Raising Mandatory Retirement Age

Prime Minister of Singapore Lee Hsien Loong recently announced that the country’s retirement age will be raised to 65 years old within three years. It was a long-term decision made prior to Singapore’s declining birth rates, longer life expectancy and the future plan to reduce foreign worker quota. Singaporeans are expected to have a higher life expectancy with estimated average lifespan up to 85.4 years by 2040.

The minimum retirement age of an employee in Malaysia is 60. The current retirement age suits the average life expectancy of 74.5 years, according to the Statistics Department. Thanks to improved healthcare services, 60 is now considered a decent age for retirement. The question is, are Malaysians prepared for a comfortable retirement?

Roughly, Malaysians and Singaporeans are expected to live 15 to 20 years post retirement, therefore they must ensure that their retirement fund is adequate by the time they retire.

As of now, the idea of a happy retirement by the age of 60 is getting far from reality. The reason is because more than 50 per cent of Malaysians may not be financially ready for retirement, according to the Credit Counselling and Debt Management Agency, or commonly known as Agensi Kounseling dan Pengurusan Kredit (AKPK).

A study conducted by AKPK last year on 1,000 Malaysians aged 18 to 55, showed that although most of the respondents had set aside a portion of their monthly income as savings, one in five was saving less than 10 per cent of their monthly salaries.

Out of 14 million members of the Employees Provident Fund (EPF), only seven million members were actively contributing to the EPF. In another account, the EPF stated that in March 2018, almost half of the members aged 54 had savings of only RM31,000 and most of the members were in the non-active category.

EPF has raised the minimum savings target to RM240,000 by the age of 55, which means after retiring, the retiree would have about RM1,000 monthly to spend. For an elderly person RM1,000 is quite paltry. According to BelanjawanKu, the expected expenses per month for an elderly couple is RM3,090.

The expenses were specified according to categories: RM850 for food, RM700 for housing, RM130 for healthcare, RM500 for transport, RM290 for utilities, RM90 for personal care, RM230 for ad hoc, RM170 for social participation and RM130 for discretionary expenses.

To ensure we have adequate savings for retirement, we should save 20 per cent of our income into our retirement savings fund.

According to the EPF savings target, we need to at least start retirement saving at the age of 18 to reach the EPF savings target at the age of 55. At the age of 18, we must have at least RM2,000 for the retirement savings and the amount should double up in the next years.

This reality in Malaysia is making it almost impossible for Malaysians to secure their future and have a comfortable retirement, mainly because of low wages and the high cost of living.

With low income and high expenditure, people’s ability save is getting lesser through the years and this could be alarming. If this situation worsens, in future we might probably see more and more elders aged 60 and above still working to sustain themselves.

That is why the government needs to review the EPF retirement plan and ensure that most Malaysians are able to prepare themselves for future retirement. The government also needs to increase the minimum wage to secure a better future for the people as well as for the country. It is hoped that as minimum wage increases, the general level of wages will also rise in tandem.

Lastly, the government needs to constantly encourage people to do retirement savings for their own benefit. If not, we may have to follow in Singapore’s footsteps and increase the retirement age.

But it will exacerbate our problem as even with the current retirement age of 60, young people have been heavily marginalised by the job industry as evidenced by the high youth unemployment rate coupled with the younger demography.

Plus, our government may not be able to cope with the extra financial burden as the salaries for senior and experienced government servants is way higher than that of fresh graduates. Hence retirement adequacy is an urgent issue for the government to look into.

Redefine Critical Illness

People buying life insurance polices from Aug 26 next year will notice changes to the definitions of critical illnesses, which may impact how policyholders are covered by the insurers.

For instance, "Deafness (Loss of Hearing)" has been amended to "Deafness (Irreversible Loss of Hearing)", with the term "irreversible" defined to recognise the possibility of future medical treatments that can restore hearing to some level as medical advances are made. 

Making the announcement on Thursday (Aug 29), the Life Insurance Association Singapore (LIA Singapore) said claims assessment and benefits will follow the definitions, and the terms and conditions stated in their existing policy contracts.

However, it added that policyholders with existing critical illness policies are not impacted by the new definitions.

LIA Singapore said all critical illness products based on definitions used from 2014, when the last update was done, may no longer be sold in Singapore from Aug 26 next year.

"This round of review addresses ambiguities that have arisen due to medical advancements and health trends in the past five years," said Mr Khor Hock Seng, president of LIA Singapore. 

"Especially with the rapidly ageing population and rising incidences of chronic illnesses here, regular reviews of the critical illnesses definitions will ensure that critical illnesses products stay relevant with changing times, and that the intended scope of coverage is clear to consumers," he added.

For example, with the critical illness "Heart Attack of Specified Severity", the reference to "Death of heart muscle due to obstruction of blood flow" has been revised to "Death of heart muscle due to ischaemia", to make it clear that both Type 1 Myocardial Infarction and Type 2 Myocardial Infarction are covered.

All member companies of LIA Singapore and the General Insurance Association of Singapore will adopt the set of revised definitions.

LIA Singapore said the standardisation of critical illness definitions provides greater transparency for customers to easily assess and compare the different plans available.

Policyholders also have greater assurance in claims results with a reduced incidence of one insurer paying a claim and another rejecting it due to differences in definition applied for severe stage of the 37 common critical illnesses.

Standardisation of critical illness definitions was first introduced by LIA Singapore in 2003, which said the industry remains committed to reviewing LIA's common definitions once every three years.

In the last update in 2014, some of the 37 severe stage critical illness definitions were revised; and the maximum limit of 30 medical conditions per critical illnesses plan was abolished to allow for more medical conditions to be covered.

LIA Singapore said research findings have shown that over 90 per cent of all severe stage claims received by life insurers are for five critical illnesses: major cancer, heart attack of specified severity, stroke with permanent neurological deficit, coronary artery bypass surgery, and end-stage kidney failure.

There are nearly 548,000 people aged 65 or above, and the number will more than triple by 2030. The incidence of chronic diseases among both the young and old is also increasing.

Meanwhile, the Government's overall national healthcare spending has almost doubled since 2010, to reach $21 billion in 2016.

Life Insurance Beyond Age 65

Experts usually recommend taking a Term Insurance cover till you turn 65, which is the standard age of retirement.  By this age, it is assumed that you have fulfilled all responsibilities towards your family, repaid your major liabilities, and accumulated a sizeable financial corpus to take care of your family’s living expenses for the rest of your life.  While the retirement age of 65 holds true for people retiring today, the pace at which the world has been changing in the last decade, the standard retirement age and hence the coverage duration may not be relevant for everyone and may call for a review.  Here’s why:You do not want to retire at 65: - Amitabh Bachchan is 76 years old, and still works as hard as people 20 years younger. If you are one of those who would like to work all of your life, or you are a self-employed professional looking to continue your practice till you can, the age of 65 may not mark the end of your term insurance plan. The availability of limited pay options also makes it easier to buy longer term insurance plans. Earlier, with only regular pay options available, people could not choose to cover themselves beyond 65 years, as making regular premium payments would be a question mark. Now, you can opt for limited pay. So, you pay premiums for a shorter term, and get a longer duration cover. For instance, you can complete all your premium payment by the age of, say, 50, and opt for a cover up to the age of 99 or 100.

Young and educated families in urban areas are usually in the nuclear format. With no extended family to lean on, today’s youth want to ensure a financially independent life before they settle down. The average age of marriage has clearly increased from the mid-20s to the late-20s. Obviously, the age before which people choose to become parents is pushed up by around 10 years.  Now, if you got married in the early 30s, or you have become a parent in your late 30s or early 40s, it is recommended that you have a cover till you turn 70-75, to ensure your family is insulated from any major expenses or liabilities.

Increased healthcare expenses - While the ever-improving medical science may help us to live longer, given our rather sedentary lifestyles, we are likely to face multiple medical conditions, even serious ones, making long-term healthcare expenses a major concern in the future, despite having a high- value health insurance cover. For instance, if the average annual healthcare expenses in a metro city for a senior citizen couple is in the range of Rs 3-5 lakh for, say, the next 20 years. Factoring inflation and increased health issues, this expense is likely to increase to around Rs 15 lakh for a longer duration of around 30 years post your retirement. The aggregate medical expenses are likely to be four times today’s expenses, increasing your estimated living expenses post-retirement exponentially. This will either curtail your living standards, or force you to work well beyond your estimated retirement life.

Low-cost legacy planning - Beyond living a comfortable retirement life, many of us want our families to enjoy a great life, and hence plan to leave a financial legacy. People evaluate multiple long-term investment options. Very recently we have seen Term Insurance cover being appraised as a low cost, tax-free legacy planning investment option that practically assures a fixed corpus irrespective of the age of death. For instance, Rahul, 40 years buys a term insurance policy that covers him for Rs 1 Crore up to the age of 100. Now, if Rahul passes away at the age of 75, he will leave a tax-free corpus of Rs 1 crore for his children by paying just Rs 8.36 lakh, giving a lucrative rate of return of 11 per cent on the investment.

Ethos - Disrupting Traditional Distributor

Ethos, the Silicon Valley start-up taking on America’s life insurance industry, just snagged $60 million in funding.

The San Francisco-based company announced on Wednesday that it raised the fresh funds in a Series C round led by GV, Alphabet's venture arm, and backed by Goldman Sachs. Existing investors Sequoia Capital and Accel also invested; Ethos also counts Jay Z, Will Smith and Robert Downey Jr as backers.

Ethos offers term insurance, which pays out benefits if the claimant dies within a length of time that typically ranges from 10 to 30 years. The company uses data analytics to predict a person’s life expectancy, and claims the vast majority of its customers don’t have to take a medical test to be eligible for coverage.

The firm is now valued at nearly $500 million, its co-founder and CEO Peter Colis told CNBC in an interview, up from a more-than $100 million valuation it reached after a funding round announced in October last year. The company has also quadrupled its revenues since then, and increased its staff headcount from 30 people to about 90. The new funding brings Ethos’ total raised to more than $100 million.

“There is a massive under-penetration of life insurance,” Colis said. “The families that are financially vulnerable are the ones who need it most. Ethos is able to democratize that system and open access to everyone. I think all these investors resonated by seeing there’s a real opportunity to make an impact.”

Ethos’ star-studded investor mix may come as a surprise to some, being an insurance company. But Roelof Botha, partner at Ethos investor Sequoia, said it helps the company’s image. 

“The insurance industry is viewed by most as a bit stodgy, stiff, inaccessible and it affects your ability to distribute life insurance because people are so fearful,” Botha told CNBC, adding that celebrity backing helps to “break down” the barriers and fears involved in buying insurance.

‘Opportunistic rather than necessary’

Ethos is a loss-making company, but its chief said it is becoming more profitable on each customer it signs up. Investors have proved to be concerned by the lack of profitability from companies like Uber and Lyft that listed on the public markets and saw their shares battered. WeWork, which is soon set to launch a stock market float, racked up a $900 million loss in the first half of 2019.

“We’re very different from Uber and WeWork,” Colis said. “We still have the majority of capital raised from last round fundraising. This round was opportunistic rather than necessary. It was just based on our fast growth and desire to move even quicker in disrupting the life insurance industry and protecting families.”

The upstart is targeting a staid market which has so far been dominated by insurance giants like Prudential and Northwestern Mutual. Colis said the problem with applying for life insurance currently is that it’s like getting “medically and financially strip searched.” People often have to go through brokers, submit copious paperwork and take medical exams, he said, adding that many of Ethos’ customers apply using their phone.

Ethos says it takes under 10 minutes to apply for a policy rather than the “weeks” it normally takes to get coverage. But as Ethos can’t handle all of the legwork involved in selling insurance, it’s partnered with life insurers including Assurity and Banner Life as well as reinsurers Munich Re and RGA to help bridge any gaps.

Ethos will use the fresh cash to invest in its technology and hire more people — engineers in particular. Colis explained the firm has been building out its platform to include a so-called “right sizer” tool that uses machine learning to determine a person’s coverage. About half of its customers who use that tool pay smaller monthly premiums as a result, Ethos claims. 

Hong Leong - Beyond Cancer Plan

Hong Leong Assurance (HLA) has launched its Beyond Cancer Plan, the first and only life insurance for cancer survivors in Malaysia. In a statement today, HLA said its HLA Beyond Cancer Plan makes it easy for cancer survivors by offering them additional coverage against 10 major critical illnesses including stroke, heart attack, coronary artery by-pass surgery and kidney failure.

It said that in addition, the plan provides life protection up to age 100. HLA said policyholders can enjoy an additional 50% of sum assured after five years to increase their CI coverage and legacy protection without further medical underwriting. The insurer said its innovative plans can also be customized to include a wide range of additional benefits such as regular income, premium waiver and selected reconstructive surgery.

"Customers can continue to get protection if they are diagnosed with other critical illness for the second time, by opting for the CI Buyback Rider, or claim multiple times for maximum protection with the CI Multi-Pay Rider," it said.

Bodoh Sombong Insults Gojek Driver

Gojek rider-partners in Indonesia will protest a statement allegedly made by a Malaysian in Kuala Lumpur which they say is an insult to them. According to local media reports quoting Gabungan Aksi Roda Dua (Garda) national chief Igun Wicaksono, the riders will submit a protest letter to Malaysian Ambassador to Indonesia Zainal Abidin Bakar and have threatened to demonstrate at the Malaysian embassy on Sept 3 if there is no apology from the individual.

Big Blue Taxi Services founder Datuk Shamsubahrin Ismail, allegedly made a statement deemed derogatory of Gojek riders and Indonesia in a video clip that went viral in Indonesia recently.

Gojek was founded in 2010 by 35-year-old Nadiem Makarim, who is currently the CEO of the transportation network and logistics start-up which offers a wide range of services from ride-hailing to delivery as well as fintech.

In the first quarter of 2019, the Gojek application was downloaded more than 142 million times in Indonesia, and it currently has more than two million rider-partners.

In 2018, Gojek also recorded over US$9 billion in gross transaction value (GTV) in all its operating countries, making it the largest consumer technology group in Southeast Asia based on GTV.

Gojek also operates in Singapore, the Philippines, Thailand (where it is known as GET) and Vietnam (as GoViet).

Allianz Dodgy Product - Australia

The Australian Securities and Investments Commission (ASIC) on Tuesday said more than 15,000 customers of the global insurance giant would be getting refunds for consumer credit insurance (CCI), a product that has already left the industry facing a $100 million compensation bill, and the threat of legal action.

CCI was sold within banks and financial institutions to cover consumers against the risk of being unable to pay back their debts if they died, were sick or injured, or lost their jobs. But the product was often sold inappropriately, leaving many with worthless cover, while others were paying premiums for insurance they did not need.

The refunds being paid by Allianz, a German insurance giant, relate to cover that was sold to people who were aged under 21; policies sold to people who were ineligible to claim; and policies that came with poorly disclosed fees.

As well as paying refunds, Allianz is pulling out of the market for CCI, which has been repeatedly highlighted by regulators as an example of poor conduct by the insurance industry.

ASIC said Allianz had sold policies to "customers under 21 years of age who were unlikely to need that cover," and it would be refunding all premiums it charged these people between 2011 and the end of 2018.

For those people in this age bracket who bought cover and still have active policies, Allianz will preserve the existing cover without charging premiums.

"Disappointingly, our work on the sale of CCI has highlighted widespread mis-selling and poor product design.  This remediation outcome is only one of many examples where CCI has failed consumers," ASIC Commissioner Sean Hughes said.

"We expect insurers to cease to sell insurance products that provide little or no value."

Allianz is also paying refunds and committing to re-assess claims to customers who were sold unemployment or disability cover, even though they were ineligible to make a claim at the time of sale. It is also refunding administration fees that were charged "without adequate disclosure" to people paying premiums by the month.

An Allianz spokeswoman said the insurer undertook a review of its CCI product last year, and it had notified ASIC about the problems, which related to mortgage and loan insurance.

"We regret that in this instance some of our customers may have ended up with products that have not been entirely suitable and we are committed to a customer first approach and taking the necessary action to make this right," the spokeswoman said.

"As such, we have decided to withdraw from the sale of all CCI products by the end of Q3 2019, and have already communicated this decision to our partners."

An ASIC review last month found CCI was "extremely poor value for money," noting only 19¢ in every dollar paid in premiums had been paid back in claims, and that the cover had been sold to customers ineligible to use it.

General Insurance - More Liberalization

The general insurance industry is set to witness challenges ahead after recording a 1.4 per cent drop in gross direct premiums to RM8.915 billion in the first half of 2019 (1H19).

General Insurance Association of Malaysia (PIAM) chairman Antony Lee said further liberalisation is needed to boost the industry.

“For second half 2019 (2H19), we don’t see any significant change from what you see in 1H19. I think if we don’t liberalise further, next year could be even worse,“ he told reporters after the half-year 2019 general insurance industry results presentation here today.

As such, PIAM and Bank Negara Malaysia (BNM) are working closely on the next phase of further opening up the industry, he said.

“There are some concepts that would radically change the way we price today. I can’t talk about it in detail,“ he added. When we have it and they are comfortable, then hopefully we can go towards further liberalisation. It’s always a concern that premiums for the lower income go up too high. So, we are working to show them that isn’t the case across the board. Some bad drivers will pay more whether they are in the B40 or M40 group,“ he added.

Citing an example, Lee said Singapore is utilising summons data to determine the premiums and discounts to be given to those with no summonses for a few years.

“We are working closely with the Transport Ministry and BNM to get the data and do some sample testing to make sure we can use it to price in additional discounts, and it’s ongoing. Of course, it’s sensitive because we need to sort out Personal Data Protection Act (PDPA) and legal issues with all that data and sharing. So, it is taking a bit longer than we would like but we are working actively to get that done,“ he added.

Lee expressed hope the sample testing analysis will be completed in two months.

Meanwhile, chief executive officer Mark Lim said liberalisation will benefit consumers with lower insurance premiums and result in fewer motor disputes and more choices as well as innovative products.

Lim said the average motor premium per policy stood at RM584 in 2018 compared to RM602 in 2014.

He said the industry is confronted with twin challenges, low penetration at 1.23 per cent (total premiums as a percentage of gross domestic product) in 2018 and escalating claims, mainly for medical and health insurance (MHI).

Motor claims insurers paid out RM14.9 million per day for property damage, bodily injury and vehicle theft claims.

The number of road accidents continued to go up despite the 6.7 per cent decrease in road fatalities to 6,284 in 2018. Transport Ministry statistics show a total of 548,598 accidents were recorded in 2018 compared to 533,875 accidents in 2017. Meanwhile, vehicle thefts continued to decline for the sixth consecutive year with total stolen vehicles down by 26 per cent to 5,173 for all classes in 1H19.

Overall, gross direct premiums for the motor segment, which accounts for 46.9 per cent of the total general insurance industry, fell 0.2 per cent to RM4.182 billion in 1H19, while MHI declined 14.8 per cent to RM569 million.

Personal accident was 1.6 per cent lower at RM602 million and the miscellaneous segment went down 9.8 per cent to RM1.035 billion in 1H19.

To a question on bike e-hailing, he said more e-hailing services may not be good for the road accident records.

“We have to see in countries that are very intense with e-hailing usage, either road accidents have gone up, and I think there will be some correlation there, meaning there are more accidents involved with this way of usage,“ Lim added.