Tan Kin Lian's Blog: Proposed Commission on Life Insurance Products

Friday, October 03, 2008

Proposed Commission on Life Insurance Products

Dear Mr. Tan,

I have a proposal. In future the products will have a low cost(commission and expenses) and reasonable profit margin for the company.

Commission will range between 5-10%
1. whole life and endowment products will pay 10% for 1st year and 5% next 2 years.
2.Term products will pay 5% for 2 years.
3.Other products 5% for 1 year.

The commissions above are to be paid to agents who sell and push products and do nothing but soliciting and form filling.

Those who are qualified and competent and who can prove professional competence in specific area to provide financial planning advice can charge a NEGOTIABLE FEE (hourly or piece rate)with customers.

This will keep the cost low for the consumers and the company. The products can charge low premium for larger coverage and higher return of about 4% after 10 years.
This model will attract those advisers who are serious about helping people to upgrade themselves and to be paid according to service and work done for the customers.

For agents who sell only, they get the commission as in the products.
This will be akin to other professions where fee commensurate with professional advice and work and not for form filling, legwork or solicitation and some other non financial services.

This is the most equitable and agents who think of 'get rich quick' are nor suitable for this trade.This will stop mis-selling and misrepresentation, unethical selling , conflict of interest and malpractices.

This will weed out agents who are in the business just for the money and who not interested in helping the customers. This will elevate the profession .

Fair Dealing

REPLY
Under the current market price, the commission paid to agents is 5 to 10 times of the above proposed rates. I agree that the current commission rates are too high and unfair to consumers. I advice consumers to look at the commission rates stated in the Benefit Illustration and avoid life insurance products that pay comissions of $1,000 or more to the insurance agent.

18 comments:

Anonymous said...: Agree. Insurance agents don't deserve the current high commission based on what they are doing . They only sell products,. They don't diagnose your problems. What they are doing is no different from buying a product from the shelf at pharmacy.
They should be paid according to what they do. If they sell pay them a small commission and if they do more than that pay them a fee to be agreed between the buyers and them.
This is the fairest and little will go wrong.
But this does not mean they cannot push the products. They can and at their own risk. They can still be sued if they sell 'tainted' products. Leopards will not change its spots and so do the insurance agents who peddle products. This is the only thing they know.
The recent AIA saga proves one point. Many discovered the rotten product they bought after so many years. Return is so low and breakeven in donkey years, 20 years?.
Cancel or not to cancel is a delimma for many. Don't cancel is like biting the bullet and bearing in agony to see the return gobbled up by inflation.
If there is no change to product design and cost structure consumers are better off staying away from whole life and endowmnet products.
What do you think if you buy a whole life at 20 years old and when you are 60 years the return is less than 3%?????Guaranteed loss!!!!

An IFA; October 03, 2008 1:16 PM
Anonymous said...: Remuneration must commensurate with work done and not on some glib tongue presentation and lies and bull shit and filling up some forms or some promise of help in the event of claim, a very common bull by insurance agents.This is all they are worth. You are right , 10% commission for sale of whole life is enough..and let us see how hard they push.
This brings to mind about the old ntuc under Mr. TanKL. When Mr. Tan cut the commission to reward the customers, there was hue and cry. Actually Mr.Tan's intention was to help the agents because many of them were incompetent and and their sales were declining and rejected by the clients. His good intention turned to backlash and the agents were unhappy and some left the company. These agents who left were some of the greedy ones who thought they could make it outside. However, many returned to ntuc not because they love ntuc but their skill was not up to standard and they failed out there as manager and salespeople. They had to come back because the brand name of ntuc had been selling for them and not their skills which they found out they have none when they left for other companies.it is true that the ntuc brand has been providing a living to the agents. But many don't know die and thought of MR.Tan negatively and ungrateful to him.It is a case of biting the hands that fed the dogs.
So reducing the commission is the right step to benefit the consumers ,not only in cost but in solid advice which has been lacking.Some of the greedy agents will be weeded out to feed other industry, some to relief the old folks as toilet cleaners. There is no competition from foreign talents.
Hope this remuneration structure for insurance agents will be considered by MAS to reward the true advisers but the salesmen compensated with small commission for glib tongue and form filling.

Ah Meng; October 04, 2008 12:20 AM
Anonymous said...: Louis Vitton products make substantial margin from the sales, why is there no complains?

some premium products are charging very high premium, why the public is so quiet on this?

now imagine this, whe you placed the money with this insurance company, you want to squeeze them (if you could), and you want this gift and good service and you want good people to help you when u call the hotline, and you want good underwriters, u want...

now they can offer good price and all the good stuff, and there is hardly any profit, do you think the shareholders want to be in this biz? how long do you think this company will last? do u think they can bring in the sales agents to promote their plans? (sales agents brought in far bigger sales than the customer walk-in sales center)

I, for sure, am NOT going to place my money with them to buy any protection plans. They may not survive too long, and I need to look for new protection cover, and I might not be insurable anymore (might be due to health issue).

folks, don't be so naive, so calculative, and myopic. YOu may get what u want, but I can be sure you will loose them all.; October 04, 2008 12:54 PM
Anonymous said...: There must be profit to keep the company going and the agents alive but DON"T con consumers into buying something rubbish.
Remember insurance is sold and NOT bought.
Is Louis Vutton sold or bought? Is it Caveat Emptor? Can you see the hand bag, pinch it, touch, molest it, try it, probably drop it to satisfy you. Can you do all that to a structured product or an insurance product?
The agents must be fair to the customers to give what justifies the commission and certainly not lying and conning and then fill up some forms.
If the agents find they cannot make money they should not be in there .This is a calling.There are many professionals who charge lower than insurance agents and yet give much more than them. The remuneration structure is about paying advisers who deserve and to deter unscrupulous and unqualified agents from conning consumers.. They can still earn a lot of money but the earning doesn't come from bullshitting , lying , misrepresentation but from professional advise.The customers will benefit from lower charges, value for money and theeir needs met and have peace of mind.
If the insurance company finds it not profitable they should sell it.
There is company up for sale, interested?
Adego, you are naive. You argue for its sake.There is only 5% of good and honest agents around and the rest are either dishonest or incompetent .

Ah meng; October 04, 2008 1:24 PM
zhummmeng said...: Adego,
you sure talk like an agent from ntuc or you bought too many policies that you've been brainwashed and echoed whatever the agent told you..
Let me ask you, do you know AXA doesn't sell whole life or endowment or those high commission products? They ONLY sell terms and ILPs. Buy term and invest the rest is their belief.Do you know AXA is the BIGGEST insurer in the world? How do their agents earn a living? How do they make it to the mdrt? Not many but they are professionals who look after their clients' needs in the areas of risk management and wealth management. They don't push or sell products like cure all antibiotics like what ntuc agents do and make huge commission and provide nothing financial but every other service like attending to your call/wants or to your queries or give you free gifts and neglect the needs of their cleints.
Do you know who is the top producers in ntuc? In her own words, she claims to be a "spokesman for the wife and children" and do you know how much is each policy she wrote? only average $60K sum assured. With $60K the wife and their children need to depend on handouts or maybe need to seek the temples' or monastries' help. Why is it so low protection? Conflict of interest..
Do you know how much protection each individual needs averagely ?
According to MAS it is $500K.So you can see the poor deceased's family will have to live on the dole or charity. This is the result of product pushing and peddling by greedy agents. Agents peddle them because of high commission.With low commission will they peddle? They stopped selling. This is what happened during Mr. TanKL's time when he cut the agents' commission to give it to consumers. Greedy or not? For the cleints or against the cleints?
Commission structure proposed above is to reward those genuine advisers, competent and honest, because the fees they charge is for the advisory service and not for product pushing and lying and manipulation.The companies still make their decent profit.If you are afraid no agent would want to promote, so be it. This is a safer for consumers. The consumers get the best deal at affordable price.
The products give good protection and return. And whatever is customers' they are kept with MAS, protected by PPF.
Your fear is unfounded and your reasoning flawed.; October 04, 2008 5:59 PM
Anonymous said...: zm, go and check it out, how much commission axa life is paying their agent. You will be shock to see it is many fold higher than the 10%, go check it out.

it does not mean, if a company offer term and ILP, they will not be pushing products, be objective. u went through some education system and know how to think properly.

different products serve different purposes, and suited different creatures, by reasons of risk appetites, lifestyle, ability to handle money and etc. look at those who buy term and invest the rest, some of the funds fell 50% or more over the 12month period. nothing wrong about that, but is it really suitable for anyone?

the focus of yr discussion is 'high comm bad, and low comm good', u should learn to think out of this. This reminds me of the animal farm story, '4 legs good, 2 legs bad'.

I personally own excess of $1million coverage, of which, I have $700K Critical illness policies, and most of them are term insurance.

There is always good advisors and so called 'bad' advisors, who are selfish and greedy, likewise, in yr own profession, or any others, good doctors, greedy doctors, good ceo and bad ceo, good teacher and bad teachers.

then I think u should be buying most of the made in china stuff, because they are typically low cost and low margin, and I suspect u do not have any branded stuff at home, because the marketing and adverising cost goes to different channels and the distribution cost is high. and surely no LV bags for u...

hopefully u did not get any melamine from these cheapy low margin products.

next, how do u know ILP plans are beneficial to consumers, that offer fair pricings?
did u read the fund factsheet in detail and compare the underlying funds, check out how much fund management fees (not to mention bid/offer spread).

if the consumer(investor) pays additional 1% annual management charge a year, that would translate to 'losses' of more than $22,000 for a single sum investment of $100,000

it's good to be conscious of cost, but do your sum first, and don't be penny wish and pound foolish.

u should also be complaining that the real estate agent are charging too high the comm. you will be paying at least $10k for a $1million property.

before u respond any further, I suggest u to do the following:
1) check out how much commission axa life agents are getting
2) compare the annual management charge of the funds, e.g. aberdeen pacific equity vs their asia pacific equity fund (same fund manager).

frankly, zm, u are not sharp enough to identify all these. go do yr homework, and don't make a fool of yrself; October 04, 2008 7:02 PM
Anonymous said...: ah meng, I suspect u have met a lot of incompetent insurance agents who are trying to push produts (which u think are junk) to you. whether they 'deserve' the comm or not, it's anyone's judegment, based on the delivery.

Next, I suspect the only people u don't like are insurance agents, and all other professions are in yr good books, eventhough there are unscroupulous doctors, pervert teachers, greedy bizmen & etc in this world.

for yr own good, ah meng, pls go take some insurance courses, to learn what is it, so that u wont' blame anyone when u get con. I think the insurance industry needs pple like u to serve, to increase the number of good agents, who is competent and a ethical and a person of high moral standard.

I don't think any insurance advisor in this world can meet yr high standard. u probably don't need any insurance if u are:
1) no love for yrself,
2) no love for pple close to u (e.g. family)
3) has tonnes of money, to be yr sinking fund
4) has moral hazards

anyway, I would not bother to serve u if I am providing financial advisory service.

and pls, complete the insurance courses soon, and get yrself adequately covered with yr knowledge, and hopefully yr health is still good enough to be eligibile for insurance, if u want to and not belong to one of the 4 pointers stated above.; October 04, 2008 8:28 PM
Anonymous said...: zm,
something miss out from this paragraph:
'if the consumer(investor) pays additional 1% annual management charge a year, that would translate to 'losses' of more than $22,000 for a single sum investment of $100,000'
The time frame is 20 years.

imagine u invest $100k now, and u pay additional 1%p.a. of charges year after year. And assuming the performance pays only for the charges, u pay more than $22k extra (because of this 1% higher annual charge). but if the investment make much higher returns, the 1%p.a. charge would means much higher expense to investors.

To add some clues if u don't understand animal farm story... the 4-legged animal eventually became tyrants and rule with iron fist, because they just indiscriminately say, '4 legs good, 2 legs bad'...; October 04, 2008 8:41 PM
Anonymous said...: here is an excerpt from ah meng,

"There is company up for sale, interested?
Adego, you are naive. You argue for its sake.There is only 5% of good and honest agents around and the rest are either dishonest or incompetent ."

to answer yr question:
1) in a free market, or capitalism, companies are allowed to fail. u can buy them if u want to.

2) where did u get the 5% good agents? pls show us yr findings. did u do a market research or survey? show us and publish them.

frankly, I am not interested to engage in any discussion with simple minded pple (like u). unless u prove me wrong.; October 04, 2008 10:39 PM
zhummmeng said...: adego,
i agree that the axa agents get more than 10%.But how much more can they get from a low cost term compared to the WL product. For the same sum assured the cost is about 1/3 compared to NTUC which 1/10 of WL.Assuming the agents get 100% of the premium it is still lesser than the agents who get from WL.
Anyway the proposed commission is a proposed structure with one aim in mind,ie . to deter product selling and encourage agents to put the needs of the client first.Yes there will be product pushing especailly agents who have no other skill other than selling and bullshitting.
AXA is used as an example to illustrate that there is no need to have whole life product which are rip off and which many companies have because of its profitability,. It is profitable for the company and profits the the company NEVER shares with the policyholders fairly. If you have opened your eyes or ears lately you would have heard the grouses.
I agree that different products have different goals but most agents sell whole life products as "one size fits all" , a cure all products.The WL products are bad becasue they ignore the risk tolerance, time horizon, the needs of the investors and are very expensive.The investors are short changed. It is just like a doctor prescribing antibiotics for any illness. Of course they sell WL for the commission and ignore the needs of the clients.
For your personal holding I can say that either you are very well off and you DON"T really need those insurance or your agent has done a very bad job. For an ordinary person $700K for critical illness is far in excess of his NEEDS.WANT is a different animal altogether. And with your other coverage adding up to one Million you are lopsided. You should have far more coverage in other area than the CI. Ok, before you jump into rage, i want to show you the disproportion in your risk management.
For an average Joe with 2 kids his need is about $500K for dependent income; $200K for CI; $720K(20 years) for disability income.
Have I made my point here?
Buy term and invest the rest eliminates those side effects of WL. Like under insured; poor return with high risk;high cost; no control , to name a few.
BTITR is the opposite of WL. It is misconception that investing regularly is riskier than WL. It is the opposite and it offers higher return.(space constrain other wise I will go into a dissertation on this topic)
Yes , investing in funds cost is very important. I agree with you COMPLETELY.
One last statement. It is not true that there some bad agents only. If i were to put the dishonest and incompetent together at least 95% of the insurance agents in Singapore are bad and disastrous to use.
Animal Farm is written by George Orwell if I am not mistaken. I am not as dogmatic as you think I will blare 4 legs good 2 legs bad.
This applies to insurance agents more aptly. They have not learned any thing more than they should. They have been indoctrinated like the animals.That is why you hear their sales pitch almost the same. That is why they are product pushers and peddlers . And they hurt a lot of people financially. The RMs and the consultants are in the same group. What do they know about finance to advise on personal finances.
The agents and RMs' maxim is 3 legs better.This is how they get up the corporate ladder in the banks.; October 04, 2008 11:32 PM
Yong Kiat said...: Dear Mr Tan,

I heard the commission for life insurance products sold by most insurance companies are in MLM (Multi-Level Marketing)system. Is that true?

If the insurance products are sold in MLM way, of course the commission will be very high. Many products sold in a MLM system are usually in high commission.

In a MLM way, if the MLM system is good, the people selling the product will be motivated to get as much sales as possible.

http://en.wikipedia.org/wiki/Multi-level_marketing

I heard CASE the Direct Selling Association of Singapore (DSAS) that they propose changes to a trade act, the Multi-level Marketing and Pyramid Selling (Excluded Schemes and Arrangements) Amendment Order 2001 (MLM Act). Banks and Insurance products may be included in the Act as well.

http://www.channelnewsasia.com/cna/cgi-bin/search/search_7days.pl?status=&search=MLM%20act&id=379974

Hence are banking and insurance products are sold in a MLM system?

Should we ban financial products to be sold in this way?; October 05, 2008 1:24 AM
Anonymous said...: zm, few points to make:
1) axa life example tells us not BTITR works for insurers, but insurnace companies has many ways to suck money out from policyholders, beside selling WL products.

I can see that u are not in biz, thats ok. u have more to learn.

2) it just look funny and silly to throw statistics 95%/5%, & not giving any empirical evidence. just looks nuts to me.

3) how much of insurance needs is very personal, yr comments sounds as if, everyone has to wear the same brand of underwear as u did, live in the same type of house, has only 2 kids, eat the same kind of food, invest the same products and etc, and buy term invest the rest is the one and only way to achieve yr goal.

4)certain financial products category that sells very has many reasons, one important reason is the level of financial literacy of the public and the level of ignorance.
Ok, maybe u are financially savvy, but stereotyping is not helping u either.

5) just a true story from someone I know:
A friend of mine, a financial advisor, has a client who is in the 50s, believe BTITR and his protection plans and retirement plans were implemented in this manner.
He is in biz, and the biz failed, and needs lots of cash. The market was bad, he has cashed out all from his investment, and now has problem to pay premiums, though these are only term plans. Worse still, the stress is taking toll on him and not in very good health, insurability is another problem.
He got what he wants (BTITR) and lost everything.
He might be able to recover the losses from his biz later on, but what if he couldn't? He will die poor and leave more problems to his family.

we need wisdom for our planning and not just intelligence.; October 05, 2008 11:55 AM
zhummmeng said...: He hasn't got a good planner.A competent planner would have planned for those emergencies , his business on worst scenerio basis and also to ensure that those policies would not have lapsed.Your friend didn't have a adviser/coach but a salesman.
Yes , everybody has needs unigue to him or her. It is through an analysis that we can uncover.
I gave the example of an average Joe's needs for insurance to illustrate the AREAS of need for insurance.This is exactly what you mean by different needs but insurance agents sell you an under wear to fit both ladies and gents and not just brands. WL product is a scam, a conspiracy by company with agents abetting in the scam.
Remember to distinguish between needs and wants. Insurance agents will pander to your wants and NOT needs Most poeple ended up under insured , low saving. Some are asset rich cash poor. Some are worth more death than alive. Why? NO pLANNING. Salesmen don't plan. They sell, they bullshit, they lie, they misrepresent . That is why we are against inusrance agents recieving huge commission for filling up forms and bullshitting.
For your case I advise you to seek a qualified planner to review your portfolio and to 'rebalance to taylor' to your needs". I am not trying to be funny. It is to your interest.; October 05, 2008 1:43 PM
Anonymous said...: zm, u are still singing the old tunes, and ignoring some questions posted.

this bizman got what he wanted. don't u understand? still don't get it? he asked for it! pple can plan and offer advise, u can make yr choice and ignore them.

show us yr empirical evidence on 95%/5% findings.

u may continue yr song, 'WL bad, Term Life good', 95% agents are bad, 5% agents are good, sharp nose bad, round nose good, china made bad, xxx made good... high comm bad, low comm good; axa life good, all other brands bad;

hope u could gather a crowd to form a choir on yr tune

perhaps 99.999999999% of insurance agents are bad, and u are a good man whom they want to con.

it's more interesting to make fun of u than to show u scientific ways of planning. planning involves different science, including behavorial science. u can't even grasp the simple logic presented, and it's going to make u even clueless when it comes to the deeper part of it. save yr dissertation, else it is being deserted (maybe in the desert).; October 05, 2008 3:05 PM
zhummmeng said...: What went wrong was precisely what the business man wanted .He ignored the advice of his adviser? So what is wrong? BTITR or WL?
A sample survey was recently, about a year or more ago, carried by to find out the level of competence based on certain qualification and skill sets of insurance agents. It was found that 95% failed to meet this requirement and this figure seemed to corroborate the number of complaints of incompetence and malpractices against them.
Another source stated that 85% were incompetent and not fit as insurance agents about 3 years ago.
If I have the source reference I let you know.
From anecdotal evidence I agree with the figures.
Now come back to you, I don't know why you are accusing me of singing the same tune. First, what is wrong with the same tune? It is consistency. Secondly you have not rebutted any of my points on financial planning, especailly yours. To say every body has different needs is very vague , lame answer. Let me ask you again why your need for $700K for CI and neglect your other needs? Or you have the same retort as the businessman, "it is my wish, waht" or "I want it waht, nobody can tell me waht to do". Don't understand why waste money on insurance agent. Can buy off the shelf. Certainly this is not planning, this is DIY. Well, this isn't my business.
Look, who is tyranical?
2 legs good, 4 legs better 3 leg is best.
By A. Orwell; October 05, 2008 9:44 PM
Anonymous said...: zm, are u serious? u don't get it?
can BTITR strategy help this bizman? why not? most efficient way to buy insurance and lower fee w/o WL, what's the problem? what helps & what's not?

fortunately u are not insurance man, else will be disastrous!

95% failure? that's almost a total disaster for the Singapore residents. imagine 1million aia policyholders with 2.8million policies, sgporeans are really nuts to feed the 95% failure. Make good sense? u must have went thru some 'unique' education system to have such logic. so many pple buy insurance and get poor service and still buying everyday... something very wrong, isn't it? only 2 possibilities:
1) singaporeans are nuts
2) yr statistics is crap

if life insurance planning is that easy, why bother to have professor in Life Insurance? u probably do not know there are some famous professors in this world that taught life insurance in the universities. let's jump out of yr well (owell ha!), there is life outside this well!

ok, u have a good tune, let's keep it up, and I will not accuse u on this any further. I will sing, 'let it be, let it be, let it be...'

ok, since u ask for different ways of planning for different needs, I give u some tips...
bizman needs to protect their assets from the creditors. u are not bizman, u won't understand.

basically, its a simple truth, pple live in different houses, has different liabilities, cares and concerns, priorities and etc. if u can't appreciate this simple fact of life, it's of no use to discuss any further.; October 06, 2008 12:46 AM
zhummmeng said...: 1.You tell us how business men can protect their assets from creditors.
2.Singaporean are NUTs and have been absolutely fooled.
3.check MAS website for statistics
of WL products.
4. Write to MAS and ask them what they think of the insurance agents and what have they done for the consumers like you.
5. Insurance planning is precisely NOT easy but the insurance agents make it look so easy that all of us need only WL, have us believe that it is a one size underwear that fits all male and female. BTITR is a stretcheable and free size underwear, far more flexible and powerful tool to meet needs.
6.You are self contradictory, vague and you use inapt analogies .
Finally, I think you have won the debate and the credit goes to you for your dogged tenacity. You have worn me out with this.; October 06, 2008 10:07 AM
Anonymous said...: zm, u seems to suggest BTITR is the one and only way.

if life is really that simple, (referring to BTITR), this world will be:

1) extremely boring;
2) don't need so many products
3) don't need so many ideas
4) don't have so much quarrel
5) don't have war
6) probably only have 1 type of flower - becos pple are one kind
7) ...

u can try this experiment,
- give $100,000 to 10 people, see what they will end up with after 3 to 6 month.

- A will dig a hole and hide the money in the earth, in fear of thief and banks(only $20k guaranteed)...

- B will invest...
- C will use them to buy toto, 4D, visit monte carlo & ...
- D will be charitable, and little is left quickly
- E will start a biz
- F will start dreaming and not working
- G will ...continue to work and work and think it is not enough
- H will keep quiet and low pro and not let anyone know, and he would probably hug the $ till he died...
- I will (not tell u)
- J will ...

u may continue the story...

just a simple illustration that, if u insist BTITR will work for EVERYONE, it is NOT possible. pple handle money differently, that's why I mentioned 'behavorior science' in the earlier post.; October 07, 2008 12:54 AM

Friday, October 03, 2008

Proposed Commission on Life Insurance Products

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