I refer to the commentary, AIA saga: Important test case for finance sector by Ignatius Low in the Straits Times of March 29th.

AIA has clearly committed to "honour the terms and obligations of all policies". This was not limited or qualified as Mr Low suggests by use of the words "in general".

Contrary to what was stated, it takes more than two to sell a life policy. Fundamental to the transaction is the consumer or policyholder. The factors motivating the purchase of a life policy are different for each policyholder. This may have some bearing when considering the representations made by the agent to the policyholder. Therefore, each case has to be considered on its own facts.

AIA’s Financial Guardian Policy is a whole life policy with a feature that allowed the policyholder to elect to stop paying the premium when dividends had accumulated to a certain level. The policy itself also provided for high guaranteed cash values. Many policyholders were interested in the cash values and dividends rather than the option to stop paying premiums at the earliest opportunity. Therefore, different policyholders purchased the product for different reasons.

While Mr Low alludes to "dealing with problems created more than a decade ago", he fails to put the matter clearly in perspective. The policies were sold over a long period of time, from the mid 1980s to 2002. During that time, the whole landscape of insurance and financial services regulation has changed, not only in Singapore but around the world.

Insurance agents now have to pass an extensive series of exams before they can be contracted to sell policies. Equally, pre-sales material and benefit illustrations have evolved significantly over that period. Compulsory use of standarised benefit illustrations were only introduced by the life insurance industry as recently as 1997. This also meant that forms, contracts and other material used in the industry were also evolving.

The period when the policy was sold, the sales material and benefit illustration used, the contract provisions, the applicable regulations at the time and the factors motivating the policyholder to purchase the policy are all factors that need to be carefully considered. These factors add to the complexity of the considerations that have to be taken into account when arriving at a solution. It is not a matter of the Company "taking a stand" and giving a "straight answer". The reality is, things are not so simple.

In no instance, even in the more developed economies like the United States and the United Kingdom have complex problems relating to life insurance products been resolved in a matter of days. To attempt to do so, would require a total disregard of individual policyholder interest and to a certain extent the general interest of all policyholders, in an attempt to arrive at some arbitrary conclusion. The Company is diligently working to try and resolve policyholder concerns as quickly as possible and as Mr Low acknowledges various steps have been taken in this regard, including the setting up of special hotlines and webpages.

While we may as the author says be dealing with "sins of the past", we must be careful to consider issues in their proper context. We cannot judge the standards of anyone, be it the regulator, the Company, the agent or the policyholder in the 1980s and 1990s in the context of knowledge and standards which are applicable today. To do so would be to make sins of things which in their proper context were perfectly acceptable.

Furthermore, after 10 to 15 years anyone’s recollection of events will not be reliable. There is a need to have sufficient supporting evidence before one can fairly conclude that "an agent misled a client". Otherwise, there is a grave danger that innocent agents who have done their job diligently and faithfully, may be falsely accused.

Finally, the commentary infers that only AIA’s dividends are less than expected. Due to the current economic climate almost all insurers in Singapore have reduced dividend and bonus payments. AIA was not the first to reduce their dividends and several insurers have indicated that they may have to reduce dividends further. Quite apart from the dividends which are still being made to the policies, the guaranteed cash values of AIA’s Financial Guardian product represent a return on investment which few investments in the current financial environment are able to match.

Doug Sumner
Vice President, Marketing
American International Assurance