Underinsurance in Singapore YEE Wah Chin

1
Under-insurance in SingaporeYEE Wah Chin WU
Yuan,assisted by Loh Chin Chin, Yeo Eng Kiat ,
EllenYong Xin Yi
2
Introduction
Low Penetration rate of Life Insurance
33.9 Non-Owners
66.1 Owners
Source HES 2002/03, Department of Statistics,
Singapore
3
Introduction
Even among these life insurance owners, it is not
known how sufficient cover is or how large the
shortfall of cover from protection needs.
4
Motivation
Even among these life insurance owners, it is not
known how sufficient cover is or how large the
shortfall of existing cover from protection needs.
5
Focus
Limited to death cover for life insurance
Degree of Underinsurance among working adults.
6
Focus

• Using information from Department of Statistics
  LIA, we estimate
• Average protection needs of working adult
• Average existing life insurance of working adult
• Average amount of under-insurance for working
  adult
• Amount of under-insurance among Singapores
  working population.

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Objective

• Degree of under-insurance estimated from
  perspective of working adult population, aged
  between 20 to 64 (97 of economically active
  persons)
• Individuals protection needs refer to lump sum
  required on premature death to
• Pay funeral expense all outstanding debts
  attributable to individual to maintain current
  living standards of dependants for as long as
  they may be expected to remain dependent on
  individual
• Dependants refer to individuals spouse,
  children, parents /or other non-working member
  of family.

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Insurance Adequacy

Life Insurance Protection Needs
Existing Life Insurance Cover
Funeral Expenses
Group Life Insurance
Outstanding Loans
Personal Life Insurance
Dependants Needs
Dependant Protection Scheme (DPS)
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Average Working Adult Household
Average 2005 monthly household income (GHS 2005)
5,400 Average 2005 annual household income
5,400 ? 12 64,800
In general, working adults population aged
between 20 to 64 As of 2005, Average age of
working adult is 40
Average 2003 monthly household exp (HES 02/03)
3,244 Average 2005 annual household exp
3,244 ?12 ? 1.024 40,819 2.4 inflation
between 1998-2003.
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Average Working Adult Household
On average, each household has
Average Household
0.978 Children

• 2.15 Adults
• 1.527 working adult
• 0.622 non-working adults

0.272 Senior Citizens (65 above).
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Life Insurance Protection Needs
Funeral Expense
Dependants Needs
Outstanding Loans
12
Funeral Expense

• Funeral expense is estimated to be 5,000 to
  15,000
• Average is 10,000

Funeral Expense
Dependants Needs
Outstanding Loans
13
Outstanding Loans

• Using Statistics on Household Borrowings, 2005
  ratio of outstanding loans to personal disposable
  income estimated to be 265
• Average household borrowings 265 ? (64,800 ?
  40,819)
• ? 63,550
• Outstanding debt attributable to each working
  adult is, on average
• 63,550 ? 1.527
• ? 41,609

Funeral Expense
Dependants Needs
Outstanding Loans
14
Dependants Needs
Needs of Surviving Adults
Needs of Children
Funeral Expense
Dependants Needs
Outstanding Loans
Needs of Parents
Unpaid Services
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Needs of Children

• Using Statistics on Marriage Fertility, average
  age of children of working adult computed to be
  aged 8 (Statistics 2003)
• Hence, needs accrue, on average, from age 8 till
  child enter workforce
• For child currently aged 8
• Expected future education fees ? 16,443
• Expected future living expenses ? 58,280
• (Appendixes A B)
• This means working adult requires, on average,
  16,443 58,280 74,723 for each children
• Needs of children is
• 0.978 ? 74,723 ? 73,109.

Needs of Surviving Adults
Needs of Children
Needs of Parents
Unpaid Services
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Needs of Parents

• Parents of working population are aged, on
  average, around 65
• Hence, needs accrue, on average, from 65 till
  life expectation of around 18 years
• (Population Trends 2006)
• Average working adult is computed to require lump
  sum of 101,949 now for each parent, to support
  them till their life expectancies
• (Appendix C)
• Needs of parents is
• 0.272 ? 101,949 ? 27,735.

Needs of Surviving Adults
Needs of Children
Needs of Parents
Unpaid Services
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Needs of Surviving Adults
Real Household Income
From 40 till 65 (Table 6) 1,683,170
Needs of Surviving Adults
42,578
Needs of Children
73,109
27,735
Adults in household share balance almost equally
among them
Needs of Parents
Unpaid Services
1,539,748.
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Needs of Surviving Adults

• Since there are, on average, 2.15 adults in each
  household, each adult needs 1,539,748 ? 2.15 ?
  716,309
• from now till their retirement
• After death, there remains, on average, 1.15
  adults in household. Hence, needs of surviving
  adults is
• 716,309 ? 1.15 ? 823,439.

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Unpaid Services

• All adults provide some unpaid services which
  desirably would be replaced in event of death
• Similar study by Rice Walker Actuaries suggests
  that in the case of adult working full time,
  his/her unpaid services are valued at 10 of
  average full time earnings (Rice Walker)
• Average annual income per working adult computed
  to be 42,427. Hence, value of unpaid services
  for working adult per year is
• 10 ? 42,427 4,243
• Present value of unpaid services, accruing from
  aged 40 till retirement age of 65 is 85,870
  (Table 8).

Needs of Surviving Adults
Needs of Children
Needs of Parents
Unpaid Services
20
Surviving Adults Income

• Sum of average real income per working adult (age
  40 till 65) 1,102,045

• After death, on average only 0.527 working
  adult left

• Hence, surviving adults income is
• 1,102,045 ? 0.527 ? 581,125.

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Evaluation

• Assessment of needs focus on current needs
• Needs may change in future
• Assessment is based on current circumstance.

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Summary of Needs (table 9)
On average, working adult requires 480,636.
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Existing Cover
24
Existing Cover
Estimated Cover
Protection Type
47,182
Group Life Insurance
24,457
Personal Life Insurance
47,000
Dependant Protection Scheme
Total Cover 118,639
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Existing Cover

• Gross sum insured 77,723,367,000 (LIA)
• Economically active residents 1,647,294 (GHS
  2005)
• On average, group cover per working adult is
• 77,723,367,000 ? 1,647,294
• ? 47,182

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Existing Cover
Estimated Cover
Protection Type
47,182
Group Life Insurance
24,457
Personal Life Insurance
47,000
Dependant Protection Scheme
Total Cover 118,639
27
Existing Cover

• Average claims paid out 37,000 (LIA)
• Households owning life insurance 66.1 (HES
  02/03)
• On average, personal life insurance per working
  adult is
• 37,000 ? 66.1
• ? 24,457

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Existing Protection
Estimated Cover
Protection Type
47,182
Group Life Insurance
24,457
Personal Life Insurance
47,000
Dependant Protection Scheme
Total Cover 118,639
29
Existing Protection

• Average claims under DPS 47,000 (LIA)

30
Evaluation other assets

• May own other assets
• Varies with individuals
• For simplicity, assume no support from these
  assets.

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Amount Under-insured
Amount under-insured 361,997 ? 1,596,269
working adults 577,844,589 ? 578 billion.
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I am insured. Phew Thank you for your attention.