“These days, the competitive environment is extremely challenging for most companies. The price, cost and innovation pressure is strong. At the same time, the expectations by the investors are very high: The return on the invested capital ought to be maximal. Companies set ambitious targets, which are defined for different organizational units and hierarchical levels within the company, in order to be successful in this environment” by Olivier Fernandez 

From a layman’s point of view, insurance companies ought to be making super profits because they do not manufacture or sell goods. However, an in-depth analysis of insurance companies’ operations will reveal that not much profit is made within the first and second years of a policy due to strain associated with new business such as marketing costs, set up and admin fees and commissions.

To offset these high costs normally insurance companies, formulate budgets that has very steep production figures with all of the business having to be acquired by sales agents.  Under normal circumstances, shareholders must inject capital for new business procurement but this has not been so owing to an unfavourable economic climate.  Costs relating to business procurement is therefore largely borne by the sales agents. Companies may chip in here and there as and when they deem it fi to do so. These budgets have the effect of exerting huge pressure on the sales force as targets are normally measured on a weekly basis with most Insurance companies not accepting zero weekly productions or blank weeks as is known in insurance circles.

The general public may also wonder why despite huge premium amounts paid to Insurance companies by policyholders do not ease the financial burden on companies so that they do not set steep targets that may in most cases never be achieved. The answer to this lies in the composition of the premium itself. Not everything paid belongs to the insurance company. In fact, the Insurance company remains with a very little portion, normally part of the investment portion and the policy fee approximated at five percentage points of the premium.

Below is a diagram on premium composition for illustration purposes only







For the Insurer now to be profitable, it will be a game of setting and achieving high targets in terms of number of policies and size of premium  as a way of offsetting costs associated with business strain. In so doing the set targets tend to exert a lot of pressure on agents resulting in them obtaining business by hook and crook. Agents will be under pressure to conclude sales as they have to beat set monthly deadlines for new business if they are to earn in a particular month. They will in turn put the heat on the prospective client so that the end up signing without due consideration to their needs and financial standing. This hurried decision will be a source of policy rejection and cancellation on the part of the client in future.

Agents will resort to unethical methods of obtaining business so that they can meet targets, earn commission and sustain their agent’s contracts. Obviously, this unethical practice of obtaining business will put the name of both the Insurer, agent and insurance industry into disrepute. All stakeholders who are supposed to benefit from the policy that is the Policyholder, Insurer, employees of the Insurance company, agents and the Government through taxes will obviously lose out as the contract will be cancelled as a way of remedying the aggrieved part.

Even commission clawbacks effected on agents’ earnings will not restore the company’s financial position to a better one as there are sunk costs such as set up and admin fees. Furthermore, clawbacks though they have a negative effect on current earnings have failed to work as a deterrence to agents as they are only concerned with current earnings. Therefore, insurance companies should be at the forefront of setting realistic targets and taming the unholy behaviour of their sales force.

In my view, it would be better if agents were employees of the Insurance companies with a basic salary plus commission.  This way, pressure to earn commission and sustain the contract will be reduced on the part of the agent. The Insurance company may employ other various methods of performance monitoring such as scorecards which will keep agents on their toes at all times.

This way, Insurance companies can have absolute control over agents’ activities in the marketplace and can apply their internal code of conduct in the event of untoward behaviour. This will go a long way in protecting the general public from unscrupulous agents and can improve the general perception of people towards insurance in general.


Alternatively, companies may employ a larger sales force so that individual targets can be realistic and achievable. This is possible given that insurance companies do not necessarily have to provide bigger office accommodation to agents as they can come in as and when the need arises. Independent agents can come in handy as they often have their own office space and equipment thereby relieving the pressure of providing office accommodation on insurance companies

Innovation though it may be argued that it will substitute agents must be employed. This can be achieved through electronic sign-ups. Application forms must be available online accompanied by all relevant literature on policy products. This move can be supported by having a call centre operating 24/7 to assist prospective clients. This will definitely eliminate some marketing costs, misrepresentations and will enhance the industry image.

I envision a situation where the public understands the importance of insurance and have absolute faith and trust in the industry and its products and benefits to be derived such that they will have the confidence to invite sales agents for presentations and sign-ups.

This way the society would have created a culture of saving and preparing for future eventualities both evitable and inevitable. Reserves can be created and capital amounts availed for infrastructural development as insurers are required by law to invest in certain prescribed assets. The nation at large will benefit.

This harmonious situation can only be achieved if there is concerted effort to return the purpose of insurance to its essence from all stakeholders such as the Government through the Insurance and Pensions Commission aggressively regulating the industry, Insurance companies availing market support to sales agents force as a way of easing financial burden and agents themselves undertaking personal development courses.

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