There was letter written to the Straits Times about a parent who lamented that his newly born daughter was rejected of medishield. See article below. From what I see, it was a case of congential condition since it was stated in the letter that they knew of this suspected cysts in her lungs during pregnancy.  What Mr. Leslie Ong did not realized was that he acted against the interest of his daughter when he applied for Medishield as encouraged by government.

Medishield is not sold by any financial adviser and is done through “direct marketing” by CPF Board. Under “direct marketing”, such insurance product is transacted as an “execution-only” basis. Similar to the excuse made by securities firms when they transacted Lehman Brothers minibond linked notes on an “execution-only basis”, the insurer that engages in “direct marketing” does not take any responsibility. Instead, the buyer purchase the product based on a “buyer-beware” basis. This means, the buyer needs to do his homework and research and make his own decision – bearing all risk of mistakes in the transaction.

Mr. Ong did just that – probably like all good Singaporeans – listen to the advice of others (in this case the Government) to proceed to purchase Medishield despite knowing full well that his daughter has a pre-existing condition. The CPF Board, being a prudent insurer, is not stupid and will not be willing to accept a high risk case into the pool. If it does that, existing Medishield policyholders would be unfairly treated and will complain of rising cost of premiums. Mr. Ong is a reasonable person who is willing to accept exclusion on the pre-existing illness and/or premium loading. After all, there are countless number of illnesses and diseases that are unrelated to crysts in the lung. Unfortunately, CPF Board rejected his application due to that pre-existing condition. As a result, his daughter has completely no coverage even for illnesses and diseases that are totally unrelated.

If Mr. Ong has consulted a professional financial adviser, I would have advised him NOT to fill up the Medishield form first. Instead, he should proceed to purchase an intergrated private-medishield plan from a private insurer under Moratorium Underwriting. For Mr. Ong’s daughter case, under Moratorium Underwriting his daughter’s pre-existing condition will be automatically excluded since it is a congential condition but at least she will have some cover (but not full cover) for future unrelated illnesses and diseases. This is precisely what Mr. Ong wanted. The policy under Moratorium Underwriting is guaranteed to be issued provided that the life assured has never been declined or offered special terms. Since Mr. Ong’s daughter has an insurance rejected (Medishield), Moratorium Underwriting is no longer an option. 

As usual, there are always lessons to learn from mistakes. Not learning from mistakes is the worst form of mistake. Learn from others’ mistakes is the best practice since these lessons are “paid for” by others. What are the lessons to learn?

• Those who purchase investment or insurance product without a financial adviser do so under the “execution-basis” only. This means that the buyer takes all responsibility. But please note that it is always against the interest of the buyer to do this because of information asymmetry – that is to say there could lie a fine print that you don’t see. Often these fine prints are not even printed anywhere!
• Those with pre-existing illnesses have very limited insurance choices. One wrong move and you lose your insurance coverage completely.
• Be careful of “direct marketing.” Yesterday, I saw an insurer sent a letter to its policyholders to encourage them to buy an insurance product, bypassing the insurance adviser. This is unethical on both counts – the insurance adviser is denied of his remuneration and the client is purchasing the product on an “execution-basis.” The premium for direct marketing and through an insurance adviser is exactly the same. So both the adviser and the client are short-changed. Why the insurer wants to do this? Because by doing this the insurer gets to keep its commissions translating to a higher profitability for its shareholders and at the same time it accepts no liability for wrong advice since it was done as an “execution-basis.” In other words, the insurer was greedy. It did this without concern for its stakeholders, namely customers and advisers. MAS should step in to stop this practice (but MAS is taking a long-term nap – unfortunately.)
• Consult a professional adviser before embarking on your purchase.

As for the last point above, I know fellow financial advisers will think I am crazy. How could any financial adviser advice on any insurance/investment product especially those that pays no commission? In the above context, Medishield pays no commission. Even for the moratorium underwriting private-integrated shield plan above, the commission for a newly born baby is hardly enough to buy movie tickets for the family! Because of the lack or the insignificance of the commission payable, I know of financial advisers who cannot be bothered and anyhow give advice without fact finding and due diligence. I have encountered so many cases of clients who had disqualified themselves from Moratorium Underwriting because of their advisers’ negligence. I tend to think that it is a combination of ignorance and low/no commission that is causing financial advisers to give such bad advice. For financial advisers reading this, please do not proceed to transact any insurance/investment if you are not keen to transact.  DO NOT use this opportunity as an “opener” to sell a higher paying commission like whole life and ILP as you could ruin your client completely. Just tell your client you are not interested. If your client complains against you, there is no basis since there is no transaction made. Without any tangible or intangible lost, you cannot get yourself into trouble with the MAS (which is sleeping most of the time anyway and so the client’s chances of the complain being heard is further diluted). But the moment you transact, you must be able to stand the test of the “reasonable basis” of the Financial Advisers Act (FAA). You can be sued under the FAA or sued by tort. Is it worthwide doing this? Come-on, use your brain!

For consumers, how are you going to find financial advisers to advice you on matters which pay no commission like Medishield? Simple, look for a fee-based financial planner.