A new study by Santosh Anagol of Wharton and Shawn Cole and Shayak Sarkar of the Harvard Business School, entitled, “Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market,” criticized the advice of insurance agents in India to their clients and concluded that “at least in India, what agents sell doesn't always match up with what the customers should be buying.”
The researchers sent trained auditors into the field posing as customers seeking insurance and then analyzed the advice they received. The auditors' meetings with agents revolved around life insurance, specifically two types of policies: term and whole life.
The researchers said term insurance was much more valuable if customers in India took what they saved on its lower premium and invested in the government's savings certificates, earning a higher return than they would get from the insurance company.
Yet, the researchers found, just five percent of the customer-auditors were advised to only buy term policies when that was what best suited their needs. They concluded that, “Agents overwhelmingly recommend unsuitable, strictly dominated products, which provide high commissions to the agent.”
The study comes amid debate in the U.S. about the continuing viability of the “suitability” standard, under which brokers “must have a reasonable basis to believe” that a product they are recommending suits the client.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].