Nice post here from Mr Tan Kin Lian on his view about gaining sales in the insurance industry:
Life insurance companies compete yearly to achieve the top position in life insurance sales. This is an indicator of success and the productivity of the sales force. Several decades ago, the competition was based on annual premium on new policies, but in recent years, 10% of the single premiums are added to the annual premium to get the weighted premium as a measure of the sales.
To achieve sales and energize the sales agents, the life insurance companies introduce new and innovative products every year. These new products are variations of the old products, but have some changes to allow the agents to market the product. The variations may take the following forms:
a) a shorter period to pay the insurance premium
b) additional risks that are being covered
c) change from guaranteed to investment-linked payouts or back
As each new product is launched, the insurance agents have the chance to go back to the old customers and get the customers to terminate an existing policy and buy a new policy under the new product with the special features.
The customers are taken for a ride. They are not aware that the existing products give better value and that replacing the products is costly and against the interest of the consumer. In most cases, the consumer has to give up two years of premiums as upfront cost. The customers were also not aware they can buy separate insurance, at low cost, to cover any new needs. (I shall write separately on these matters).
Some insurance agents make a good living by replacing the existing policies of their customers every few years with the new “better” products, but making their customers poorer in the process. With the huge loses on the replaced products, the consumers are never able to accumulate sufficient savings for their retirements, even if they had been frugal.
An insurance agent can achieve the top sales position by making it possible for the sales agents to exploit the ignorance of their customers through the replacement of existing policies. The sales agents are happy with this arrangement, as they can earn high commission by selling the new policies, and it is easier to replace existing policies than to find new customers.
This bad practice of replacing policies, also known as “twisting” is made illegal in some countries. It is discouraged in Singapore, but the enforcement is weak.
An ethical insurance company will protect the interest of its customers by disallowing replacement of existing policies. An unethical company will make it easy for the sales agents to explot the ignorance of the existing customers to make new sales by replacing existing policies, and achieve the top sales position.
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