Doing insurance the way you want to: An interview with the Head of DIYinsurance
Most working adults in Singapore would have had their first brush with financial planning with their insurance advisor, typically one who is either a friend or is recommended by a mutual friend. One would remember meeting with the advisor at coffee shops or cafes for a couple of hours at a time, learning about the different insurance policies and coverage, before selecting and purchasing a policy.
However, if asked to do it again, few would be keen to spend that amount of time just to buy a policy. In fact, the rise of online literacy and the prevalence of consumers opting to seek comparisons and peer reviews, means consumers are now more receptive to researching and learning about investment and insurance instruments on their own.
DIYinsurance was one of the first companies in Singapore to tap into that space, providing potential customers with the ability to research and compare insurance products across different insurance companies before selecting the right one for themselves and requesting the help of an advisor to purchase. ZUU Online Singapore caught up with Eddy Cheong, Executive Director and Head of DIYinsurance to know what DIYinsurance is all about.
Apparently, it is all in the name.
“Our name doesn’t mean do-it-yourself,” he says, sitting at DIYinsurance’s office on Duxton Hill. “It means do it your way. At your leisure, the way you want it. Your way.”
A visit to the website turns up a simple questionnaire that determines your needs and profile, and shows the different available policies. For instance, a male aged 30, looking for term insurance with death coverage of $500,000 up to 99 years of age, will see a number of policies as follows.
Providing real value
You would probably be thinking that comparison sites like these are all the same, and you would mostly be correct. Except this time.
DIYinsurance is committed to rebate 50% of advisor commissions from insurance sales back to the consumer, in view of providing fair advice to customers and not recommending expensive policies purely in the interest of earning higher commissions.
“We’re giving as much as we can. We used to give 30%, now we’ve increased it to 50%,” said Cheong. “At some point, when we feel we offer more value than the 50% we may scale down the rebate. But right now, we need that visibility for people to try us out.”
Cheong considers the business a hybrid between a high tech and a high touch business, because consumers only purchase products from an advisor.
“People want to do their own research, to compare and find information. And after they find the information, they would need to talk to somebody, to test whether their ideas were correct, and see if there was something they might have overlooked,” he explained. “So we don’t say we are a high tech business, we want to be a hybrid.”
At the same time, Cheong does not think DIYinsurance is any less competitive than their coounterparts who allow the purchase of insurance policies online, simply because of the nature of the product in question.
“Life insurance is not the same as general insurance – like travel insurance – where it’s more straightforward. If I am going to Thailand for 3 days, I just have to key in my details and buy. Even if I wanted to compare products, the comparison is quite straightforward,” he said.
“But life insurance is different, you don’t just pay one time, you pay for it for the next 30 to 50 years so the investment is huge, and people need time to process that.”
Furthermore, he noticed that a good number of consumers face problems when they have existing medical conditions or have had prior medical treatments. “They may have questions like ‘how do I complete the fields?’ “I went for this medical treatment, how do I know whether it is serious?’ When they speak to an advisor, the advisor will be able to tell them what it means. DIYinsurance offers some hand holding, which is necessary for the general population,” he added.
A working business model
To be sure, DIYinsurance’s business appears to be proof that the model works.
The company started out in 2014 offering term life insurance policies and later added whole life insurance policies. By 2015, their sales had tripled and Cheong decided to include retirement plans and savings plans into their product offering. In 2016, the company’s sales doubled from its 2015 levels.
On top of which, the company’s revenue mix evolved from 100% in term and whole life insurance, to having a 60% contribution from term and whole life insurance, and a 40% contribution from retirement and savings plans.
“That told us that people are receptive to a wider range of insurance products, as long as we are able to make sense of it for them.”
Find out more about the 50% rebate of advisor commissions from DIYinsurance.
Making sense in a non-transparent environment
One of the ways DIYinsurance has tried to make sense of the different insurance products, was to select a suitable point of comparison that would cater to customers’ needs. Like in the case of savings policies, Cheong realised that the most important point of comparison for customers was the returns that the plan would offer. So the returns on savings plans were shown most prominently for that segment.
“There are many matrices available for comparison, but it requires a lot of resources to do it comprehensively. Ultimately, people are just looking for returns, so we focused on keeping things simple.”
DIYinsurance even took a step further by providing its customers with hassle free packages that did not require them to fill in too many personal details at the onset. Customers can choose from the “Retirement Safety Net Package” for retirement needs, the “Baby Package” for new parents, and the “Young Working Adults Enhanced Package” for young people who had just started working.
“In these packages, we put in products that can’t go wrong, products that you would most probably need. And we make it very affordable, maybe $100- $200 a month for $1 million death cover with $250,000 in critical illness coverage,” he said.
Cheong was quick to add that their advisors would still sit customers down to talk through the package and recommend necessary adjustments to suit their personal needs. “Some people will just say, I want this package. We will still spend time talking with them about their needs, but this is a good starting point.”
In recent years, DIYinsurance has seen its fair share of competitors, from the insurers, to technology companies trying to disrupt the industry. Even the regulator, the Monetary Authority of Singapore, has taken steps to move the industry along.
Cheong pointed out that the very idea of an insurance policy comparison site was in fact mooted by the MAS, who eventually launched CompareFirst.Sg. While the site does not offer consumers the means to purchase insurance policies, it has done its fair share in educating and raising awareness in the market.
“With all this, it means that advisors can no longer be product pushers. They must add more value,” he said.
Roots in providing independent advice
The practice of providing value to customers stems from DIYinsurance’s roots in Providend. Providend is the first and only licensed financial advisory and fund management company in Singapore to offer a fee-only service. That means, Providend’s advisors would only be paid in fees.
For retirement solutions, Providend would quote a fixed fee to the customer after an assessment of their needs. For investment implementation, customers would be quoted a one-time fee of up to a maximum of 1% for new monies invested. And as for investment management fees, customers can expect to pay an average of 1% per annum, depending on the type of portfolio. Furthermore, no further fees would be incurred during a portfolio rebalancing exercise, or when customers redeem their investments.
“Where insurance products are used to execute your retirement plan, we will rebate 100% of the salesperson’s commissions to you,” said Cheong. “This means that you will be buying the insurance at the lowest possible cost and there is no conflict of interest between our client adviser and you, as he or she does not receive any commissions at all.”
“And more importantly, because of this model, there is no motivation to sell you very expensive products.”
So how does Eddy structure his insurance?
“Most of my protection is in term policies,” he said. “We advocate term plans, because term plans are the only way you can get full coverage at the cheapest price. Of course, there are pros and cons, but that’s the main premise.”
“I do have whole life policies that I bought before I joined Providend, and I surrendered some ILPs in the past. On the investing side, I go on low cost investing, like index ETFs. But I’m not very good in investments so I don’t really do much in that.”
One product you will never find on the DIYinsurance portal, is the ILP.
“We are dead against it,” he explains.
“We find that there’s a conflict between investment and protection. Investment is about getting returns, protection is about lowering risk, so when you put these 2 products together, there’s definitely going to be a clash of interest. What do you want this product to be? Low risk or high risk? If you’re high risk then you sacrifice protection, if you’re low risk then why are you going for investments?” he said.
“When you buy a whole life plan, the cost of protection is averaged out throughout your life. For ILP, the cost of protection starts from a lower base, but trends upwards as you grow older.”
“The double whammy is this. While the idea is that you pay a low cost, so most of the premiums will go to investment, you need to manage it well and grow the investment, so that one day when the charges become so huge, it can take from these investments to fund it. But if you don’t actively manage the investment, your investment may dwindle. When the cost exceeds investment gains, there may even be a situation where the policy lapses. Most people don’t understand this, but when they do, they don’t buy.”
Debunking a myth about online insurance purchases
Cheong also debunked a common myth about buying insurance online. “There are a lot of rumours that buying insurance on your own is dangerous. ‘You buy, you do it yourself. You claim, you claim it by yourself, since nobody advised you.’ A lot of people say that, but it’s just not true.”
“Claims are a very important part of the insurance sales. It is even more important than getting a customer. Because when you buy insurance, it’s a contract of trust. If I buy insurance, when something happens I hope someone will help me,” he said firmly.
“And claims is the delivery of that trust.”