New insights from Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd

Sometimes, a lawsuit sheds such interesting insights on the world of financial planning, it becomes impossible to resist making a small mention of it on this blog.

I will not write about the legal issues raised by this case as I expect a lot of more qualified folks to discuss this negligence case in the next few months.

Just two points before my classes start :

A) Persistency ratios.

The insurance industry tracks this very interesting ratio which tracks the percentage of policies sold by an advisor that are still in force after a certain period of time. So if an agency has a 13 month persistency ratio of 10%, it means that after 13 months, 9 out of 10 policies are no longer in force, consumers have have cancelled those policies within that year. 

Sadly, the industry does not have a standardized mechanism to define what a persistency ratio is and how it should be reported to authorities. If MAS can standardize that all insurance companies should standardise their persistency ratios for Term life, whole life and ILPs for a fixed period like 36 months and make this metric transparent, we would actually have a means of measuring how much regret a consumer is experiencing when buying insurance products.

B) Twisting of policies.

The second insight is the concept of twisting which was also mentioned in the case. Twisting occurs when a financial planner advises a customer to drop an existing policy only to pick up another very similar policy. Twisting occurs to the detriment to the consumer because he or she incurs a sales charge all over again for a new policy.

Naturally, when an agency cultivates an aggressive sales culture, advisors may end up twisting their customer's policies. When done industry wide, persistency ratios will go down.

This case is a fascinating read even though it is tad long at 50+ pages.

Technology can come to the rescue of the hapless consumer of financial products. I imagine a future where MAS or a consortium of companies sets up a blockchain registry that tracks the take-up and put-down of all insurance policies so that citizens can go to a central website to track the persistency rate of the agencies they deal with and the specific products sold by an insurer. 

This would keep agencies and insurers honest. 

In the meantime, readers can try to pep their financial advisors on the persistency ratios of their agencies although I think you are more likely to draw a blank stare in return. 

( If you actually do that, do share your results with me. )