Insurance For “Dummies”

I was idly flipping through an insurance Benefit Illustration (BI) one day while waiting for a client at a fast food restaurant when I noticed the table beside mine was a student studying for what looked like his O level mathematics. A quick glance at his notes posed a striking resemblance to the BI in my hands. On closer examination, he was on the topic of statistics, which explains the table of numbers splashed across his notes.

Then I realized that this insurance BI is actually just a bunch of numbers, probably designed by statisticians (which are the actuarial people). These people are a unique group that, technically, does not speak the English language. Hence, if they are challenged to design an explanation of insurance, the BI in today’s form would most likely be the result.

However, as mentioned, they are a unique group; the 99% rest of the world does not understand their language completely. Seriously, who can recall studying for their statistics about mean, median, mode, quartiles, variance, standard deviations, correlations, hypothesis testing, confidence interval, level of significance, degree of freedom, normal distribution, heteroskedasticity, multicollinearity, etc.

It is like a software engineer designing the user agreement. We ALL know what everyone does with that contract right (ok, perhaps the 1% who are lawyers don’t), we scroll to the bottom check the “I agree with all the terms and condition” and click “I accept” or “Next”. Honestly, who does NOT do what I just said and read every single word in that seemingly endless text?

I believe the same happens for the BI, the general public does not understand it and neither does the sales person fully comprehend it to explain it to the utmost extent. And anyway, let’s face it; do we really need to know the whole contents of it?

Within it contains figures like total distribution cost, effects of deductions, non-guaranteed returns projected on a yearly basis with different rates and long, long essays of encyclopedia-like explanations. How useful is all that jargon to the lay man? When ordering your coffee at the kopitiam, do you ask the uncle or auntie how much is their coffee beans, cost of water, shop rental, shop assistant salary, depreciation of their cups, projected increase in prices in contango and backwardation, historical prices of the coffee commodity spot rate, if they will carry on to be a going concern, etc? Imagine if the shop is required to show you illustrations of the above information and you are required to sign that you fully understand it before they are allowed to bring you your kopi. Come on, its 7am in the morning and I just want my coffee! We simply just want to know what we need to know. Basically, how much is the coffee and what we expect to get!

With FAIR being the buzzword nowadays, I hope that are also looking into this area. However, if their approach is to leave it to the “professionals”, we will be stuck with another layer of more paper work illustrating “useless” data and padding away the real information. Einstein once said, if you can't explain it simply, you don't understand it well enough. How true, for an industry regulated by non-practitioners.

My suggestion to the industry reviewers is simple, KISS, Keep It Simple Stupid. People just want to know what they need to know. Place yourself in the consumers’ shoes; what would you like to know about this insurance product you are going to purchase. Plain and simple. If unsure what are the questions, do a survey.

Some straightforward examples to get started:

- How much do I need to plan? And for how long?

- What if the insured event happens?

- What if I stop paying? And what are my options?

It could even be in the form of a Frequently Asked Questions (FAQs) or a SIMPLE Product Highlight Sheet, but nothing like the unit trust ones that are still too complicated and packed with redundant data. Answers should be kept to within a sentence, at most 3 sentences, or else, no one is going to read that long essay again and overall it should be only 1 page length with big enough font size, without any complicated charts or tables.

Sample responses for a life policy:

- You need to pay $2,000 yearly for 25 years.

- You get minimum $50,000 plus any additional bonuses accumulated.

- You will lose coverage and receive the cash savings of the plan. However, it may be less than the amount you have paid up till that point in time.

- Your options include converting the policy for a lower coverage amount or taking a policy loan for the time being.

Notice that I purposely left out jargons like sum assured, reversionary bonuses, maturity benefits, compounded rate of return, effects of deduction, total distribution cost, non guaranteed components, projected at 3.75% or 5.25%, surrender value, annual premiums, etc. These will probably require the client to invest in an insurance dictionary and the minimum benchmark will be to pass Singapore College of Insurance (SCI) papers of M5, M9, M9A, HI, M8, M8A, M1, M6, M6A, etc.

Now was that so difficult? Did it fulfill the objective? I’ll admit, I did not spend a lot of thought into the responses. The industry review panel is filled with a team (rather than me an individual only) of experts with time and money, I am sure they can do a better job than this, but the focus must be in the right direction. Instead of burdening the practitioners and consumers with more paper work (based on past experience of review outcomes).