Have we ever asked ourselves why someone would deliberately, recklessly or negligently give false information or conceal vital information, all in the effort to influence and persuade someone to sign an insurance policy?
Most of the people we meet who have issues with insurance companies as a result of mis-selling. Most people complain insurance companies hide most of the terms and conditions at the proposal stage just to get them sign their insurance policies, because when those are disclosed to them, they might not sign. The general public think the insurance companies conceal this information to their advantage when time comes for the insured to claim. The most fascinating thing is that most of the complaints are the same or similar issues which keep on repeating. Why is it then difficult for insurers to solve these concerns?
Insurers sell their products or services by using a lot of intermediaries. Companies sell directly to the insuring public by using their marketing staff. These marketing staff in most cases are given huge targets to meet. Their assessment and promotion are tied to the number of clients they acquire. This makes most of them to go all out to do whatever it takes to convince the proposal to sign a policy with them. These marketers bring any risks they get into the pool as far as it comes with premium.
They push these down the throat of underwriters, who in most cases have empathy and understand them. Sometimes, some of these marketers are not insurance professionals and lack basic understanding of some insurance principles. But I will not fault them, since the people who actually bring them and push them to bring these businesses are insurance professionals.
Another channel used by insurers to sell their products and services is the broker market. Brokers are supposed to be professionals and they should understand the core and basic principles of insurance. They are also not innocent when it comes to mis-selling. Brokers also employ marketing officers who are given targets to bring businesses. They are also assessed on the number of policies or customers they bring on board.
Insurers train agents to sell on their behalf. Most insurance companies – especially the life companies, use agents to sell their policies. Agents in most cases earn commission on any policy they bring to the company. This means that the more business you are able to bring, the higher your commission. For this reason, agents do everything possible to win customers for their various companies. The new channel used by insurers is the bancassurance.
Insurance products are sold through the banks. The banks earn commission on the number of policies sold. Which people do the bank use to sell? They use their own marketing staff to sell, and they give them targets to achieve. This makes banking marketing staff who know little about insurance and its principles to do everything to convince their customers to purchase insurance products.
In all these channels, there is one similarity that cuts across. All these are given targets. and in achieving these targets they do all sort of things they are not permitted to do. In most cases, these are not actual professionals. Their interest is just to sell and meet their targets.
Mis-selling brings huge benefits to insurers in the short-term. They earn huge premiums and also increase their market share and presence. They have a winning advantage over their competitors, but it comes to hurt them severely in the long-term. Mis-selling will definitely come to light since there will be a time the insured or assured has to reap his/her benefits or receive compensation for the occurrence of an insured peril. This will lead to manifestation of the false information or the truth that was withhold in order to convince the proposal.
When the insured or the assured gets to know the real truth at this stage, they do not lose trust and confidence in the agent, the marketer, the bank staff or the broker – but in the insurance company. This affects the reputation and brand of the insurance company. It also deters future customers who would have loved to sign policies with the insurance company. It also goes a long way to affect the trust and confidence that the insuring public have in the whole insurance industry.
Most insurers you speak with are not interested in this menace and wish it would go and never come again. Insurers should begin to simplify their policy documents to make them easy to read and understand. Insurers should also make their policy documents readily available to proposals. There are still insurers, especially life companies, which still have a central point where policy documents are issued. This means that branch offices are not able to issue policy documents at the branch level after selling the policy, and its takes some months before the policy documents are issued to the branch offices for onward delivery to the client.
Written product information allows customers to easily understand the features of the product they are buying, and assess whether it meets their requirements. Product information typically includes:
- the insurer’s legal name, address and jurisdiction(s) where legally registered to provide insurance
- type of insurance contract, a detailed description of risks covered and risks excluded or limitations
- term of the contract, outlining when coverage begins and ends
- level of premium, due date and consequences of late payment or non-payment
- procedures for submission of claims and the insurer’s claims-handling processes
- type and level of any service charges to be paid by the customer
- contact information on where to submit complaints, including contact details for consumer complaints or an alternative dispute resolution (ADR) agency if established in the jurisdiction
In many jurisdictions, there is a legal ‘cooling-off’ period during which the customer has the right to withdraw from the contract. This period can range from several days to a month in some cases. The insurer has an obligation to inform customers of their legal rights and obligations arising from insurance contracts, including the ability to withdraw from the policy during the cooling-off period.
Most insurers, especially those who underwrite long-term policies, should have this cooling-off period and it must be communicated to the client. This brings confidence and trust. Insurance products should not be sold as a trap whereby the moment someone enters, he/she cannot get out without losing money.
Insurers must also provide information that should be consistent with reasonable expectations, clearly state the basis for claims and benefits, and highlight any exclusions or warnings about the extent of coverage provided in policy wording.
Again, insurance companies, insurance brokers and banks should begin to redesign the incentive structure for marketers and agents. For Life companies, commissions could start from a lower commission rate and grow when the policy continues to remain with the insurer. This will make agents and marketers to bring business that the assured really understands and intends to stay until maturity. Again, this will also make agents always continue to keep the clients and communicate with them; because they know the longer the assured stays, the higher their commission rates will grow.
Furthermore, insurers should vet all policies that come to them before they are entered into the system. They could call the proposals and find out if they really understand what they are purchasing. This will bring clarity and understanding, and also create a unique bond between the insurer and insured. Insurers after vetting should also discipline their agents to deter others from committing the same misconduct.
Insurers also should begin to train the general public on insurance needs, basic principles, and market exclusions – and not on their products alone. If the insuring public or the general public understands insurance very well, they will even pursue insurers.
I was excited to read in the last few weeks that the National Insurance Commission (NIC) wants to train 10,000 Ghanaian youth who want to take up a career in insurance agency. I personally think this could not have come at any better time than this. When 10,000 youth are taken through the basic insurance course and fully understand the basic principles of insurance, they also influence the people around them and they can begin to ask the right questions when they are approached by insurers to sign onto some policies. Insurers can also tap from these trained people when they need agents for their companies.
Let’s deal with any menace that will not promote trust and confidence in the industry, and let’s grow and increase penetration. People who are uninsured are more than the insured.
The author is a Chartered Insurer and an Associate of the Chartered Insurance Institute of United Kingdom and also Ghana, and holds MPhil in Enterprise Risk Management and Business Consulting from KNUST. He attained a Bachelor’s degree from University of Ghana, Legon, and has an Advanced Diploma and Diploma in Applied Insurance from Ghana Insurance College / Malta Insurance Training Institute.
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