Treat customers fairly

In the past, businesses were worried about their reputation. If they received a bad report in the newspapers about how badly they treated their customers, they would have taken immediate steps to rectify the bad image.

In recent times, businesses are not concerned about their reputation, for the following reasons:

a) Bad treatment of customers is quite common among their competitors as well

b) If some customers go away, they can use marketing to reach out to new customers (who may not be aware about their reputation)

c) The newspapers are less active in highlighting bad service, as they depend on the advertising revenue of these businesses.

What can consumers do? They should judge a business according to its record of treating customers well. If the business is too focused on making more profit, then they are likely to neglect their customers.

Tan Kin Lian

Fail to declare hypertension

Dear Mr. Tan,

I bought a medical insurance but forget to declare that I have hypertension. I went for a kidney operation and the insurance company wanted to reject the claim due to non-disclosure, although the kidney condition is not related to hypertension. Is this fair?

REPLY
If you had declared hypertension, the insurance company would have loaded up the premium due to this medical condition.

As you have been paying a lower premium, compared to the loaded premium, a fair approach is for the insurance company to pay the claim on a pro-rata basis, i.e. based on the premium that you have paid compared to what you would should have paid, if the condition had been declared.

This approach of paying pro-rata has been applied in many situations, e.g. if a property had been underinsured, and can be applied here. It is fair to the insurance company and to the consumer.

Reading Test

Only great minds can read this.
fi yuo cna raed tihs, yuo hvae a sgtrane mnid

Cna yuo raed tihs? Olny 55 plepoe out of 100 can.

i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg.The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a wrod are,the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset can be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef,but the wrod as a wlohe. Azanmig huh? yaeh and I awlyas tghuot slpeling was ipmorantt!

TKL Intelligence Quiz Vol 2

TKL Intelligence Quiz Vol 2 is now available. It can be ordered from the website (with free delivery by post in Singapore) here. It will be available in the major bookstores by end June.

Smoothing of bonus

Dear Mr. Tan,
There was a report in the Straits Times that several insurance companies are able to maintain their bonus rates last year, in spite of the financial turmoil. This is due to the practice of smoothing the bonus. How does it work?

REPLY
These insurance companies already cut their bonus by about 50% in recent years. The reduced rate of bonus gives a yield of about 1% to 2% per annum. Life insurance policies now give a poor yield, compared to other long term financial products.

Using the concept of smoothing the bonus rates, the insurance companies now declare a low rate of bonus. A large part of the surplus is kept in the life fund as "orphan money". This orphan money is contributed by the current generation of policyhholders, but are likely to be used to pay high commission rates to expand the sales of new policies (which do not benefit the current policyholders).

In some countries, the regulators disallow the use of orphan money in this way. To protect the interest of policyholders, they have mandated the use of asset shares in distributing the bonus. The regulators in Singapore has not mandated this practice yet.

Due to the low yield, it is best to avoid investing in life insurance products.

Job crisis in Singapore

BBC report.