Control insurance mis-selling with Distribution Transformation

Regulators across the world are relentless in their crack down on insurance mis-selling instances, and rightly so. This is of special relevance to markets like India which has seen a 25.62 percent rise in life insurance policy surrenders during FY 2022-23.

From enhanced disclosures and free look periods to ombudsman systems, today’s regulators leave no stones unturned in terms of customer protection. Yet, close to one-fifth of policy holders fail to renew their policies at the end of the first year in the case of India’s top five life insurers.

Mis-selling is a significant culprit behind insurance policy surrenders and withdrawals. The resultant issues lead to crackdowns like IRDAI’s recent regulatory changes on the health insurance front. This focus is likely to continue with measures like the proposal to increase scrutiny of complex health and savings products that target customers aged 55 and above.

Distribution, with the human touch

Mis-selling of policies impacts our industry’s preliminary requisite of customer trust. It damages the human image of an insurer—that of a friend and advisor. Such practices also affect the insurer’s financial stability and profitability, even as it introduces significant risks.

Distribution transformation that aids insurers and producers proves essential at this point to control mis-selling of policies. Insurers must be able to address each producer’s “what’s in it me?” questions effectively, whether it be in terms of compensation, incentivization, productivity, or even final decision-making enablers. This is why the safeguards to curb mis-selling necessitate that insurers opt for the following best practices.

Inform, enable, and incentivise appropriate behavior

Typically, insurance mis-selling involves more than an agent’s unethical behavior, target pressures, or attempts to push high commission products. Often, an agent’s lack of product understanding, especially of complex products, can create issues. Or it can be due to lack of customer profiling capabilities.

Technological developments in the form of a sales tool with financial need analysis, sales illustrations, solvers, and collaterals decrease mis-selling instances. Suitable training that complements such tools is required to eliminate such issues.

A case in point is digital distribution transformation’s potential to enhance an insurer’s recommendation engine. This means that agents can provide customers with appropriate and tailored products that suit their financial needs at life stages. Industry-standard and company-specific models complemented by advanced AI enable agents to think beyond high commission products. At the same time, customers benefit from products that align with their financial goals. This reduces incidents of mis-selling and customer dissatisfaction. It also positions agents as reliable advisors who prioritize their customers’ best interests.

Digital distribution transformation allows insurers to create and configure KPIs that reward ethical selling practices. It is even possible to create incentives that recognize ideal behavior or simulate incentive models prior to rollout. Trail based commission models and incentives to avoid churn of policies can also help on this front.

Ensure differentiated compensation models

Distributors expect their compensation to directly correlate with the amount and quality of business they generate. Producers with established customer relationships, high persistency, and low loss ratios will have suitable expectations. Insurers must proactively address the compensation needs of such ideal distributors to avoid unethical selling practices.

Insurers can acknowledge the skills and performance of each distributor using customized compensation models. Digital distribution transformation capabilities make these possible in the form of differentiated performance-based compensation and payout schedule options. Other possibilities can be in the form of quicker payment cycles, KPI-based incentives, and commission fee upgrades. Such compensation models sustain distributors’ motivation and ensure ethical sales practices.

For instance, top insurers leverage the SymbioSys Distribution Management System to set up differentiated commissions, incentives, and payout schedules for their networks. The platform provides over 5000 unique performance and compensation rules to suit every distribution use case. It is possible to tailor agent compensation management needs in a scalable manner with multi-currency and multiple bank account payment options.

Opt for dashboards and analytics to gain deeper insights

Comprehensive metrics in the form of advanced analytics and holistic dashboards can control policy mis-selling instances. Today, technology aids insurers to sift through customer data stores and detect mis-selling issues. This proactive approach prevents mis-selling attempts before it impacts customers.

When appropriately implemented, distribution transformation ensures access to unlimited distribution optimization capabilities due to abundant external and internal data sources. Dashboards with detailed insights for relationship management, compensation optimization, expense management, and incentivization can significantly assist insurers. Analytical tools can also help agents quickly underwrite non-standard cases with intelligent reviews to make rule-based, rated decisions right in front of the prospect.

For example, C2L BIZ customers capitalize on the latest analytics, real-time metrics, and data visualization tools using single-stop distribution management dashboards. These insurers rely on dashboards to proactively address issues and retain dissatisfied partners.

Decisionmakers can leverage dashboard features to compare a partner’s business ratio with their competition for a “segment of one” management approach. Such dashboards enable our clients with valuable insights that drive informed business decisions.

To sum up, digital distribution transformation is highly effective to reduce policy mis-selling incidents. It helps insurers to leverage the power of advanced dashboards, performance-based reward mechanisms, and differentiated compensation models for ethical sales practices.

Contact us today on or click on the button below to learn more about how your insurance business can control policy mis-selling issues.