standalone products are packaged differently, they can and should, in fact, I dare say must, be compared. For example, one should always compare the long term cost of insurance (COI) charges for each separate coverage type, including death with their standalone counterparts. I don't know if insurance companies still publish within the contract all the COI charges up until termination, but it must be disclosed and consumers should do a line by line, year by year (age) comparison with the prices of standalone products. There will be differences in how the COI charges are padded (profit margin) between standalone and IL riders.

Now, the bigger issue with ILP is the fact that products are priced on a discounted basis. What I mean by that is that the products are priced to be sustainable, as in sufficient to meet all future outflows (including COI charges), based on a certain rate of investment return. What is this exact investment rate of return? No one knows because it is not required to be disclosed when it should be. There are two tests, that your sales illustration generator has to go through before it can say whether a certain premium amount is good to go for a policy sales illustration issuance. One is the SAM factor rule (check the IL policy document if you want to know more) and the other is the sustainability check rule. Now, bear in mind, the sales illustration generator, as far as I know from before, is not designed to churn out the minimum premium amount given requested policy coverage amounts & types. What anyone can do to work this out is to just keep lowballing the premium for fixed coverage types and amounts till you find the lowest premium amount that would pass both tests. Anyways, the bigger issue that consumers need to answer is whether they have enough confidence and understanding of meeting the required minimum rate of investment return that ensures that the policy is sustainable.

This post has been edited by hafizmamak85: Jun 4 2024, 03:01 PM

That is not the minimum rate of return required for the life policy to be sustainable. In fact, BNM ILP Policy Document makes clear that the illustration should not form any policyholder reasonable expectation as to the ILP fund returns. Illustrations at 2% and 5% may even yield NAVs nearing zero before the termination

This is really an oversimplification and doesn't inform consumers properly

I used to work in BNM, is why I am familiar, to a certain extent, about this subject matter. A better plan layout to spur competition for the industry is to phase out ILP and develop the yearly renewable term market. Disclose claim/profit ratios, and standardise/simplify YRT contract terms. The most competitive market out there is employee benefit. We need the competition we see in EB in the consumer space

This post has been edited by hafizmamak85: Jun 4 2024, 03:28 PM

No the consumer does not know.

What BNM is doing is not fair (regular repricings) and contractually ill informed. Let me make it very clear to everyone reading, when a consumer purchases a consumer insurance contract, in this case, IL, from an insurance company for a given due consideration, i.e. given premium amount, there are certain built in contractual expectations that cannot be negated by the insurer. One is that the premium would be reasonably sufficient to sustain the policy till the end of the contract term. Two, that this premium amount is sufficient to meet the insurer's required rate of return and not more. In my view, increasing premiums due to medical inflation and other reasons is against the contractual bargain

Unfortunately, the only legal recourse for policyholders is if they bandy together and start a class action

There used to be a requirement in the old MHI guidelines that required medical inflation to be accounted for in the medical pricing.

No, BNM does not require sustainability period to be stated. You have to deduce that yourself by seeing when the cash value drops near to zero or even negative in the sales illustration.

But again, that is just the amount based on sales illustration. What consumers need is the minimum rate of investment return required for the policy to be sustainable. So first step, figure out the lowest premium possible given coverage types and amounts. Second, query on the minimum rate of investment return that would make this policy sustainable given premium amount. Remember, this minimum rate of investment return is different from company's best estimate of investment returns

I'll start with your EB question. The measure I use to gauge competitiveness: EB vs IL cost of insurance claims ratios, and on a bouquet basis (HSI, CI, Death/ADB, PA, others) - all ages, all coverage amounts & types, the margin is much lower for EB. E.g. It might be 75%/ 80% for EB whereas it might be half (50%) for IL. And on top of the profit margin padding in IL COI, you have unallocated premium charges, yearly policy fees, fund management charges to consider when purchasing IL. This is not uncommon knowledge. Its natural as EB is negotiated by brokers who can hawk the clients' historical experience to the highest bidder (cheapest price).

As for why phase IL out, you asked so I'm going to answer and I hope this post doesn't get taken down. Putting aside the high charges issue, IL's main issue in my opinion is the expectation it has placed on consumers (IL policyholders) to achieve a certain rate of investment return to ensure the policy is sustainable till end of term and that meets the other reasonable expectations of policyholders (e.g. savings element after meeting all ouflow charges till end of policy term). The issue is that this expectation has never been clearly communicated to policyholders. Customers do not know the minimum rate of yearly investment return needed to achieve the above objectives and the insurer's reasonable expectations of the IL policy's yearly investment return rate. The other main issue is that IL is usually sold by agents with the default setting of equity funds. Which in zaman dahulu kala, circa 2010, version had embedded 9% yearly return rates in their pricing. This rate has proven to be illusory judging by past KLCI (including dividends) performance and also the IL equity funds performances. If only IL policies were sold assuming 0% yearly investment return rates. This would be better, and fairer, because it gives consumers a clear eyed view of what is expected of him/her.

EY, KPMG and all other auditors do not audit for consumer fairness in every aspect of the insurer's operations in their signing off of financial statements . It is a true and fair view of financial statements audit based on compliance to audit standards and certain BNM regulations and even in that limited scope, I can show you how consumer fairness is not accounted for. Take your IL funds. IL funds are required to be audited on annual basis. Did you know that there are many insurers out there not reserving for 8% investment tax on unrealised gains. Accounting standards don't require this to be done. However, fairness, which is a much broader principle/consideration and for a product which is priced and traded daily, would require that reserves for tax on unrealised gains be set up to treat all customers fairly, across all time lines and not create a musical chairs situation with the last group of policyholders having to saddle this unrealised tax when those assets are liquidated. As for BNM, BNM does not do "audits" per se but does its own checks/reviews and it does not cover every aspect of an insurance company either and BNM has failed in many instances as well. The task of auditing, putting controls and checking controls for effectiveness lies with the respective line departments and their oversight departments such as compliance, risk management, audit.

This is not the only area regarding fairness where financial auditors, BNM have failed. GELM's estate issue is one example. Link below, if you wish to know more.

GELM Estate Issue

As for YRT standardisation, there are plenty of areas. The industry does not have a minimum basic standard contract with same wording, operationalisation and coverage for the main life types (e.g. accident, CI, HSI). Terms like "reasonable and customary charges", "medically necessary", "pre-existing condition" have many operational issues including disclosure/transparency which haven't been sorted out. Every insurer might have similar wordings but is operationalized differently. What is reasonable/customary for one insurer might not be so for others. For CI, come up with a basic product that has been tested with medical professionals, designed to ensure that it truly captures all the truly financially debilitating illnesses and at the various necessary stages. Lot of medical professionals complain that CI covers things that shouldn't be covered as much and other sthat should be covered are not. As for HSI, push for high deductibles. In fact I think should ban no deductible policies and only sell min RM 5k deductible. The main issue for HSI is not inflation but a loss of insurance value proposition. Insurance can only work in low frequency and high severity setups. We have to many low severity, high frequency hospitalisation claims (RM 5k below). I suspect it is contributed mostly by dengue, respiratory illnesses that require hospitalisation for antibiotic shots. For the min 5K deductible policies, make sure there is no yearly, annual and inner limits, and it covers all claims, including pre hospitalisation, post hospitalisation, daycare etc. Right now, there is a lot of cross selling points between CI and HSI. This is cause U can tell consumers HSI doesn't cover expensive medication so have to take CI and there will be additional financial burdens. Find a way, if you decide to sell them together, that ensures that the design is comprehensive enough that consumers really do not have to fear being financially worse off due to disease/hospitalization.

I used to work in the Insurance/Takaful Supervision & Consumer/Market Conduct Department as an insurance analyst/supervisor

This post has been edited by hafizmamak85: Jun 6 2024, 05:47 PM

Btw, I haven't even touched on the other big issue. That of insurance companies being shadow bankers (fund managers) and not really insurance providers. Ironically, this was the case until IL got introduced. IL actually increased protection amounts but did it in a way that delivered poor consumer outcomes.

Participating products, the ones that contributed to issues like estate, were actually not for protection but an alternative to bank's FD

This post has been edited by hafizmamak85: Jun 6 2024, 05:47 PM

What is the purpose of a public forum if it is not to inform each other. I guess that is the duty we owe each other. This is an insurance talk thread and people do come here to be informed and to inform. It is up to the individual as to whether they find value in it or not. There is no one set way of doing things and the ways you've mentioned have been exhausted. Btw, it was you who posed the questions. You wanted to know how audits have failed and I've answered.

Agents are selling products that have been designed with low value in many instances. The number of CI products out there is so huge and they are not designed based on proper needs based studies (do a localised industry wide study for each disease that causes financial burden (what is the money needed for (e.g. to sustain lifestyle/commitments, additional costs including medication not covered by HSI etc), for each critical disease at various stages and what are the risk factors/susceptibility for each disease and publish it. Base your product designs off of that). There is no need for so many varieties of CI and HSI products. Our needs are not that different. Shouting from the rooftop I have 42 or some other X number critical illness number is meaningless. Which is why a lot of medical professionals find CI products really odd. Using the excuse that whatever you do is open to abuse is not a valid excuse to not do the right thing. There are effective ways of mitigating and creating better products.

No, it is not market risk. It is the risk of not having your reasonable expectations met. The handshake between you and the insurer is that the premium that was set at the onset of the policy is sufficient to sustain the policy throughout the term of the policy. If the insurer prices a policy based on 20%-30% investment return rate per annum and subsequently reassesses and imposes a new premium amount because the insurer finds the previous return rate untenable, is that fair? No, it's not fair as you can't willy nilly change an expectation that has been set. The insurer chose that rate or return, so the insurer has to be responsible for it. The insurer can inform you of your new policy sustainability and you can be informed that the policy is delivering poor consumer outcomes if there is upward premium revision. Your budget as a consumer is now affected. Otherwise, if the insurer finds maintaining market risk expectations to hot to handle, then don't set premiums with a positive rate of investment return embedded into it. Price it at 0% investment return. That would be fair and just.

1) Each IL policy is priced on a discounted basis and ensures sustainability. No one is arguing this. What I'm saying that BNM does not require insurers to disclose the minimum investment return rate needed to ensure that the policy is sustainable nor does it require the insurer to disclose the reasonably expected rate of return on the policy, given that the premiums are priced on a discounted basis. Yes, you are right, the 2% and 5% illustrations are just that and BNM does make it clear that it should not form the expectation. But there is an expected rate of return built into the premium.

2) "regular repricing and premium adjustments by insurers due to factors like medical inflation are common and are generally allowed under policy terms" - This is not contractually fair and goes against FTFC requirements. See my answer in 1. You cant change an expectation for a long term contact once it has been set. You may only vary the premium amount under very limited circumstances, e.g. when the company's going concern is under threat. You cant sell a long term product without setting a clear expectation with regards to pricing. It has to be explicit and not open ended such as I can change it anytime etc due to reasons I, the insurer, find reasonable. E.g. prices will be adjusted on a regular basis based on average 3 year past claims ratio plus X % for this COI charge revision - all claims ratio will be audited and published. This should be in the contact if you want open ended long term repricing. But it isn't.

I feel hope when I hear agents (assuming Ramjade is an agent) confidently say this: "You buy insurance is to protect yourself and assume all money burn. Never expect any money back from insurance."

This is the way. No such thing as a free lunch

This post has been edited by hafizmamak85: Jun 11 2024, 11:16 AM

Indeed, payouts at maturity can be very misleading. And the fact that this is payout provided no claim is another red herring. More agents need to do this sort of assessment.

Well, I'm glad that an end user sees and understands this. I'm sorry that there are many agents who don't appreciate your line of thinking. I hope you're not discouraged. You are on the right track.

I guess it will take a while, a lot longer, before agents understand.

"with that in mind, for most people buying the CI coverage with their IL plan, the additional cost will be lower."

Why would this be the case? Could it be because insurers are discounting premium at certain rate of return which may not be reasonable? I can assure you that CI is one of the most profitable riders in the IL space. While Singaporeans do have a longer life expectancy than Malaysians in general, and I, on a high level basis, do think Malaysians suffer from higher morbidity, IL mortality and morbidity (CI) cost of insurance charges are major source of profit for Malaysians insurance companies (less than 40% claims ratio).

Could you explain why you think the comparison is flawed? Yes, the product features are different, from what I understand, one has a maturity value and the other doesn't, but would that necessarily mean that a comparison can't be done?

Can't one isolate the maturity value component to figure out if the cost of protection between those two products are similar/dissimilar

There never will be two exact same products with the exact coverage stipulations and terms and conditions sold by two different companies. But that doesn't negate the comparability aspect or the need for comparisons to be done. Which is why we have markers such as sum assured, inner limits etc. critical illness definitions to help guide us. Yes, we have to make an educated guess here and it is difficult, but it must be done as marketing departments are savvy to sell us, highlight coverage which may not be so necessary. The CI market is one of the best examples of how marketing departments have managed to sell us things which may not be so necessary. The CI products sold nowadays are so specialised and niche with all the various terminologies and stages that make it difficult for consumers to navigate this space. So a good hospital administrator/doctor in hospital management could help clarify what exactly are the financial difficulties faced in all the critical illness situations and their various stages. And we can then compare these products on a proximate basis.

All of us are not that different in terms of the risks we may face. Yes, lifestyle choices such as smoking/drinking/dietary/exercise habits do play a role but we are usually none the wiser as to how it would impact us on an individual basis. We can't say I'm not a smoker or drinker so I don't think cancer coverage at the various stages is necessary. We all view these risks seriously regardless of how remote we think we are susceptible to it.

This post has been edited by hafizmamak85: Jun 11 2024, 04:23 PM

Wise words. But do we have to view it as putting the last word in or ramming axioms down people's throats? Could it not be seen as adding to the conversation, which hopefully benefits us all? Why must any viewpoint or differing opinion be viewed negatively? With regards to ILP, it is the main product that is sold to the public, but it has generally failed to live up to the reasonable expectations of policyholders. I would argue that it does more harm to not acknowledge the harms it has done to consumers via poor consumer outcomes

This post has been edited by hafizmamak85: Jun 11 2024, 04:24 PM

There are plenty of posters within this thread who can be fairly accused of being rude, brusque, inconsiderate, cynical, charlatanesque. I didn't get that from Ramjade. What I did observe is that he ruffled some feathers due to touching on some sacred cow

Buying insurance is no joke, like buying a car. It is not odd for middle income and above families to be spending between RM 300 - 600 per month for all types of life insurance and it even has a longer commitment(payment) period - decades even. Yet, the level of public discourse we have on this topic is abysmal compared to the level of discourse and analysis we have in the car space. We need to do and be better.

For long term life, morbidity will be assessed as part of underwriting. Pricing tables will usually be prepared based on sex (male/female), age and smoker status. Underwriting engine will be further prepped with loading factors. Underwriting may be simplified or dependent on health/lifestyle questionnaire and/or health check- loading factors will be applied directly (e.g. due to alcohol consumption), health condition (e.g. diabetes, blood sugar levels, cholesterol, BP etc.)

This is something I never really understood. Why 10% loading for TPD. No studies, as far as I am aware, to back this up, but seems to be practised widely.

Does it look like there is much difference between Singapore and Malaysia's mortality for insured lives? Btw Singapore prepares morbidity tables but not Malaysia

Singapore Insured Lives Mortality



Malaysia Insured Lives Mortality



This post has been edited by hafizmamak85: Jun 11 2024, 09:10 PM