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Novice agents likely to sell insurance sector short
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Chinese insurers are on a hiring binge, recruiting an army of agents to sell their products to a burgeoning middle class, but the risk of mis-selling by inexperienced agents on commission could prove costly to the industry and its customers.
In an immature market with less than half the penetration of the United States, and about a quarter of Japan’s, China’s insurers tapped the rising demand mainly by selling through banks, until regulators curtailed that channel last year over concerns that inexperienced customers assumed the products were as safe as bank deposits.
That triggered the recruitment drive as insurers needed direct access to customers to keep the US$290 billion market growing. The largest, China Life Insurance Co, increased its sales team by 28 percent to nearly 1 million in the six months to June, while next in line, Ping An, swelled its sales ranks by 25 percent to 800,000.
Industry specialists have said the drive brings with it the danger of a part-time sales force whose enthusiasm for commissions outstrips their financial expertise or training.
“Agents in China rely largely on personal networks to sell products; there’s not a high bar to hiring them, and some don’t get much training,” said insurance industry specialist Cliff Sheng, China partner at consultant Oliver Wyman.
A spokeswoman for Ping An said the company has strict procedures for recruiting agents including a three-tier interview system, and a comprehensive training system to help agents acquire industry knowledge and professional ethics.
China Life declined to comment.
Sheng likens the business to what he called the “housewife” sales model seen in South Korea and Japan in the past two decades, where a predominantly part-time army of independent agents sold policies. Both markets have been plagued by mis-selling and low customer retention.
Beijing resident Coco Lu, who sells for a few hours a week while her daughter is in school, is typical of the new breed of recruits, most of whom work on a part-time basis.
She started selling in February, first to friends and family, then fellow parents at school events and even shop staff she befriends.
She said she received a high commission of 20-30 percent of the premium for some insurance in the first year.
Lu has no finance background but said Ping An’s training was renowned for its rigor.
“The training at Ping An is really good,” she said.
Personal networks
While Lu’s career has got off to a bright start, sector specialists said there could be problems for her cohort when they exhaust their personal networks.
Consultants Towers Watson cited an industry retention rate for first-year recruits of only 30 percent, and Ping An training manager Zhang Jian said theirs was just 15-20 percent.
To keep the commissions coming, agents can be tempted to sell unsuitable products.
“If commission based, mis-selling tends to occur more frequently,” said Tony Tan, head of standards and advocacy in Asia-Pacific for investment professionals body CFA Institute.
Mis-selling scandals in China are likely to result in a loss of business and reputation.
A Beijing woman who gave her surname as Wang said two of Ping An’s salespeople sold her third-party wealth-management products they wrongly said carried guaranteed returns and protected capital. Wang said she lost 900,000 yuan (US$140,635).
A spokeswoman for Ping An Life Insurance said the company has strict rules prohibiting agents from selling third-party products, and it was cooperating with China’s public security department in investigating what had happened.
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