Tan Kin Lian's Blog: Life insurance commission

Wednesday, September 12, 2007

Life insurance commission

A senior manager of a large life insurance company in Indonesia told me that the commission rate payable on an endowment policy is 20% of the premium during the first year and 5% during the second year. The total is 25%. For whole life, it can go up to a total of 40%.

The commisison rate for regular premium unit linked business in Indoesia is higher, at about 45% in total.

I told him that the commission rate payable in Singapore for a similar product is about three times. He was surprised. He asked, "How can the product give good value to the customer?"

I have found that many countries have reduced their commission rates on life insurance products. The commisison rates in Singapore are far too high. I hope that the Singpaore market can keep up to the trends in other countries.

Note: Most of the products sold by NTUC Income have commission rates that are much lower than the market. I hope that they will be the benchmark for the other companies to follow.

11 comments:

Anonymous said...: Not just Insurance, many standard financial services are costly in Singapore aren't they?

mutual fund transactions fees, brokerage etc?

just today I read starit times mails about S$ 2.5 for buying 1000 units of stock A and 5 times fee for buying 5000 units of stock B. all done via automated system I guess.

Many firms are giving discounted rates now but for years and years and even to an extend now these charges have been always more.; September 12, 2007 3:01 PM
Anonymous said...: Did you try to reduce agents' commission during your tenure with INCOME? If you tried, how effective were you? What were the challenges you faced if you tried to reduce the commissions? Why were you not able to overcome the challenges? What do you think that the present CEO can overcome those challenges?; September 12, 2007 3:47 PM
Anonymous said...: That day will be when fee based advisory outfits are the models.There will be only be 5000 advisers around(figure by IFPAS). The field is level and every adviser charges according to what he thinks he is worth
in term of services, his areas of competence and his standing in the industry.( Eventually the customers decide the fee; supply and demand)
For now, commission is still the greatest motivator; the insurance agents and the companies are in cahoot to fleece the customers. Win-win for both but loss for the customers.
But this doesn't mean the customers are helpless. Through blogs, like MR. Tan"s, customers can be educated. The customers must want to be educated, not to be become an expert, but enough to be discernable and wary of the advisers and able to see through the disguise of the insurance agents. There is a saying "if education is expensive ignorance is even more expensive".
If customers can demand thier rights and be savvy the prices of insurance can be brought down.
Remember, you customers, determine the prices, not the insurance companies or its sales agents.; September 12, 2007 4:41 PM
Priyadi said...: I don't know which insurance company in Indonesia you are refering to. but to put a few things into perspective, the distribution cost of the (overwhelmingly) most popular regular premium unit linked product in Indonesia are 100%, 60%, 15%, 15%, and 15% for the first five years, respectively. or equivalent to about 25 months of premium. according to drmoney's web site, this is way higher than singapore's average, which is about 15 months of premium.

'overwhelmingly popular' is an understatement. i've been approached by no less than 5 different agents from the same insurance company for the past 2 months.; September 12, 2007 7:30 PM
Anonymous said...: Dear Mr. Tan,

Apparently, the current Income CEO appears to be well liked by staff (why ? of course better benefits at the insured's expense). Another expense coming up is branding. All of these will eat up big part of the insured's premium. This is why I am worry about my bonus; September 12, 2007 9:04 PM
Anonymous said...: The problem is that industry has some kind of understanding or an unwritten agreement not to compete on price.
Having said that there are companies which give good value for money.
If you have an independant third party product reviewer like what you have for cell phones it may serve the purpose and make the market more efficient and competitive. However even with a reviewer there are not many people who know where to get such information.
This is an imperfect market,perfect for the insurance agents to spin ingenious untruths .The blames fall also on the customers who are not discerning enough to see through the lies and insincerity of the agents. They are talked into paying
poor products with commission.
Something has to done to stop more damages being committed.
Mr. Tan, your blog is a perfect place to educate the public but may not for insurance agents.; September 13, 2007 2:23 PM
Anonymous said...: The extravagant splurging on ads and rebranding is going to make REVoSAVE the most expensive product ever launched. PAYMYuni has already gone south..Going by the reception by the public it looks it was doomed from its birth. Why?
It is a redressed up product with no real benefit.It's a wolf in sheep's clothings.(high commission)
An agent was promoting to me of the flexible options revosave has.I told her, money in my hand is far more flexible. I have more options.
For liquidity I can put into a money market which earns up to 3.5%
If I want to be locked away for many years I can buy a plain vanilla endowment for higher return and higher insurance coverage.
For even higher return I can invest into a RSP which charges 3% but with all my premium invested and not just 36% of my premium as in what i would have paid for revosave.
You see, I can have more to spend on my sunny days and also plenty to meet my rainy days and not forgetting to mention the insurance coverage which is higher than revosave for same premium.
I have real freedom and peace of mind.
Thanks to Doc. Money, without his advice I would have been a prey
also.; September 13, 2007 11:53 PM
Anonymous said...: High commission for agents means high cost for customers. It's good for the company and the agents. They work hand in hand to plunder the customers.
Some people try to justify the high commission by hard work and some non financial services. Are they worth so much? For form filling and policy delivery or filing claims as this is a favourite argument of agents that without them clients can't claim.Insurers won't pay.
The lawyers don't earn so much if they just fill forms and photocopying some documents.Only those who do litigation, this is where the money and their earning is also volatile.
Insurance agents don't add value to the clients.No way can they add value when their knowledge and skill equip them only good to sell and twist.
I have seen the likes of them at shopping centres and MRT shoveling and yaking away the features of the products. If that is what they can give we can get from the websites.
Pay them high commission for this?
Come on, let's wake up. We can't be fooled by them .; September 14, 2007 9:44 AM
Anonymous said...: Yes, I agree with many of the points raised here. The colour full page advertisements certainly costs money. Trips to exotic places for the agents also cost money. Having meetings in 5 star hotels also cost money. We see now the high costs involved just to meet some statistics to indicate success. But the hidden costs will be reflected in our policies bonuses later on. Meanwhile with all the massages on the necks, we do not see any improvement in customer service. Quite on the contrary, service has dropped considerably. I wonder why?; September 14, 2007 3:00 PM
Anonymous said...: The numbers look good on the outside,; good market share, more than my predecessor; more visibility; new image; YoY improvement; impressive names and tittles; high flyers etc.
The insurance agents, wow! more money in my pockets; this is the kind of stuff, real stuff leader.
The poor policyholders will be asking, "what about me, the returns, the bonuses, since I pay so much.Are we forgotten in the plan?
Well, left to be seen!! not fair to conclude now.Hope the revolution, the long march don't fizzle out.; September 14, 2007 7:52 PM
Anonymous said...: The Straits Times reported that moral of the staff is sky-high under the new CEO.

But, you should ask the internal people about the high turnover rate. Many people are living each month. They do not like the change in direction under the new CEO.

Which is the truth?; September 16, 2007 4:56 PM