Mis-selling risks grow with China’s insurance sales army
Insurance regulator says complaints rose 4 per cent in first half of year
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, increased its sales force by 28 per cent to nearly a million in the six months to June, while next in line, Ping An , swelled its sales ranks by 25 per cent to 800,000.
Industry specialists say 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, greater China partner at consultant Oliver Wyman.
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, with South Korea's Financial Services Commission in 2014 setting new rules for suspending and fining sales agents for mis-selling products.
“If commission based, mis-selling tends to occur more frequently,” said Tony Tan, head of standards and advocacy in the Asia-Pacific region for the CFA Institute.
China's insurance regulator said complaints rose 4 per cent in the first half of this year.
