Tan Kin Lian's Blog: Role of insurance agents

Monday, April 05, 2010

Role of insurance agents

Insurance agents can play a useful role in marketing insurance to consumers. However, the insurance products must be designed to be fairly priced and to give good value to consumers. The design of the product is the responsibility of the management and the actuary.

Many general insurance products carry a commission rate of 10% to 15% of the premium. This is acceptable, if the premium is based on the risk that is covered by the policy. This rate of commission can be applied to health and term insurance policies.

For savings and investment policies, the commission rate should be much lower, e.g. similar to the chargespayable for the purchase of shares and bonds, e.g. brokerage is 0.3% of the amount invested. It is wrong for the commission and distribution cost to take away one or two years of the savings.

I hope that the life insurance companies and their management and agents change their practice to offer life insurance products that are fair and good for consumers. This will allow insurance agents to hold their heads high that they are serving their clients well.

I like to ask my readers to be fair in making your comments and not to use this blog to "bash" insurance agents. Please state your views objectively.

Tan Kin Lian

13 comments:

Tan Kin Lian said...: I have blocked another "bashing" comment.; April 05, 2010 3:03 PM
Anonymous said...: Extremist spotted.; April 05, 2010 3:04 PM
Anonymous said...: Hi Mr Tan,

I've been a reader of your blog for a few months,

You have been talking about fair distribution costs so that the consumers have more value whenever they buy a life plan or saving plans.

You're right.

For a long term commitment life plan and saving plans, the commission can go up as high as 50%and thats the ceiling.

When you are serving your time in NTUC income,

how many life & endowment policies are sold and those commission are 50%?; April 05, 2010 5:18 PM
Anonymous said...: I empathize with my Insurance Agent. Since the day of Structured notes, I have lost confidence with the institution. It actually makes his selling of insurance products more difficult.

The sad thing is that the FI gets away with it, but the Insurance Agent suffers as a consequence. From Cashew Nut.; April 05, 2010 5:55 PM
Anonymous said...: How about letting the consumers pay for the commission (also known as consultacy fees) instead?

If the agents are renumerated by the insurance companies, there is a high tendency that the agents will be product driven. The products that they sell to the consumers may not be what the consumers need

Jerome; April 05, 2010 7:44 PM
Tan Kin Lian said...: Reply to 5:18 PM

During my time in heading NTUC Income, the commission rates paid to agents were much lower than the market (by about 50% lower compared to distribution cost of other insurance companies.)

The policyholders get 20% more on maturity than similar policies from other companies - in most cases.

Easily, 1 million policyholders benefited from the policies sold during my time, compared to the returns that were given by similar policies sold elsewhere.; April 05, 2010 9:57 PM
Anonymous said...: Mr. Tan,
insurance agents have NO role to play and they will become obsolete soon like in other countries.
Their role is taken over by financial planners/financial advisers who ADVISE a wide range of personal finance ranging from insurance planning to retirement planning , investment portfolio structuring and estate planning. These new breed of advisers are are widely trained and competent and they hold professional tertiary qualifications. They advise and plan for their clients and they don't push products upfront.They put their clients' interest first. They are governed by their association which demands a high standard of ethics. If they are found to have pushed products without reasonable basis they will be hauled before the disciplinary committee.
Of course, they are former insurance agents who saw their role enlarged and they are caring and sincere for their clients and who want to give the best advice to their clients so that they can achieve financial independence. This is reason they upgrade their skills and knowledge so they can help their clients achieve their goals.They talk about goals and not products pushing and commission. They get paid for work done and not for sale of products.These are truly the sincere ones and who don't just talk but action. They spent many hours of study and money so they can be competent as they believe they owe their customers a fiduciary duty of care.
Sadly many insurance agents are still talking about sincerity and caringness but paying lip service only.They are still incompetent to give advice instead they are the ones who are peddling and pushing products bringing disrepute to their fellow practitioners.These agents are motivated by commission and quick money and don't care about giving their customers good advice and recommendations.How can they give proper advice if they are not qualified? Do they care? Yes, they do care but the customers' money. They are the ones who always qualified for mdrt , cot or tot and these are their measures of success, how much commision they earned from their customers and not how much help they rendered to them to achieve their goals.
The qualified and honest ones don't? Why? the qualified ones take a slower process to ensure that their clients are thoroughly examined before the appropriate products can be identified. They put their clients' interest first and not commission.That is why they don't qualify for those misleading awards whcih measure commission. Earning more commission from pushing products is NOT success for these qualified advisers but satisfaction to see their clients have peace of mind. This is success on non monetary term. Of course the salesman insurance agents will laugh and see them as stupid. But do they care. These qualified ones will have the last laugh.
Do insurance agents advise on CPFlife? Do they advise on HDB lease buy back? No, instead they advise against them becuase no commission. To quote one successful planner, he said 70% of a good adviser's work and advice don't earn commission.It is the passion for helping people acheiving financial freedom and this brings them great satisfaction.
I leave it to you to judge whether this posting is agent bashing or the true current landscape in the financial industry.

The Watchman; April 05, 2010 9:57 PM
Anonymous said...: To me..... no matter what financial planner or agent or bla bla bla.... they are just a form of disguise. All are the same! Same as long they are commission paid agents. By advising wider range of products does not equal to putting client's interest ahead of theirs, so what if they are so call "competent" with those fanciful decorative purposes "Certification"? You can't certify one's integrity and moral ethics can you?

Many so-call planners still end up going one big round selling the highest commission products. By believing in those "planners" who claim they can sell wider range of products just because they are independent adviser unlike tied-agents are a great joke to me. Come on! Who you guys trying to fool? Consumers are not stupid these days. Many are smart people and they know what they want.; April 06, 2010 2:18 AM
Anonymous said...: Anon April 06, 2010 2:18 AM,
you missed my points. I never said 'wide range of products'. I said a 'wide range of personal finance'.
I agree 'certification' is not a guarantee even with TERTIARY certification which planners have but more importantly HONESTY and all planners MUST have BOTH honesty and competence .
To stop planners from 'going one big round' I support MAS's intention to remove commission. To further safeguard consumers section 27 of the FAA must be enforced.
Lastly, consumers are stupid and they are NOT smart and they do NOT know what they 'want'. They should think of their NEEDS and NOT wants. Because of this mindset, consumers were conned until today because that is what insurance agents exploit. Eg..oh, so that is what you want and I shall give the product to you". with this mindset it makes it so easy to pander to your wants, just give you what you want , lor. no need to justify,no need to give reason and just write that the customer wants and loves the products in the fact find form...to cover up the agent even eventually it is found wrong product the agent is safe to hide behind the principle of 'buyer beware'.
This has been the mindset of consumers for decades and it is as good as DIY and the agents just execute what the customers want.It is doomed from the start and no wonder the insurance industry has not changed and the companies did not oppose the change because this way products can be easily sold with this kind of customers' 'I want' mindset.
I find it stupid because you pay the agents for nothing, for just executing what you want.The agents only fill up the forms. Can you blame the agents for continuing to push and peddle products? so easy money, leh, why upgrade myself.
The good news is commission will be removed and the advsiers will be forced to perform a need analysis and to justify the recommendation and ON REASONABLE BASIS.If they don't the advsiers will be in hot soup.

The Watchman; April 06, 2010 10:13 AM
Vincent Sear said...: I tend to agree with the view to allign life insurance commission to general insurance commission, i.e. about 10 to 15% per year.

Rebate of commission in place of fee-based planning should also be officially allowed and regulated.

That life insurance commission is excessively more expensive than general insurance commission is debatable. In general insurance, though the commission is only 10 to 15% p.a., it's payable every year as long as policy is in force. It could cost much more than a life policy in the long run. But it's smoothened out, and it doesn't concern investment returns versus distribution costs.

In a life policy, a 1st year commission of 40 to 60% sounds very expensive, but it dips down from 2nd year onwards and in most cases cease by 4th to 6th year. It may cost 2 years of premiums in distribution costs for a 20-year policy, but in context, that's just 10% of total premiums.

The trouble is of course, it's commuted upfront to motivate sales and discourage lapses.

A 40 to 60% 1st year commission for the selling agent probably means 80 to 100% gone in 1st year distribution cost, as commercial companies use tiered agency managers to recruit agents; they have to be paid overriding.

NTUC Income as a co-operative didn't practise that whilst under TKL. Now, I'm not sure.

Another trouble is, policyholders having borne the upfront costs become hostages to the management, who could come up with various excuses to cutdown on your original 20-year projections, and yet get the board to remunerate themseleves handsomely in the name of talent and market benchmark.; April 06, 2010 1:07 PM
Anonymous said...: I can't think of insurance agents playing a positive role.
They have not contributed to the financial life of any consumers except to make their life more miserable. Under insurance and money no enough for retirement are what they have done to consumers and there are plenty of proof. LIA and MAS are the 2 sources that insurance agents screwed up consumers.
So what role? In fact it is better to get rid of them lest they become the scourge of society.; April 07, 2010 9:22 PM
Anonymous said...: I have heard insider stories of insurance agents who screwed up their own family and friends. What more the man in the street.And they are 'successful'. They achieved mdrt, cot or tot that even their company knows but keeps their eyes closed. So you know how mdrt , cot or tot agents achieved them..They are the actual scums of the industry but because they are 'good' at bringing those sales they are super dupers sale champions. Talk to any one of them you will see they are good liars and they have NO QUALMS about it. They will say them like truth. There is saying in the industry . You got to beleive everything you say and do. You must be positive.Turn black into white and vice versa.
There had been some warning about them. If these agents have MDRT or COT or TOT logo in their name card it is better that you avoid them. You will sure die in their hand. You never get what you need but they get what they need, ie. high commission.If not high commission how to qualify for MDRT? sell you what you need, term insurance ?; April 09, 2010 11:22 AM
Anonymous said...: My agent friend told me that mdrt or tot agents sell only products with high commission. These agents are so well trained to sell these products that customers like kenna hpynotised.
it is more kenna conned. And many lapsed after 1 or 2 years cannot tahan paying the premium.
That is why people say mdrt agents are successful. They are right. They are clever to con ignorant customers, aunties and their own relatives. In fact most customers are dumb and stupid but they don't admit, embarassing to admit, lah.
You see, MAS must really regulate the agents to make sure they do proper job. Best no commission.; April 10, 2010 6:54 PM