Blame the product design; not the insurance agent

Published in Mint on 15 August 2015, Written by Kapil Mehta

I would not like to be an insurance agent. Research regularly reconfirms that it is one of the most looked-down upon professions in the US, Australia, the UK, most of Asia and India. A Gallup Inc. poll conducted in the US between 1977 and 2012 has consistently had 30-45% of its respondents aver that insurance agents have low ethics and honesty. Members of Congress fare worse but, unlike insurance agents, they are rich.
This stereotyping is unfortunate because it has resulted in a vicious cycle where good people shy away from the insurance profession. Even if good people were to sign-up, success is difficult. The combination of skills required by an agent for success is difficult to find. In 2003, when the Indian insurance sector had just opened up, I took, for a lark, the psychometric test that prospective agents must qualify. To my surprise, I failed. I walked up to the chief executive officer of the insurer where I worked and told him to save the company’s money by scrapping these tests. Wise man that he was, he suggested that I “dig deeper” and dismissed me. I did that and discovered the combination of character traits needed for successes as an agent: perseverance, empathy and extroversion.
Perseverance keeps agents going when friends and family turn away; when closing a sale takes months. A leading Indian-origin agent in the US once took me for a drive in his S-Class Mercedes through Edison, New Jersey. What made him so successful? It turned out that when he went to the US 20 years ago and took an insurance licence, an uncle looked away when he saw his agent-nephew approach. That incident made him determined to become so good at his work that people sought him out for advice. I once met a 70-year-old leading Taiwanese agent at an international sales convention. She became an insurance agent to send her grandchildren to college. Over five years, she established the most successful agency in Taiwan and attended the convention accompanied by her now college-going grandchildren. Good insurers search for people who have adeptly handled adversity in their lives.
Empathy helps the agent relate to the buyer, build a rapport and recommend the right products. Empathy comes when the agent’s life stage is similar to the buyer’s. An agent with children understands the need to plan for college education; the 60-year-old agent knows the importance of health insurance for senior citizens. This is one profession where being young is a deterrent because of the generation gap between the buyer and seller.
Finally, extroversion—which is the reason I failed the test. An agent acquires new customers by putting her hand out and introducing herself. Most of us are uncomfortable doing this as we fear rejection. The agent takes rejection in her stride because deep down she is convinced that selling insurance is a good thing. The agent is not looking to sell some horrible products and then disappear. In fact, many agents themselves buy the products they sell to you.
Why then are agents hated so much and why are so many buyers dissatisfied with their insurances? The reason is poorly designed products and ineffective complaint resolution. There is a huge responsibility on insurers and regulators to ensure that products introduced in the market are fair. Importantly, buyers must have a respectable exit if they change their mind about their insurance. About 10 years ago, after I had been in the insurance industry for some time, I bought a whole-life plan. Despite being from the industry, I had not realized the high penalties that would apply if I left the insurance mid-way. When I surrendered the policy, I lost about 20% of the premiums paid. Recently, a friend approached me with a unique problem. He had bought a pension plan that matured about a year ago. Given his financial circumstances, he wants to withdraw the accumulated funds rather than convert it into an annuity, even if it means paying tax or a surrender penalty. The insurer has refused, and the funds were transferred to the insurer’s general account. Had the person applied for his money a day before maturity, the full amount would have been paid, but after maturity, nothing. The insurer’s decision is consistent with the contract, even though the contract itself is unfair. Blaming the agent for such issues is like shooting the messenger.
It’s a myth that agents are rich with commissions. The average premium for an insurance policy is less thanRs.20,000 on which commissions are about Rs.4,000. Only the best agents sell 2-4 policies a month. This means that the earnings of high performers is Rs.10,000-15,000 a month. In 2014, there were fewer than 7,000 agents earning overRs.75,000 a month. Factor in discounts that buyers routinely ask for and get, and the income is further depleted. Also, it takes three to five meetings to close a sale. That’s why only 15% of the two million registered life insurance agents are active in the sense that they sell an insurance policy each month.
There are a few steps that the industry and regulator must take to improve the quality of agents, and to develop the industry. First, develop products that are more transparent and have sensible exit provisions. Agents need these products to be successful. Second, pay commissions spread over the lifetime of a policy. This will mean more commissions if buyers renew their insurance regularly and less if lapses take place. Third, build a complaint handling process that is customer-oriented, accessible and fast.

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