Opinion
Tan Kin Lian explains cooperative vs. traditional company in NTUC Income’s evolution
Former NTUC Income CEO Tan Kin Lian explains that unlike profit-driven companies, cooperatives like NTUC Income focus on serving customers. He highlights lower costs and capped dividends to benefit policyholders.
by Tan Kin Lian (former NTUC Income CEO between 1977 and 2007)
NTUC Income was formed in 1970 as a cooperative. How is a cooperative different from a typical company?
A company operates a business to make a profit which is distributed to the shareholders that provide the share capital. The goal of a company is to maximise its profits for shareholders.
The goal of a cooperative is to serve its customers.
Under the cooperative law in Singapore, the shareholders are restricted to a maximum dividend of 6% each year on the share capital. Any excess surplus or profit has to be returned back to the customers in proportion to their transactions or retained for the future.
As a cooperative, the goal of Income was to provide insurance to its policyholders to serve their needs and make the insurance affordable and cheaper. The goal was not to increase profits for shareholders, as the dividends was limited by law to a maximum of 6% .
Initially, Income offered life insurance but later offered motor insurance, health insurance and other insurance products, still based on the cooperative approach.
During the 30 years that I managed Income, I kept the sales and management expenses lower than the market practices, so that the premiums paid by the policyholders are cheaper by about 10 percent.
After I left Income, the new management changed its business strategy to adopt practices that are closer to the market practice.
They increase the sales and operating expenses to widen the sales channels and attract managers from the market. This increased the cost and reduced the returns to the customers. It increased the market share initially, but it appeared to be not sustained.
