WITH reference to the views expressed by the National Consumer Complaint Centre’s (NCCC) S. Baskaran that were published under the heading “Crafty agents, naive consumers” (The Star, Sept 6; online at bit.ly/star_agents), I feel it may not be fair to point all fingers at insurance agents when it comes to complaints voiced by holders of insurance policies.
Having been in the life insurance industry for long years as an officer before I fully exited on retirement about six years ago, I handled many complaints from dissatisfied policyholders. While there were valid cases of agents not properly explaining the products they sold, I felt that some policyholders themselves were negligent for not bothering to scrutinise the terms and conditions of the policy contracts they received.
Coverage details are spelled out in all life policy contracts. For example, every contract contains elaborations on technical terminology and benefits, plus the exclusions under certain circumstances like pre-existing ailments. From my handling of complaints, I discovered that many policyholders just filled up their policy contract without reading the contents.
I was surprised that some well-educated complainants did not know about the 15-day free look clause (aka the cooling off period) commencing from when they received the contract from their agent. This granted them the right to rescind the policy for a full refund of paid initial premium.
So if a policyholder failed to exercise due diligence should the finger point solely at agents? Yes, by right an agent should explain the contractual provisions at the time of delivering the contract; however, on the other hand, the new policyholder should also duly peruse the terms and conditions.
Notwithstanding these opinions, I feel that perhaps the question relating to how agents approach their sales is underpinned by the key performance measurement focused on by life insurance corporations in Malaysia. The industry itself refers to “first year premium” scores as the yardstick indicating revenue growth rates and ranking of a company. In addition, rewards and awards to agents are mainly based on sales by first year premium count.
I would like to pose my personal views for companies and regulators in the industry to consider:
> Why not use total premium growth as the yardstick instead of first year premium scores? Whether the premium paid by a policyholder is a new premium or renewal premium of an old policy, it is still premium income to the life insurance company.
In fact, by actuarial count, profits are mainly derived from long in-force policies because newly sold policies incur high upfront acquisition costs. When agents are encouraged to focus on first year premium scores, they may resort to “fire sales” to approach as many prospects as possible so that they achieve their sales targets. When they have less time to provide after sales service, invariably policyholders could become dissatisfied.
If agents are remunerated well based on their sustained total premium (new premiums plus renewal premiums), they will take proper care of their entire portfolio – bringing in some new sales and at the same time conserving existing policies/premiums on the books of the company they represent.
> Currently, life insurance agents are granted a production bonus and persistency bonus based on first year premium scores, in addition to basic commissions spread over six years on a descending scale from continuing premiums paid by their policyholders. Would it be more pragmatic to use total premium scores for calculating production and persistency bonuses?
Such a move could goad agents to properly conserve existing policies while still scouring for new sales. This may guide them to maintain a balance of the new and old.
> If agents could spend more time to deliver their overall tasks more meticulously, then fewer cases of miscommunication will arise.
If agents do debrief new policyholders on the benefits of the purchased plans and the contractual provisions at the time of policy delivery, then there will be fewer misunderstanding.
If agents are encouraged by their principals to spend more time servicing existing policyholders periodically regardless of how long they have been on the books, then fewer complaints will materialise.
One facet to the issue as expressed in the NCCC commentary relates to the onus on agents to portray proper best practices in sales and after sales services. This is the facet that hinges on what the industry propels agents to focus on in terms of business culture.
The other facet is the onus on policyholders, especially the more educated ones, to do their part in vetting the fine print after purchase, and exercising the free look clause if they are not happy with what they signed up for.
To chart a healthier life insurance industry, the three stakeholders – industry protagonists, agents, policyholders – must play their respective parts.