Giving agents a better role

This letter is published on Straits Times Online Forum

http://www.straitstimes.com/

29 August 2012 

Editor, Forum Page

Straits Times

I share the concern expressed by the Alliance representing 15,000 agents 

about the potential job losses that may arise from a drastic change in the

remuneration structure for the sale of insurance policies.

In addressing the difficulty challenge of finding a right balance between the

interest of agents and consumers, I urge the FAIR panel to study the extent

to which consumers have been well served by the current practice of sales 

through commission.

The cost of selling life insurance is too high, and takes away a large portion of 

the modest yield that is earned on long term savings. Most life insurance 

policies give a yield of less than 3 percent, which hardly matches inflation. If the

policy is terminated before maturity, it is likely that the consumer may suffer

a financial loss. 

Quite often, consumers are sold life insurance policies that do not suit 

their long term financial needs. In recent years, I have received many requests from

consumers for advice on their insurance products and have 

become quite familiar with the mis-selling practices.

The regulators in the United Kingdom and Australia have decided that there is

no way to prevent the mis-selling, other than to ban the 

payment of commission on investment type products. This ban does not apply

to the payment of commission on pure insurance products that 

do not promise an investment return, such as health or term insurance.

Of the 15,000 agents that could be impacted by a major change, a large number 

are probably university graduates who have recently entered into this field. They could 

be more usefully deployed in other sectors of the economy.

The consumers could be better served by a smaller number of competent advisers who

give financial planning advice to address their long term needs, such 

as managing their budget, debts, long term savings and insurance protection 

in a more flexible and holistic manner. 

This type of advice should be given for a fee and should not be tied to commission 

payable on the inflexible and costly products that are being recommended 

to consumers.

If the FAIR panel decides to allow the continued payment of commission, they should 

set a cap on the rates of commission payable on various types of products at levels 

that are fair to consumers and agents. This is the practice adopted by most other countries.

Tan Kin Lian
President
Financial Services Consumer Association