Can the pressure to sell life insurance policies lead to conflicts of interest?

Selling life insurance usually isn’t the thing that most insurers like to do. However, this is what one insurer wrote to other insurance agents.

As a matter of fact, this is what one Farmers Insurance Co. district manager wrote in a memo to his insurance agents in 1999, “No more, ‘I’m too busy.’ No more ‘I have staffing trouble.’ No more, ‘I’ll do my best.’”

Kenneth Robbins, a partner and health insurance broker at Kenneth S. Robbins Insurance Services in Woodland Hills, California, claims, “The reality is that life insurance salespeople will often sell people stuff that they don’t need.” 

One of the reasons life insurance agents feel compelled to sell is the commission structure, according to Robbins. “It’s feast of famine. The agent gets paid right up-front with life insurance policies, and little to nothing for two or three years down the road.”

Steve Feely, vice president of marketing at Farmers, claims, “Achievement clubs like Topper provide incentives for the agent to expand their staffs and, by doing so, improve customer service and increase production. These clubs help agents by rewarding balanced production and emphasizing serving all of the customers’ needs.”

Here are some statistics from State Farm and Farmers:

Farmers: 50 percent of first-year premium, 40 percent of first-year premium
 
State Farm: 50 percent of first-year premium for Executive protector, 40 percent of first-year premium for 10-year term policy

Mark Kroneann, a Farmers Insurance agent based in Newbury Park, California, says, “Life insurance is the key to everything.”

Guilmette of NAPAA claims, “Companies know exactly how long they’ll have that life insurance premium because life-expectancy tables are so darn accurate.” 

Keep in mind that life insurance premiums are like money in the bank for insurers because the mortality rate (meaning life expectancy) of customers is fairly easy to predict. Insurance issues like these will keep popping up, which is why it is so important to know the necessary information and prevent from these issues to becoming major dilemmas.