Buying Motor Insurance

Singapore drivers have had to deal with rising motor insurance premiums in recent years. This trend is not isolated to Singapore. Despite this trend, there are still people who do not shop around for suitable insurance cover.

I bought my first car in Singapore last year because of the low car prices. The purchase was made just before car prices started to shoot up.

One of the things that struck me was the high insurance premium I would have to pay. I wanted insurance cover with low excess, breakdown / roadside assistance in Singapore and West Malaysia, and the flexibility a workshop near where I worked or lived. My problem was made worse as I had two inexperienced or young drivers in my family, who would use the car.

My friends, who have had the benefit of many cars in Singapore, told me that it would be no use shopping around. They said most of the insurers offered similar benefits with the same premiums.

I had owned two cars in England previously, and that experience impressed upon me the necessity of shopping around for suitable insurance cover.

I initially started by contacting an insurer that is traditionally featured for its focus on this area. I found its plans to be expensive and unsuitable for my needs.

What my friends shared generally turned out to be true but this assessment was not accurate with a financial adviser I approached after. While the financial adviser could tailor a cover to meet my needs, the plan was still expensive (even though cheaper than the insurer).

In the end, I bought my insurance online from a new kid on the block, Direct Asia. I compared their quote with what my financial adviser had found. It was about 20% lower.

My financial adviser was candid enough to admit that it would be the best price I would get for the kind of cover I was seeking. My financial adviser suggested Direct Asia was able to offer low rates as they were new, with a low claims experience.

I have been with Direct Asia for almost a year now, and I haven't had any complaints. I have also gone on to purchase travel insurance cover from them, which are similarly competitive.

Nevertheless, I guess the real test will come when I have to make a claim against their policies.

It is important to shop around for suitable insurance cover.

Happiness,

Dharmendra Yadav

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Help Independent Credit Cooperatives Today

Make a crucial decision today and become members of two cooperative societies, before it is too late: TCC, "the credit cooperative with a heart", and TRC Multi-Purpose Cooperative Society Ltd!

If you are unconvinced, read on to find out more.

Credit cooperative societies play an important but understated role in our society.

Every month, a member of the society makes a fixed monthly contribution to the cooperative society. This act of constant giving generates a pool of funds for the members to tap.

Members can then take credit facilities at interest rates much lower than what banks would normally provide.

Credit cooperative societies have effectively reached out to individuals that many banks would rather turn away; individuals who would otherwise fall prey to illegal moneylenders.

These lenders often charge exorbitant interest rates and will stoop to the lowest levels - including the use of brute force - to recover their funds from such debtors.

Unlike banks whose main focus is to generate shareholder value, credit cooperatives focus on generating goodwill among members.

They do so, for example, by providing financial assistance and scholarships to the less fortunate in a manner more robust than most banks.

A recent amendment to the Cooperative Societies Act proposed by the Registrar of Cooperative Societies will limit the ability of such cooperatives to tap that spirit of giving in order to help the less fortunate.

Once Parliament passes the proposed amendment, these credit cooperatives will only be able to market themselves or reach out to a limited group of individuals.

The rationale for this amendment is that it will promote good corporate governance and provide a risk-based approach in the oversight of these cooperatives.

The regulator has noted as much in its public announcement, "Credit co-ops are not regulated to the same level as financial institutions and should only play a niche role in the Singapore financial system. They should not open their membership to the general public, but should only serve a defined group of members which share a pre-existing affiliation to each other."

However, this is being read in some circles as protecting the reach of banks, which are an extremely powerful lobby in Singapore's financial sector.

The announcement is also perceived to appease another powerful group in Singapore - the trade unions. The compromise reads, "The existing union-linked credit co-ops and other large credit co-ops with broad potential reach will not need to redefine their membership base. However, they will not be allowed to add to their already large (potential) membership base by amending their by-laws to expand their membership definitions or add new groups of members."

As a result, less powerful and independent credit cooperative societies which do equally important work will find themselves extremely disadvantaged by the proposal.

These include TCC, "the credit cooperative with a heart"; and TRC Multi-Purpose Cooperative Society Ltd, a credit cooperative which seeks "to promote greater awareness and consciousness of a progressive and improved lifestyle among members of the Indian community".

The regulator has sought to console these less powerful and independent credit cooperative societies by saying that: "Individuals who obtained co-op membership before new regulations were in place will be allowed to continue as members even if they do not fall within the new membership definition of the credit co-op. As a concession to existing credit co-ops which have genuine difficulties in redefining their membership due to their particular circumstances, the credit co-op may apply to the regulator for special consideration."

How open the regulator will be to "special consideration" remains a huge unknown.

But going by the reaction of these less powerful and independent credit cooperative societies, which are currently executing various membership referral initiatives, it is unlikely that there will be much room for them to negotiate after this defined membership regulatory regime is implemented.

With the recent negative publicity in Singapore about the raising of funds by charitable bodies, it is highly likely that the regulator will get its way.

Concerned by this development, I have sent in my applications to become a member of TCC through its website.

Above all, reader, I hope you will likewise join me in this intiative in order to enable less powerful and independent credit cooperatives to extend help to the financially needy and less fortunate in our society. And likewise, do encourage your loved ones to do the same too.

It is only with a strong pool of members that less powerful and independent credit cooperatives can continue to make a meaningful difference in our society. You can help make that difference today, before it is too late!

Happiness,
Dharmendra Yadav

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Using Public Transport

Last year, a friend approached me about whether or not he should by a new car simply to commute from work to home and back.

Some weeks back, my sister complained that I should get a car. She tried to argue that taking public transport didn't befit me as a young professional. (Of course, it was only later I realised her ulterior motive was to make me purchase a car, which she would use!)

Another friend also told me how half his salary goes towards paying for a hire purchase loan and maintenance of his car.

All these individuals live in a city where the public transport system enables a person to get from one place to another fairly easily and where it can be quite expensive to keep a private vehicle.

It is really not necessary to drive a car in a city unless you:
a. are in a role which requires you to travel a lot from one place to another within a short period of time; or
b. have a big family to drive around; or
c. live or work in an area where a public transport system is as good as inexistent; or
d. have medical reasons or other special circumstances.

Driving a private vehicle can be a sheer waste of one's funds, which can be put to better use elsewhere. Plus, a private vehicle only adds to the pollution which one already finds in the city.

I take the public transport - bus or train - daily. When I am late or need to get to a place quickly, I take a taxi. I find myself saving money, which I can put to use in other aspects of my life.

Spend wisely. Be environment friendly. Use public transport.

Happiness,
Dharmendra Yadav

Marry In Penang

Recently, I came back from Penang and I found an awesome place where I'd like to get married: the Eastern and Oriental Hotel.

It is a venue with a 19th Century setting and full of history. Hermann Hesse, Rudyard Kipling and Somerset Maugham are some individuals who have lived there. Its Grand Ballroom can seat up to 400 persons and feature a "full stage, royal boxes and gallery".

Much of the hotel has been preserved to reflect its old world charm, but is now equipped with modern infrastructure such as en-suite toilets that flush and Internet access.

You can even arrange part of the wedding to be held by the sea.

After all by 1927, in the grand shipping tradition of Southeast Asia, the Eastern and Oriental Hotel has been "pronounced in advertisements as 'The Premier Hotel East of Suez'" and boasting "a 842-foot seafront, 'the longest of any hotel in the world'".

Have an offshore wedding for three reasons:
1. You know the guests who will attend are those that really consider you a loved one, and this will make it even more memorable.
2. It can help reduce expenses at your wedding, and it will force you to plan your wedding more efficiently.
3. One gets to go on holiday, including guests who attend the wedding.

There is a lot of persuasion involved. It extends to your parents; your partner's parents and your guests.

Of course, the most important person you need the buy-in of is your partner!

Happiness,
Dharmendra Yadav

Increase Medical Cover When Visiting Developed Countries

Recently, I met a young professional who had an unfortunate accident while in the United States of America (US).

She was admitted in hospital for about a week and she underwent various surgeries to place implants in her body.

She was discharged and returned back to Singapore two weeks later. The airlines had to make special arrangements for her to take the plane.

Her medical bill alone for that short period was about US$300,000, including imaging services. She still has other bills pending.

Her insurer paid out its maximum liability of S$250,000 for medical expenses. The person was clearly under-insured. She will now have to pay the remaining bill out of her own pocket.

Due to her continuing treatment, she is also unable to afford legal advice in US, which may help in reducing her medical bill.

I asked a company's chief executive, who has lived in the US for some time, if such bills are a norm. He confirmed it was, especially for foreigners since their medical care is not subsidised.

He offered the following advice, "If you are travelling to a developled country like the US or United Kingdom, be sure to top-up your insurance cover. Otherwise, you are likely to find yourself inadequately protected in a medical emergency."

For example, in such a situation, one can opt for NTUC Income's Deluxe Plan, which would cover up to $500,000 of one's medical expenses.

Interestingly, there is no limit on medical expenses under the travel cover of American Home Assurance Company for persons insured, who are below 70 years old!

Happiness,
Dharmendra Yadav

Reader's Question: My Car Accident Claim

QUESTION

I was involved in a traffic accident 1 year ago and here is the scenario. I was the 1st car and had sought damages from the 2nd car which is a taxi. The police report and other evidence confrim that the taxi was in the wrong.

However, the taxi company, until today, refuses to pay me until they have sought damages from the 3rd car. The problem is that the 3rd car is disputing the claim by the taxi company against the 3rd car and thus prolonging the case.

My car is covered comprehensively by another insurance company (not yours).

ANSWER

I am not sure why you are having to do all these yourself. You should have claimed on your own motor insurance policy, and let your insurers sort it out.

You should seek independent legal advice if you feel strongly about this.

As importantly, since you are not insured with NTUC Income, please consider doing so.

AFTERTHOUGHTS

It is normal for taxi companies to defend such claims aggressively; this is part of their strategy to mitigate the risks they are exposed to.

Some such cases can take years to resolve so it is better to let insurers with the necessary expertise in handling such claims sort it out.

Happiness,
Dharmendra Yadav

Parallel Importers Get More Attractive

Individuals in Singapore prefer to buy cars from authorised distributors, even though parallel importers can offer cheaper cars. Many of my friends have done the same too.

On 26 July 2006, the Business Times, Singapore, reported that "a total of 61,069 passenger cars were registered by the LTA [Land Transport Authority] in the first half of 2006, and parallel imports accounted for 12 per cent".

A key reason for this trend is the warranty of up to 3 years that comes with the car one purchases from an authorised distributor. This enables a person to have peace of mind, should any manufacturing defect affect the car in the short term.

Now, NTUC Income has started an initiative to make it as attractive, if not more, for individuals to buy from parallel importers. It will work with selected parallel importers to provide a similar warranty on parts due to manufacturing defects. It will also offer motor insurance cover at competitive premiums. More information is available at this website.

In my personal view, this is a useful development for the budget-conscious consumer.

It will also make the growing private transport sector in Singapore more competitive.

Happiness,
Dharmendra Yadav

Lunch Talk: Insurance Purchase

I attended a law conference on doing business overseas at Meritus Mandarin Hotel today.

At lunch, I met a fellow corporate counsel from a top global telecoms provider. She asked me, "What should I find out when I buy an insurance policy?"

An internal auditor from a property development company also asked me, "When I buy an insurance policy, should I buy from an insurance adviser or directly from the insurance company?"

Much can be said about questions like these. However, I did not want to confuse them so I answered as simply as reasonably possible.

WHAT TO KNOW WHEN BUYING INSURANCE

When buying an insurance policy, a person must first understand what his / her needs are.

One buys insurance for three key purposes: savings, investment or protection.

Having understood his / her needs, a person then needs to find a product that matches or most closely relates to those needs. This requires some legwork.

To understand an insurance product, one needs to take note of a few things:
a. what benefits does the product provide
b. what the product does not cover
c. what key aspects of the product that a person must know
d. how much to pay for the product
e. when and how to make a claim

BUYING FROM INSURANCE ADVISER VS BUYING FROM INSURANCE COMPANY

Using an insurance adviser, especially one that has many years of experience, can save you a lot of legwork and help you quickly understand a product.

Such an insurance adviser may also be able to tell you much about products available in the market, and how one product compares to another. Of course, it is important to verify such advice. I have found that the best way to do this is to check the information against what other insurance advisers tell me or call the insurance companies directly.

The insurance adviser can also help you complete the necessary forms, have these submitted to the insurance company and collect the relevant policy contracts for you.

It is also important to buy from an insurance adviser you are comfortable with, since you are likely to return to him / her to purchase other insurance policies or when you need to make a claim.

In my view, buying from an experienced insurance adviser has one significant advantage. You are immediately assured that he's not a "fly-by-night" operation, which - unfortunately - is the case with some insurance advisers today. This is why some customers prefer to deal directly with insurance companies, and more insurance companies are responding to such preferences.

I also notice more experienced insurance advisers today handing over their portfolio of customers to another competent insurance adviser; sometimes, the latter is the insurance adviser's own child or some other family member. Basically, what this means is that you are less likely to be left alone, when you buy from an experienced insurance adviser!

However, if you are prepared to do the legwork yourself, going direct to an insurance company can save you some money. Some insurance companies are willing to give their customers a discount for going directly to them.

FIND OUT MORE

Visit the Know Your Insurance website.

Happiness,
Dharmendra Yadav

Debit or Credit Cards For Young Persons

A young person recently asked me, "I am not sure if I should get a debit or credit card. What do you think is the right one for me?"

The ideal way of answering a difficult question like this is to say: No debit cards or credit cards for a young person and end there. But then, that’s not practical in this day and age, where we espouse debt as a status symbol and, by saying so, I risk being out of fashion!

As such, it needs a pragmatic answer: Yes, young persons need credit cards or debit cards, but it is necessary to appreciate how these cards work.

EVOLUTION / HISTORY OF CREDIT CARDS

Credit cards are a tool of the money economy. Like all financial services products, credit cards have been tailored to exploit a fundamental human weakness: insecurity. There are three main credit card companies in Singapore: Visa, MasterCard and American Express. Lesser known ones include Diner's Club and JCB.

It is my understanding that credit cards became fashionable at a time when cheques and other equivalent modes of payment were running out of fashion.

Merchants were not getting prompt payment because the cheques would bounce or take time to clear. Consumers did not like to carry wards of cash or the hassle that cheques brought. For example, some merchants started requiring consumers to come and collect the goods after a cheque had cleared. There were also instances when these merchants would even cheat consumers by providing inferior quality goods on the day of collection.

Credit cards dealt with these insecurities because it allowed merchants to collect payment and consumers to collect their goods immediately, at the point of transaction.

DEBIT CARDS VS CREDIT CARDS

The Straits Times recently carried a series of articles on what the young want. Among other things, the newspaper found that the young liked to purchase the latest gadgets and unique travel packages. If you are a young person that likes to buy these things by spending what you have, a debit card is for you. On the other hand, if you are a young person that likes to buy first and pay later, a credit card can be useful.

With a debit card, you spend only what you have. To qualify for a credit, you need - among other things - to earn a minimum income of $30,000 per annum or you need a generous person willing to give you a supplementary card. Most graduates face little difficulty qualifying for a credit card. With a credit card, you get to spend up to twice your monthly salary. Users of credit cards must, however, be disciplined about how they use such cards.

VIEWS OF DEE HOCK (FOUNDER & CEO EMERITUS OF VISA)

In his book, The Birth of the Chaordic Age, Dee Hock, described, among other things, the emergence of Visa as "chaordic". "Chaordic" is a word Dee Hock invented. It means something whose behaviour "harmoniously blends characteristics of both chaos and order".

In my view, credit cards are inherently "chaordic". If it is used properly, it can bring order to a chaotic life. If it is used indiscriminately, it can bring chaos to an orderly lifestyle.

THREE CHAORDIC ATTRIBUTES

There are three features that make credit cards inherently "chaordic":
1. Interest Rates, Late Payment Fee & Annual Fees
2. Minimum Payment & Deadlines
3. Incentives For Spending

INTEREST RATES, LATE PAYMENT FEES & ANNUAL FEES

Interest rates, late payment fees & annual fees are the primary ways in which credit card issuers make their money.

The interest rates that you pay on credit cards are higher than 15% per annum. Interest is charged on the total outstanding amount every month, that is both on what you spend and the current balance on your credit card. This can be painful. As one person describes in the book, Real Tips, Real Money, "It is like paying repeatedly for dinners you have already eaten, trips you have already taken and clothes you have already worn and given aways."

A substantial proportion of people have become bankrupt because they failed to pay up on time. Nevertheless, The Straits Times revealed recently that, due to a healthy economy, the numbers are falling.

If you fail to pay on time, you also incur late payment fees. This is usually charged at a fixed rate of above $20 per month. Citibank recently announced that, in addition to the interest and late payment fee, it would impose an interest rate surcharge of less than 1% if individuals failed to pay on time. The New Paper described this is a first for a bank in Singapore.

Credit card companies also usually charge an annual fee on the card. It is possible to get the issuing banks to waive it, if you spend regularly on your card. More banks are increasingly willing to do so. And, in fact, some banks now use this as a marketing gimmick to get people to apply for their cards.

If you chalk up huge credit card debts, you may also wish to consider refinancing the debt through loans from banks or balance transfer facilities that credit card issuers provides. The advantages of refinancing it through loans are that it disciplines you to pay a regular amount, the interest rates are not variable and eventually you end up getting rid of the debt!

KEY LESSONS ON INTEREST RATES, LATE PAYMENT FEES & ANNUAL FEES

1. It is best not to incur interest and late payment fees.

2. Get the credit card issuer to waive your annual fees.

3. If you have credit card debts, get rid of it quickly.

4. Refinance the debt to enjoy lower interest rates.

MINIMUM PAYMENT & DEADLINES

In order to continue to be able to use a credit card, one is required pay a minimum payment by a certain deadline each month.

The market practice is $100 or 3% of the total outstanding amount, whichever is higher. This minimum payment usually covers the interest and a small percentage of the principal amount owed. At this payment level and if you owe a few thousand dollars, it can take years to fully pay off the debt. It is therefore important to pay more than the minimum sum.

Some credit card issuers are known to change the deadline on which the minimum payments are due. For example, if for one month you need to pay by the 16th day of the month, you may find that in the next month you will need to pay by the 14th day of that month. The strategy is really to get you to incur the late payment fees. Some consider this tactical; others may consider this sneaky.

Fortunately, this is something that not all credit card issuers practice. For example, with Citibank, you can request for the deadline to fall on a certain day of every month. The Consumer Protection (Fair Trading) Act, which will soon apply to financial services products, is also likely to bring an end to such practices.

KEY LESSONS ON MINIMUM PAYMENT & DEADLINES

1. Pay more than the minimum payment.

2. Make sure you check and keep to the payment deadlines.

INCENTIVES FOR SPENDING

Many credit card issuers now try to entice individuals to use their credit cards by providing special discounts at retail outlets, introducing rewards system and organising special events. Some even provide free entry or exclusive offers at popular discos or bars in Singapore. The aim of all these is to entice you to spend and use your credit cards. Often, people end up buying things that they do not really need.

In recent times, some credit card issuers have started providing rebates or cash back, based on what you spend. A good example of this is Standard Chartered Bank's Manhattan Card. I think this is more healthy and less wasteful. It allows users to focus on buying things they need while deriving benefits from spending that is necessary.

CONCLUSION

The right question the young should ask is not how to choose a credit card. The right question to ask is how to use a credit card properly.

Happiness,
Dharmendra Yadav

*This article formed the basis of a speech I delivered at National University of Singapore Business School on 30 March 2006.