I make a guess, and this is just a guess, that 30% of the life insurance policies sold each year are sold wrongly and for the wrong reasons.
a) Policies that require a big monthly premium to be paid that is beyond the means of the policyholder, such as a student that is not working
b) Policies sold on the misconception that it is a form of savings that can be withdrawn like a fixed deposit, without the policyholder realizing that one or two years of the premium will be forfeited.
c) Policies sold to a policyholder who thinks that it is a single premium policy, when in fact it is an annual premium policy.
d) Policies sold to replace an existing policy - on the false claim that it offers better value to the policyholder.
In most cases, the agents were aware about the misconception and were in fact, responsible for telling misleading the policyholder.
When the policyholder finds out the truth and lodges a complaint to the insurance company, the officer handling the complaint gets a statement from the agent. The agent will deny any wrong doing, and the officer usually tells the policyholder that the complaint is not substantiated, in other words, the consumer cannot get their money back.
If the officer bothers to use his common sense and look at the facts, he or she will surely recognize the following:
a) How can a student, without any income, afford a large monthly premium?
b) How can a consumer, with modest means afford a large annual premium - when their total savings is just enough to pay one year's premium?
c) Why does the policyholder want to stop an existing policy and take up a new policy, when the policyholder is likely to suffer a financial loss?
Surely, something is amiss?
It is usually too late to act, when the policyholder makes a complaint, and it can come several years after the policy is taken.
The best time to act is at the time that the policy is issued. The insurance company can, as a matter or practice, get an officer to call the policyholder and check that he or she is aware about the actual terms of the contract.
If this call is made, any misunderstanding could be found immediately and the situation could be rectified. If the insurance company has such a practice, most of the misrepresentations and bad sales could be prevented.
Many years ago, I introduced this "call the policyholder" practice in the insurance company that I was in charge. I required the agent's supervisor to call the policyholder for each new policy that was issued, and verify that their understanding of the policy is exactly what it should be. The supervisors did not find any case of serious misrepresentations.
The sales general manager reported that the new sales dropped by 30 percent (if my memory served me correctly). My guess is - the insurance agents stopped the mis-selling as they knew that they would be caught quite soon. And this represented 30% of the new sales.
Any insurance company can stop the mis-selling by introducing a system to "call the policyholder to verify the understanding". But will they want to do it?
Well, the answer is "no". They will only do it when the regulator, i.e. the Monetary Authority of Singapore, require them to.
Tan Kin Lian