Insurances, something which many bought and something which many do not care about. There are those who swear by it and those who said they are a scam. Especially in countries where there are no welfare benefits, insurances become more important. More often than not, people living in these countries have a friend or two who once attempted to sell them an insurance plan or two, with or without success. While there are many types of insurances around, let me go through each of these in more detail and my opinion on them. While the figures and types of plans are more applicable to the context of Singapore, the logic remains the same across the different countries and would still be useful to you.
This article may start off slow with some explanation about the background, with its aim to give you certain insights on matters like why certain agents push for certain policies, which policy really suits you, why does a friend whom you have not contacted for 10 years suddenly asked you out for a dinner etc.
Insurances started off as what its name intends – to insure someone against something bad which may happen – usually death, illnesses and accidents. Insurance companies have grown and expanded to offer financial and investment products, with some of their plans mixing both insurance and investments together, creating a 2-in-1 product which may appeal to some. Insurance companies have also grown to be big organisations with substantial financial muscle, which people tend to place their trust in. Big names like Prudential (UK), AIA (Hong Kong), Manulife (Canada), Tokio Marine (Japan), AXA (France) gives people the impression that their policies will be honoured and that the companies will not close down and leave them stranded.
Their Working Mechanism
Under the insurance companies, there are many smaller agencies which operate under its name. For example, Tom is a successful insurance agent with sufficient sales under his belt. So he opened one agency called Tom Agency, operating under any of the brand names listed above. Tom would be the director of his own agency (ie the boss), and he has the autonomy to recruit and fire whoever he wants in his agency. The system operates similar to a pyramid scheme, but of course they are selling actual and legit products. To start off as an insurance agent, a person will have to join one of the many agencies under the company. Let’s say Tom recruited John to be an insurance agent. John will be working for Tom, in Tom Agency, under the insurance brand name. Now let us say John successfully closed a deal, he would have for example 55% commissions, and Tom will get 22% commissions, making a total of 77% commissions being paid out. This figures are not generated out of thin air, and I will further explain in detail.
As John progresses further along the line and does well, he would have 2 choices – the specialist track or the leadership track. The specialist track would mean that he still work under Tom, except that now his cut of the commissions is higher. This path is suitable for people who are not born leaders, but are good workers. Nothing wrong with that. Not all of us are suited to be leaders. The other path John could take is basically to be like Tom – setting up his own agency and be his own boss. Of course, running an agency is something similar to running your own company. There are more things to take care of and to work for, be it staff issues or sales quota to be met. Of course, if done well, there are a lot of money to be earned. Every sales which John’s staff clocked is extra commission for him.
The above describes the sales arm of the company. Naturally, a company will also have other arms – the HR, the underwriting team, the audit team etc. These people who are not in sales are directly employed under the company as a normal salaried worker.
Note my choice of words: agency and company.
The Commission Structure
Not all insurance plans have the same commission payout. For example, in 2014 in a certain big name company, if John sells a savings plan, he would get 55% commissions for the first year, and his boss Tom would get 22%. The commission payout will be over 5 years, with each year a decreasing amount being paid out. The same commission structure goes for Investment-Linked Plans (ILPs). Life insurances will get a lower payout, with about 33% (cannot remember the exact figure, but definitely 30+%) on the first year. Term plans and hospitalisation plans will achieve a much lower commission payout. But as they are cheap (for young people) and practical, hospitalisation plans are often used by agents to get their friends into the loop for future sales.
Agents also have a bonus payout given by the parent companies (not the agency they work for). For example, John managed to sell $500,000 worth of insurance products in that year, he will be entitled to a certain amount of bonus. Naturally, the bigger the sales, the higher the bonus he gets. There is also a roll of honour, which they call it the MDRT (Million Dollar Round Table), the CoT (Court of the Table), and at its highest, the ToT (Top of the Table). You may also have heard of certain perks boasted by your insurance agent friends on their trips to certain fanciful countries and the like. Well, clock your sales and all these glamourous things will come your way.
Nothing to be surprised about. Sales is the department which generates the bulk of the revenue. Take care of your sales team, and they will work hard to bring in more money for the company.
The Training And The Brainwashing
Naturally, all agents join some sort of training. Pass a few theory tests, get into some seminar organised by the parent company which are usually conducted by successful agents and you are fit to go. The theory tests in Singapore are basically MCQ (multiple choice questions) which tests your memory just a little. The training, well, a lot of fluff and sharing of successful stories, some hype for encouragement and some actual but very basic training to get you started. There are also sharing of stories by agents on how they helped a client who suffered a painful loss, but in this dark period of their lives they worked efficiently and delivered a much needed cheque to them to ease their financial burdens, much to the gratitude of their clients. Agents need to believe in the products they are selling in order to convince others.
I remembered very clearly one of the trainers said to us, ‘The customer does not know what he wants. You have to tell the customer what he wants.’ In short, push for the product you want to get sold, and convince the customer that he needs and wants it. As mentioned above, different insurance plans have different commissions.
For those who are curious, yes I was an insurance agent for half a year in one of the big name companies. Unfortunately, even though I passed the tests and attended the trainings, I sucked at sales and subsequently resigned on my own. I was never cut out for the sales line, but due to circumstances I had to join the industry for a while.
The industry is also very keen on hiring more people despite the high turnover (more details in the paragraph below). They would encourage people to just try it out for a year or two. The brainwashing speech goes like this: Imagine we have 80 years of lifespan. We assume each year of our life is a gambling chip on the table. You bet one chip, just one year of your life into this industry. If you make it, you win big. If you lose, the maximum you lost is one chip. You still have many chips left. Even if you quit, you can still go back to your normal life.
To be fair to them, their persuasion is pretty legit. Stake one year for a low risk high reward bet. Until you realize that you have to stake your family and friends in.
The first people most people always target when starting out is their family and friends. These are the easier targets, as there is some bond between them. This will work especially well when the person started out early. One of my friends started out during our university days. Most of the people at that age did not have insurance yet, so the market is significant. This market is also exceptionally easy because most of the people then knows that they need insurance, but they do not know much about it. If your sales talk sounds legit enough, they will be willing to buy.
This is when many of the people buy shit policies that are of little or no use to them. I know, because it happened to me. I bought a shit policy during my university days and burned a few thousand when I decided to cut it off. To be fair, sometimes the agents at that age also do not know the exact details yet. Some of them may mean well but ended up selling shit stuffs, but some of them may be out to fleece some money out of you.
If you start off this career path in your middle age, then you may have some difficulty compared to the young agent who started out early. But regardless, there usually will be that one friend or family member who supports you. All those deals they sealed with their families and friends also gave them a confidence booster which will help them as they go on. Take note that having a confidence booster does not guarantee success in the long term.
The turnover for this line is high. Many times, for those who are not cut out for this line, they will end up getting fired or resigning after exhausting all their warm market (people whom they know). No loss to the agency and to the company. Your future commissions simply get eaten up by the company (remember what I said above about commissions payout being spread over a few years) and the next guy who comes in will continue to tap in their warm market for the company. The cycle repeats. Being able to tap on the cold market (strangers) is a determining factor on whether you will make it in the longer term.
The Importance Of Network
Of course, in this line, network is also very important. During my short time as an agent, my director closed a deal with a monthly premium of $25,000, which is $300,000 a year. As a director, his cut for that specific insurance was 77% = $231,000. Even if he is a normal insurance agent just starting out, his cut of 55% would be $165,000. My fellow colleagues were from average backgrounds, and so were our friends. They would close deals in the range of $200 premiums per month = $2400 per year. Their commissions would be $2400 x 55% = $1320.
You see the difference. Both closed one deal each, but the person with a network of high worth individuals will be able to easily clock their sales target. Do not forget, the higher your sales amount, the higher your bonus. This is why you often see salespeople clamouring after the rich, and often hear news about how a particular salesperson would go all out to please a potential customer. But that would be another topic which I would not go into.
True, there are still many people from average backgrounds working their way up slowly. Some slowly made it up the ladder, some stay average but earning enough to feed their family throughout the years. The sales line is a very competitive industry, and the people you know plays a very determining factor. There are always also people trying to undercut and steal customers from each other.
So if one day you are planning to go into this line, do not for a moment believe that the playing field is open and fair for everyone. It is not. But it does offer you a chance to climb, if you are able.
Part I Conclusion
Now that we have the background to how the insurance sector works, we will be in a better position to discuss what are the policies we really need and why some products are always being marketed to us. The next article will go into the main topic.