~ By Felix Ling ~

After reading the reported argument by Manulife CEO’s analogy “The Lesson about putting a car on the moon”, in relation to whether to import fee-based system for insurance sector here, I would like to share my experience and understanding about life insurance distribution channel; mainly on the commission-based tied agency system here.

In Singapore, large majority of life insurance and related product sales are contributed by the tied agency distribution system. Though there are other alternative distribution channels such as Bancassurance and Independent Financial advisors, brokerage etc, the volume of life insurance sales by tied agency force is beyond question.

The issue of adopting fee-based system for insurance sector is not new. In year 2000 I was a sub-committee member involved in the insurance distribution channel review initiated by MAS.  The outcome was to introduce Need-based Selling process for all the distribution channels including the main tied agency force. Of course the FAs (Independent Financial Advisors) are already practicing fee-based approach in which the Need-based process is their main tool. 

Recently both the regulator and insurance industry have raised the subject of whether fee-based system to be implemented across the board. This is definitely a sensitive issue not only for the insurance operators/manufacturers and product distribution agencies but it also has a cost impact on the customer.  Is it truly a case of “putting a car on the moon” as what Manulife Chief has said? Fee-based approach, as I would say that this is not such a ridiculous scenario of a car on the moon but rather, a case of putting customer first.

My viewpoint is based on the following key considerations:

a. Multi-tier commission system as in the case of life insurance products remains a major cost factor in the equation of product pricing as well as benefits (for the policyholders).  Such system has no direct linkage to better customer service in the process of insurance sales. This system aims to “hold on tied” to the agency force so that insurance operators could leverage on its powerful sales approach (sometimes it leads to churning). Therefore, if the insurance industry continues to hold on to the commission-based system, high cost of customer acquisition will continue to be born by customers.

b. Though in Singapore insurance market scenarios, it may not be viable to switch from commission-based to fee-based system overnight, but it is definitely a significant step and a right direction in which both the regulator and insurance industry should consider serious; albeit it must have a master blueprint and in stages for transition from commission-based to fee-based. The long-term perspective of Singapore insurance coverage will become more and more crucial for aging population in general masses, albeit that the middle-income group would continue to be served on investment needs (i.e. wealth creation). Therefore, going forward, it is highly important for traditional life insurance protection & saving products to be much more affordable to the masses. Multi-tier product commission-based system will not contribute to lower costs of customer acquisition. Fee-based coupled with the currently practiced Need-based Selling approach/process is a logical way to open up the “commission sacred cow”.  In the long-run, customer will benefit more from this approach, albeit that consumer education remains an integral part of the fee-based market approach. 

c. Fee-based approach is still a powerful eyeball to eyeball sales process.  What it requires is professional knowledge and & skills in much wider scope of financial planning, in order to be of value-added to customers. With the converting to fee-based across the board, it is expected that the insurance industry will “lose” up to 1/3 of its current strength of agents. On the brighter side, those who remain in the industry will surely have to be more capable and knowledgeable to serve the market. Productivity increase will continue to bring in stable income for them.

d. As for the key leadership of tied agency distribution that rely heavy on commission-based system, insurance operators should start to explore the future of “hybrid” tied agency system in which, agency leaders/managers can come under employment of insurance company with much more stable and distinct career development and progression. In this scenario, agency management will be enhanced on quality in distribution channel supervision.  Training infrastructure will shift its focus accordingly. Performing agents are put on fee-based (not on the moon) with clear fee structure and levels of advisory scoping tasks, be it wide spread of insurance products or in most cases, bundled products with investment elements. Overall this approach further opens up the otherwise, “closed box” cost structure inherent with the commission structure/system.

I am fully aware that why industry operators are voicing their objection to fee-based approach.  It is the fear of losing hold onto the tied agency distribution force that current form the backbone of insurance life insurance premium income for the companies. The reasons quoted about social security system in UK and Australia, product bundling, etc. have little if not irrelevant to the review of implementing fee-based approach. Indeed very little was mentioned about customer benefits in this context. 

I experienced the core value of tied agency system when I was with the insurance industry. And I know that proficient tied agents have no problem taking the challenge going forward if they were to take customer needs in perspective. In fact, they will excel. What’s crucial for regulator and insurance industry is that, such fundamental change must not be done abruptly and without first of all, putting in place a practical framework that governs fee-based approach to insurance sales, as well as involves key organizations of insurance industry such as the IFPAS etc, to iron out foreseeable structural issues and market forces influence.

I am not an advocate of following this practice of “Letting the customer choose whether they want to pay commission or a fee” style of market conduct. Life insurance and bundled products are not that simple to understand in the commoner’s eye. So it is unfair to “push” such decision to the customer. Furthermore, allowing in the market place, some to pay fees and some to pay commission for similar products, it is a sure way to create confusion for the industry if such “let people chose” rule be implemented across the industry. It will also add to the problem of market conduct, to have double-standards of payment for product advice.


Felix Ling is a former senior management staff from the life insurance industry

__________________________

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments
You May Also Like

一马公司弊案:刘特佐被曝获塞浦路斯护照 该国总统宣布取消之!

涉嫌一马公司弊案的关键人物刘特佐至今仍未被逮捕,在丑闻爆发后神隐,如今却被揭发申请地中海塞浦路斯(Cyprus)的护照。 据塞浦路斯当地报导,刘特佐4年前入境塞浦路斯,试图以一项投资计划获得该国的护照,但其条件是必须在塞浦路斯银行存入500万欧元长达三年,以及购买至少50万欧元的房子。 据称,刘特佐于2015年9月23日,通过全球护照和公民身分公司Henley & Partners以500万欧元(2326万令吉)购买在塞浦路斯东部濒临地中海的阿依纳帕(Ayia Napa)一座还未竣工的别墅。 该公司此前还帮刘特佐获得圣基茨和尼维斯国家的护照,但由于丑闻爆发后,国际刑警组织已取消刘特佐的该国护照。 针对刘特佐手握塞浦路斯护照的消息,塞浦路斯总统阿纳斯塔夏季斯宣布取消刘特佐所持该国的护照。 《美联社》指出,阿纳斯塔夏季斯表示,护照在审批过程中出现失误,由此宣布取消护照。 他说,“目前多大10至15宗类似的案例,均为投资者未在审核中,因此被判定不合格。因此有意撤回这些”错误“的护照。 他也说,“任何人在非法途径下获得公民资格,将会被撤销,而且必须尽快取回,越快越好。“ 据《美联社》指出,塞浦路斯发言人表示,自2013年塞普洛斯面临金融危机后,启动了该投资计划,吸引不少投资者前来,目前已向约4000名投资者获得护照。…

SDP left out of Talking Point – CNA replies

By Deborah Choo Last Sunday on Talking Point, representatives from the ruling…

Weekly dengue infections drop to below 100 for the first time throughout the year

Dengue cases continued to drop as only 95 cases were diagnosed between 9…