Tan Kin Lian's Blog: Poor return to policyholder

Sunday, November 11, 2007

Poor return to policyholder

A friend told me about the business model operated successfully by a life insurance company in Singapore.

1. They paid high commission to the insurance agent. They organise sales contests and provide attractive prizes such as overseas trips and motivational activities.

2. The high marketing cost are added to the product. They use high projection to make the product look attractive to the consumer. These projections are "not guaranteed".

3. Their agents are well trained to highlight the marketing points of the products. They are trained to brush aside the negative aspects, under the technique called "overcome objections".

4. After the customer buys the product, they are locked into it for 20 to 30 years. They have incurred the upfront cost and can only get out by suffering a large loss. The policyholder get a poor return.

5. This company has successfuly applied the same marketing model and made a lot of profit in several Asian countries.

17 comments:

Anonymous said...: Hi Mr Tan

Thank you for making this observation. I am a customer who was conned into buying insurance from this company - i assume that it is an american company. I find after 20 years that i get a poor return compared to taking the same policy from ntuc.; November 01, 2007 9:36 AM
Khiat Han Hwee Adrian said...: Don't be also conned to believe that the firm is from America. If we are talking about the same company, that company origin from China.; November 01, 2007 10:47 AM
Tan Kin Lian said...: Actually, my friend mentioned this to me in relation to a British insurance company.

I think that both of these companies apply the same business model, i.e. to pay high commission to their agent and get them to sell the product aggressively to the public.

There products offer a poor return to the policyholder. However, the agent is more interested in their personal benefit.; November 01, 2007 11:50 AM
Anonymous said...: Ntuc Income is moving towards this model, paying high commission to motivate agents to aggressively promote their new products. Lots of incentives like free trips. It is working as you can see from the way revosave is promoted. You see adds at bus stops and they line some roads.It is not free, right ? Who pays? the customers. Who makes the money? Insurance agent and the company. For agents high commission and for the company, the bottom line and market share.
The agents are conning the customers. Where is the company from? Singapore!!! home grown company squeezing home buyers.; November 01, 2007 4:28 PM
Priyadi said...: let me take a wild guess. the company name begins with a 'P'?; November 01, 2007 8:04 PM
Anonymous said...: I will like to play a devil's advocate. Consumers have to be blamed for such a situation. Because of uneducated consumers who prefers lousy insurance products, that is why we have insurers pushing them to the market! This is the basic law of demand and supply. If an insurer sticks to producing good products and few buys, then it will decline. The only way for insurers to change their ways is for consumers to become more educated.; November 01, 2007 9:51 PM
Anonymous said...: High commission and insurance selling come together. Same for other types of sales jobs. Otherwise just get a normal pay, normal job. Buyers just beware!; November 01, 2007 9:59 PM
hongjun said...: "P" is getting a bit annoying these days. Do visit AMK hub one day and you will bound to be stopped by a swarm of agents doing surveys. Questions are like are you aware of bank interest rates, the GST, etc. They are very aggressive!

hongjun; November 01, 2007 10:25 PM
Khiat Han Hwee Adrian said...: Many agents are struggling just to make a decent living. The presences of Finanical Advisers are necessary but the standards are lacking.

We cannot push blame to agents alone. Regulators need to play a more active role, ensuring proper recommendations given and entry requirement for advisers.; November 02, 2007 10:50 AM
Anonymous said...: Surely not at the expense of customers. It is no excuse for charging high commission to the client just because insurance agents are struggling. It shows they are not competent. It doesn't mean insurance aGENTS HAVE TO BE UNETHICAL and unscrupulous.; November 04, 2007 2:20 PM
Anonymous said...: Business models usually evolved and got copied from one company to another.

I would like to offer my view to mr. tan's observations:

1. From some friends of mine in a sales department of a networking equipment company, a pharmaceutical company, a software company, they told me that it is very common to have attractive prizes such as overseas trips and motivational activities as incentives, aside from high commission and bonuses that they get from selling the products.

2. With regards to "projections" - isn't projections are what they are meant to be - projections? if anyone tell you that projections are "guaranteed", then better inform MAS immediately. No, better still, if you can tell me which company can guaranteed 100% something in 20 years time, I will invest in it myself.

3. Most people in the sales line will meet objections and rejections. This happens in any industry. Unless you are naturally thick-skinned, you have to learn how to manage them or else how are you going to give your solutions to people.

In particular to the insurance industry, where many people do not plan for their own future or unexpected demise, you got to learn how to overcome objections in order to help them help themselves.

4. I think every product serves a need. it is not fair to compare a product of yesterday with a new product today. A good fund yesterday may be a lousy fund today even though same performance. Why? because our expectations have risen.

I know some MNCs who practice this model of eliminating staff whose performance levels falls below 5% relative to the performance of his/her peers. That means, every year sure must lay off some people.

When a person buys a product, it was intended to serve a purpose and as long as the original purpose is achieved, it is should be ok.

That's why people must know that buying insurance is not a one time thing. he/she must always buy new one whenever there are new needs to be addressed.

5. It is better for the company to make profits than to make losses. The questions should be - are the profits channeled back as more bonus for clients, training of advisors and creating more value-added solutions to consumers?

Let's not be hypocritical - if you are buying equities or bonds, don't you want the companies that are linked to them to be profitable and sustainable companies? Come on, if I buy a product from Income, I also want the company to be profitable and have money to improve the quality of the advisors and come up with innovative products.

There are two sides of a coin and it's not always fair to say that this company or product or agent is bad or good without considering the context where the event took place.

By the way, since MAS is the regulatory body, if such practices are not condoned, how come never shut them down?; November 05, 2007 1:29 AM
Anonymous said...: Insurance salesmaen are trained to lie, to manipulate the customers' emotion, to seduce, to tell half truths. They are trained to do all these except to meet customers' needs.Check their qualifications, there is nothing in their certifications that they are competent to help customers invest,plan thier insurance , plan their retirement etc.The company they represent teaches them to sell only, how to bring in business for the company,and ther is all the company cares. How the agents bring in the business the company does not care.The agents can do anything, illegal, unethical immoral and whatever. Just do it and bring the business. They are not trained or told, please take good care of the customers' needs.
The agents come in all shapes and sizes and genders.The good the bad and the ugly.; November 09, 2007 12:01 AM
hongjun said...: Actually I am trying to scratch my head which company actually originates from China. I understand it's sensitive to post the company name here. Anyone who knows it can drop an email to me at lohhonch[AT]gmail[DOT]com

hongjun; November 11, 2007 10:10 AM
Anonymous said...: MAS is definitely trying to work a way out to screen off the product paddlers, over the years, things like financial needs analysis was introduced and I do agree company P's agents are really ...

Just sought from a planner that you can trust, someone reputable. Do your fair share of study before buying any insurance too.; November 12, 2007 12:39 AM
Anonymous said...: There is a need to tighten the way
insurance and financial products are sold.An expert said sometime ago that as many as 80% of the insurance agents are not qualified to give advice on insurance let alone investment.
The records show up this incompetence.
Surveys have shown time and again that people are still not adequately covered. Why? because insurance agents sold them plans with cash value and at the expense of coverage. High commission and conflict of interest is the root of this problem. Education is important too. Mr. Tan's blog is fantastic in filling up this role.
CPF record shows many people lost money, as much as 85% of the members between the period 2001 and 2006 This is alarming and especially most members are retiring the CPF rules have to be further tightened and if possible no more investment via the insurance agents and advisers.Investment to be done directly into life cycle funds approved or managed by CPF.
The LIA is appealing against the restriction on use of first 60K.I hope CPF will reject';it will be a disastrous mistake if the appeal is acceded.; November 12, 2007 10:02 AM
Anonymous said...: Recent studies have shown that most Singaporeans are under-insured.

The company you mentioned has a good marketing strategy to reach out to these masses. At the bus-interchanges, mrt stations, post-offices, and even working with some non-singapore banks.

At least now, consumers have more choices and convenience to buy insurance or investment products. Their outreach efforts should be commended.

Is there anything wrong in paying a good commission for a job well done?

My interior designer contractor earns a good living selling his services and products, my car salesman also earn good income. Do you think their commissions are justified?

Even our dear favourite builder, HDB, also mark up their new units, with little new innovations, and consumers are lapping it up.

Let's look at Mr. Tan's recent topic about transportation - given that there is no new changes, the transport companies all risen prices, despite making profit after profit year on year...

I think the crux of the matter is not so much how insurance company should run but how consumers should learn how to manage their money. after all, nobody forces them to sign on the dotted line and there is the 14 days free-look period for all financial products. If consumer is not greedy and think that there is a short cut to riches, they will not succumb to the get-rich-quick kind of products.

If you lose money, take it as a learning experience and don't make the same mistake again. Problem is, a lot of people keep think that there such thing as free lunches and refuse to learn. To find someone to blame, insurance agents become a convenient scapegoat. :); November 12, 2007 8:20 PM
Anonymous said...: I feel that people should grasp the basic definition of insurance - it is only good in times of trouble and was not meant to be a tool to make money. Due to the diversification of the products, somehow the notion of having 'returns' and 'profitability' sets in. I would really think that if people wants to see the positive side of insurance then they should go for 'pure' insurance - when the unfortunate happens the policy is the only thing which you'll be glad about.; November 15, 2007 12:59 AM