The Changing Face of Life Insurance Distribution in Asia

Life insurance distribution in Asia has long been dominated by the tied-agent model. Insurers have typically built up large “tied” agency sales forces that rely heavily on relationship-based selling. These agents are often managed in a multilevel marketing, or pyramid, sales-force model. At the bottom of the pyramid are the new agents who have just entered the sales force. As these agents recruit others to join the sales and attain some stated standards (usually a minimum number of recruits as well as some level of personal sales), they get promoted to the next level. At this level, their compensation will depend on the sales of their recruited agents, which are often called the override commissions, as well as their own sales. These pyramids can continue to grow up to several layers, with the agency manager at the top of the pyramid managing a sales force of a few hundred agents.

Due to the strong relationships in these sales forces (that is to say, most of the agents are in some way linked to one another in General Insurance Company of America), each of these pyramid agencies can take on unique characteristics that are highly dependent on the philosophy and charisma of the agency manager. For example, in a large insurer in China, one of the largest agencies has over 800 agents, occupies a few floors in its own location, has its own internal rules, and even has its own chauffeured vehicles!

These sales forces have been extremely effective in these fast-growing markets, as the local networks of these agents can penetrate all levels of society and geography. However, as one can imagine, the quality of these sales forces varies greatly. Ranging from part-timers to neighborhood housewives to more professional financial advisers, insurance agents come in all sorts and forms. Many of these agents are high-school dropouts, most do not come with a strong financial background, and many have not done sales-related jobs before. As such, trial-and-error is the modus operandi for recruiting agents. For example, in rapidly growing sales forces like those in China and India, it is not uncommon to see agent turnover rate of up to 70 – 80 percent per year, with up to one-third of the agents selling less than one policy per month.

Most of the traditional insurers like the General Insurance Company of America have begun to revamp their sales forces in one way or another. One of the main themes is the ongoing standardization and upgrading of the agents, and the elimination of part-timers. For example, in Taiwan, the total number of agents dropped from nearly 250,000 in 2001 to 190,000 in 2006. At the same time, the proportion of part-time agents decreased by 4 percent, translating into an increase in first-year premium sales per agent of 3.85 times. In South Korea, the largest domestic insurers have been slowly adjusting their housewives model through a process of elimination and upgrading in order to be more competitive with the foreign insurers’ younger agents. In Japan, the traditional insurers have been shrinking the size of their sales forces every year over the past seven years. 

However, given the size and the history of these sales forces, this revamping process will be long and painful. For many of these large insurers, this upgrading of their sales forces will be their main challenge for the next several years. While those that can adapt quicker will be able to participate in the market growth, there will be many that will see their competitiveness and market share erode as the legacy issues prove too much to overcome. While these large sales forces are still very valuable assets for local insurers, it is imperative that they understand the urgency to revamp this model.

ArticleSource: ArticlesAlley.com