This has been a weird week for insurance companies. They’ve been the subject of not one but three discussions in Parliament, with a fourth announcement from MAS in the middle of the week. Here’s a quick summary of what’s been announced so far, in order of how much this affects you.
- Enforced minimum 5% co-payment for health insurance
- CPF Investment Scheme sales commissions to drop, lowering cost for investors
- Insurance policy for freelancers to be introduced
- Sales target cap for insurance agents who switch to new firms
Enforced minimum 5% co-payment for health insurance
What has changed? New Integrated Shield plans riders must include a minimum 5 per cent co-payment. Those with riders that cover the entire co-payment amount, known as “full riders” will be phased out from April 1, 2021. A real April Fools’ Day for Singaporeans.
Why is this happening now? According to Senior Minister of State for Health Chee Hong Tat, about 29% of Singaporeans have “full riders”, which means that while they pay significantly higher premiums, their medical costs are often completely covered by their insurance policies.
Mr Chee talks about how this led to a “buffet syndrome”, where some policy holders were starting to claim ridiculous medical costs, since the costs were all covered by the insurance companies.
Honestly, this doesn’t come as a surprise for anyone paying attention. Since 2016, this behaviour has been blamed for the sharp rise in Integrated Shield plan premiums, with rider premiums themselves increasing by as much as 225% over the past two years.
How will insurance companies be affected? Obviously, this is something they have been asking for. While premiums have been rising, it’s only in response to rising claims.
To get an idea of just how much premiums have been rising, health insurance premiums totalled $374 million in the 4th quarter of 2017 alone. This is an insane amount compared to a total of $154 million in premiums in the first HALF of 2017!
But according the Life Insurance Association, IP insurers paid out claims amounting to $488 million in 2014 alone! That means that the amount they earned in 2017 barely paid off the claims made in 2014. Something’s gotta give.
This is not to say that insurance companies will be laughing all the way to the bank either. They are still committed to setting an annual co-payment cap of $3,000, which means that you won’t be stuck paying a huge amount even if you incur large hospital bills.
What does this mean for you? There are two ways to see this.
Firstly, you can either get angry and blame everyone, from the insurance companies for providing “full riders” and then increasing prices, to the policyholders who decided it was their right to get their money’s worth and claim ridiculous medical costs because they could. You may even want to blame the government for stepping in and penalising everyone for the inconsiderate behaviour of what is essentially a minority.
But perhaps the better way is to see this as the first of hopefully many steps to ensure that health insurance premiums stay low. By discouraging inconsiderate behaviours, it will also hopefully ensure that medical services do not end up being oversubscribed, and therefore encouraging medical costs to rise.
CPF Investment Scheme sales commissions to drop, lowering cost for investors
What has changed? Currently, financial advisers pushing the use of CPF funds under the CPF Investment Scheme can earn up to 3% in sales fees. Investors are also charged up to 1% in wrap fees – administrative charges incurred in maintaining an investment portfolio.
From 1 October this year, these amounts will be capped. Sales fees cannot be higher than 1.5%, while wrap fees will be lowered to 0.7%.
From 1 October 2019, these amounts will reduce further. Sales fees will be scrapped altogether, while wrap fees will be lowered to 0.4%.
|From 1 Oct 2018||From 1 Oct 2019|
|Sales Charges||From 3% to 1.5%||From 1.5% to 0%|
|Wrap Fees||From 1% to 0.7%||From 0.7% to 0.4%|
Why is this happening now? These changes are in line with enhancing the current CPF Investment Scheme, ahead of the announced Lifetime Retirement Investment Scheme, which is supposed to make investing easier for those without the time and knowledge to invest. (Unfortunately, there is still no definite timeline for when the Lifetime Retirement Investment Scheme will be introduced.)
By eventually removing sales fees altogether, it ensures that the CPF Investment Scheme is only for those with the knowledge and time to invest. Currently, a significant number of people on the CPF Investment Scheme, or CPFIS, only got into it because they were upsold by a financial advisor.
How will insurance companies be affected? With the incentive to “upsell” CPFIS products taken away, financial advisors will have lost a revenue stream, no matter how small. This hopefully has the desired effect of reducing upselling of CPFIS products to those who are either not savvy investors, or who may be misled into making a poor financial commitment with their retirement savings.
It may also have the effect of causing financial advisors to find other revenue options, by upselling investment products which may be riskier than those offered by CPFIS.
What does this mean for you? This should go without saying, but lower fees and charges for investment products are music to the ears of potential investors. Fees and charges, no matter how small, will always erode investment returns.
Insurance policy for freelancers to be introduced
What is it? NTUC Income is set to develop an insurance scheme for freelancers who risk a loss of income due to illness. They are expected to introduce it next year, while other insurance companies are encouraged to consider similar policies.
Why is this happening now? Currently, freelancers have no recourse when they are unable to earn an income due to an extended illness. This especially affects taxi, Uber and Grab drivers, who will be unable to earn an income if they get into an accident.
Freelancers don’t have the luxury of getting paid medical leave, unlike full-time employees. With the number of self-employed workers on the rise without signs of slowing, this need for a safety net is in high demand.
How will insurance companies be affected? Insurance companies face the challenge of providing sufficient coverage for self-employed workers since there is the question of who should bear the cost of insurance. For full-time workers, the company often bears the cost.
Freelancers could perhaps be persuaded to purchase this policy themselves (since they are essentially their own bosses), but this may be an added cost that they may not be keen on taking on. The insurance company needs to find a balance between cost and value.
What does this mean for you? If you are potentially among the rising number of freelancers and self-employed, this is definitely good news for you.
If you are employing a freelancer, then expect their rates to rise if they have to cover the cost of their own insurance.
Sales target cap for insurance agents who switch to new firms
What is it? There is a growing practice of insurers jumping ship en masse, from one firm to another, and often with significant financial incentive to do so. In light of this, MAS has proposed measures to ensure that this behaviour doesn’t lead to unscrupulous practices which may tarnish the industry.
Of the four proposed measures, the first and second are to set a reasonable sales target with a cap in the first year and spread sign-on incentives over a period of at least 6 years.
Why is this happening now? In the past two years alone, over 550 agents have jumped ship, in two widely publicised poachings. Subsequently, there were reports of such agents engaging in aggressive tactics just to meet their new sales targets.
How will insurance companies be affected? If these proposed measures go through, we will either see the end of a mass exodus of agents from one firm to another, or at least have the assurance that should a mass exodus happen, that insurance companies are expected to set reduced targets for the agents and prevent any behaviour that would tarnish the insurance industry.
What does this mean for you? As this is a public consultation, you are more than welcome to give MAS your thoughts on the issue. You can give your opinions on whether the cap on sales targets should be extended beyond the first year, of whether there should be other factors that should be considered when setting sales targets.
You can find the Consultation Paper on the MAS website.
Do these initiatives represent mixed signals from the Government on insurance companies?
There is an interesting confluence in all these reports coming in around the same time. It seems like the government is taking a larger role in the way insurance companies are run.
On the one hand, they’re enforcing a 5% co-insurance payment (but don’t say that they’re bailing insurance companies out!), while on the other hand, removing sales charges and dis-incentivising financial advisors from upselling CPFIS products. On one hand, they’re encouraging the creation of policies targeted at a growing need by freelancers, on the other hand, they’re discouraging the behaviour of certain financial advisors.
What is clear right now is that none of these changes will have an immediate and obvious effect. It will be interesting to see where things go from here though. Perhaps this represents a new chapter for the insurance industry, one that discourages unwanted sales-driven behaviour and focuses more on serving us.
What are your thoughts about this week in insurance news? We want to hear from you.