The Future for Tied Agents
Asia Pacific Life Insurance Conference
April 2005
Paper presented by Tan Kin Lian, Chief Executive Officer, NTUC Income

1. INTRODUCTION

I am happy to be invited to address your conference. I asked the tied agents of my organisation on a suitable topic for me to speak at this conference. They suggested that I should talk about the changes affecting insurance advisers in recent years, and the future for their business.

Some expressed a negative view:

*  Is there a role for the insurance adviser in the future?
*  Will the adviser be squeezed out by technology?

One person put the negative view even more strongly:
*   I see the death of the agency model

My view is more optimistic. Let me share them with you.

2. LIFE INSURANCE AS TRADITIONALLY SOLD

For over a hundred years, life insurance has been traditionally sold as follows:

  a.. Long term savings and protection plan
  b.. Forced saving through fixed, regular premiums
  c.. Sold mostly by tied agents
  d.. Agents are paid high commissions over several years
The agents are trained to sell the concept of providing a guaranteed instant estate and financial security to the family. They are remunerated well for this advice. The long-term savings plan allows the high commissions to be hidden from the customer. Many successful insurance agents can earn a high income.

3. CHANGES IN RECENT YEARS

During the past twenty years, the life insurance market in the developed countries have gone through significant changes, including the following:

  a.. More single premium products are now being sold
  b.. Greater focus on investment return and investment-linked products
  c.. More sale of "living" or critical illness products
  d.. New channels of distribution, namely bancassurance, internet, direct marketing
The low interest rate environment in recent years in several countries has changed the market significantly.

4. GLOBAL TRENDS

These changes in the market for life insurance started in the United Kingdom during the 1970s. Investment-linked and single premium products become more popular. In the United States, there was a strong trend towards unbundled and interest sensitive products during the 1980s.

Further changes occurred during the 1990s in several countries, due to the de-regulation of financial services and the development of new channels of distribution. These changes have now made a strong impact in Singapore, Hong Kong and Malaysia. This trend is likely to spread to other Asian countries.

The low interest rate environment, which affected the market in Japan, has now spread to several Asian countries, including Korea, Taiwan, China and South East Asia. All these changes mean a very different environment and changes in the life insurance market.

5. DRIVING FORCES

The key driving forces for the big changes to the market are:

  a.. Liberalisation of financial services
  b.. Focus on investment return
  c.. Impact of technology, especially the internet
  d.. Customers are more knowledgeable
  e.. New channels of distribution
  f.. Focus on "best advice" to customers
Life insurance firms and agents have to adjust to the big changes in the market, especially in the way that insurance is sold to the public and the new channels of distribution.

6. SOME FIGURES FROM SINGAPORE

Here are some statistics on how the business has changed over the past ten years in Singapore:

  1.. Single premium now accounts for 92% of new premiums, as compared to 50% earlier.
  2.. Sale by the banks, i.e. bancassurance, now accounts for 30% of new premium; it was almost non-existing 10 years ago.
  3.. Sale by tied agents now account for 65%, as compared to 82% earlier.
  4.. Investment linked products now account for 38% of new premium, as compared to 12% earlier

These changes have to be seen in the context of a significant growth during the past 10 years. The new premium sold in 2003 was $5,500 million, an increase of 385% over the period. The average annual growth rate was 17%.
Over this period, the number of tied agents decreased from a peak of 20,000 to 13,000 in 2003.

7. FUTURE FOR THE TIED AGENTS

Is there a future for tied agents?

We asked our tied agents for their views about the changes expected over the next 5 to 10 years. 366 agents participated in the survey. On the whole, the results are encouraging. The key findings are:

  1.. 55% said that tied agents would continue to play an important role, if they can adapt to the changes;
32% see a reduced role. A total of 87% said that the agents would still be around.
  2.. The biggest threat to the tied agent is perceived to be bancassurance (32%) and direct marketing (22%).
The internet is seen to be a smaller threat.
  3.. 17% expect to earn more than half of their income in advisory fee (instead of commission on sales) within 5 years, while another 38% see this happening within 10 years. The total is about two third. The remainder said that commission would remain the primary mode of earnings.
  4.. 58% said that the internet will help the tied agents to access the latest information and submit transaction (58%). Another 28% said that the internet will allow customers to access information before approaching the agent.
  5.. 63% said that bancassurance will be a more efficient channel to distribute savings products. The others felt that their success is temporary, and is contributed mainly by the low interest environment.

8. MARKET CONDUCT

The survey found the following views about the market conduct of agents:

  1.. 70% are concerned about the negative publicity on churning of investment-linked products to earn commission. This will cause disrepute to the insurance advisers.
  2.. 77% felt that insurance advisers should not be engaged in multi-level marketing of other products.
  3.. 60% are happy with the current level of disclosure to customers on the sale of insurance products; 40% felt that the disclosure is too detailed and confusing to customers.
  4.. 58% are willing to provide financial planning advice to their clients to build a personal and trusted relationship; 42% prefer to focus on giving product advice.

9. STRENGTH OF TIED AGENTS

Insurance agents will continue to play an important role in the following:

  1.. Provide advice on suitable products
  2.. Trusted by the client
  3.. Build personal relationship
  4.. Provide service

As life insurance products are complex, the customer need a trusted person to advise them on a suitable product to meet their needs. By earning this trust, the agent will be rewarded by future business and referrals to other customers.

Here are the views expressed by our insurance advisers:

  a.. The adviser has to upgrade, act professionally and take good care of their customer
  b.. The adviser need to upgrade their skill and knowledge, keep abreast of technology, learn to use web-based applications, and get to know other financial products, besides insurance
  c.. The adviser has to work with principal for a win-w in formula, to adapt to the changes in the market.
  d.. The adviser has to be friendly, sociable, and approachable and has the ability to communicate well.

10. ENCOURAGING DEVELOPMENTS

The life insurance firm has to help their tied agents to adapt to the new environment. In NTUC Income, we have recently introduced the following measures to help our tied agents. They have produced encouraging results:

  1.. We launched a marketing promotion to our existing policyholder to upgrade their insurance plans, and benefit from a small discount and simplified underwriting terms. A letter is sent to the existing policyholders, followed by a telephone call by the office. If the customer is interested, the lead is passed to the existing agent. This campaign achieved a good take-up rate of 7%.
  2.. We invited existing policyholders to visit the office for financial planning advice, given on a "no obligation" basis. The financial planner is specially trained and is paid a fee by the office for each advice.
If the customer takes up an insurance plan later, a lower rate of commission will be paid to the agent. The pilot exercise produced an average of 100 customers each week. We are now scaling up this operation.

We need to find a new way to market our products in the new environment. The trusted adviser will continue to play an important role in providing the personal touch to the customers. But, they have to learn to be more efficient in the use of their time, using technology and new methods to reach out to the customer.

11. GROWTH OF THE LIFE INSURANCE INDUSTRY

The life insurance industry will have bigger growth opportunities in the future, especially in the following areas:

  1.. Provide life annuity and other products to an aging population
  2.. Greater need for medical insurance and health care
  3.. Help customers to make additional savings for retirement

As the world becomes more volatile and uncertain, there is a greater need for insurance advisers to help customers to find the insurance solutions for their needs. There will be a growing market, quite different from the past. There is a large and untapped market out there. It can provide a wonderful opportunity to the insurance adviser.

12. CONCLUSION

There is a future for the insurance adviser. The insurance adviser has to change, in order to continue to be relevant. The market has changed. The competition has changed. The customers have changed; they now have new needs and different expectation of service. People need people. There will continue to be a role and a future for the insurance adviser. The tied agents will continue to play this role.