Insurance - some honest confessions
Sandeep Parekh -
Saturday, August 29, 2009 12:10 PM
It was refreshing to see some honest talk by an insider about insurance policies in today's WSJ. I have often blogged about the extortionist commissions (upto 40% according to this piece - anything in excess of 2.5% is excessive in my opinion, particularly if it is a mutual fund being sold in the garb of an insurance policy) and widespread mis-selling which exists in the area. In IRDA, the insurance regulator, we clearly have the worst regulator in India - ever. I have advocated in the past that SEBI should take over these mutual fund products' regulation - let there be two regulators for the same product - it is by no means a novel concept - many products have more than two regulators e.g. corporate bonds, gold certificates.
See here for the full story. Excerpts:
"After studying mysterious subjects like Nano Technology and Robotics, I
asked him why waste life selling insurance policies? My son sounded
determined. A bachelor's of engineering degree is for social
acceptance, but for making a living, nothing beats insurance sales as a
vocation.
...
After all, no salesperson of any other industry can boast of being part
of a Million Dollar Round Table and get freebies like all-expenses-paid
holidays and expensive gifts like Mercedes cars just by selling a few
more policies. Compare this fun with the grime and dirt he would have
to deal with on a shop floor if he chooses to take a job as an engineer!
...
He reasoned, after all, that the whole business of life insurance is
dealing with life and death: Pure metaphysical occurrences that are
pre-engineered by God. In the blurred boundaries of mind and matter, if
he is a student of physics, he can be an agent of metaphysics too. The
lip-smacking commissions of 40% on policy sales may just be extra
levers to drive his motivation.
How many young people are as wayward in outlook as my son?
Just a glance at the education profile of my colleagues in the
industry convinced me that my son is not an odd man out. Graduates from
premier colleges of engineering and management – IITs, IIMs and even
Ivy League schools like Harvard -- ended up in the insurance industry,
selling or misselling insurance policies.
The fundamental problem is not selling but misselling insurance as a
wealth creation opportunity. I have heard bank customers being sold
policies as bank fixed deposits and stock brokers selling insurance as
equity shares. Worse are multi-level marketing networks that sell
policies to their unsuspecting members as an investment that helps them
multiply their returns by roping more into the chain. Is mis-selling
getting rampant because everyone wants to jump on the gravy train?"