Often in your insurance career you face a challenge of mis-selling a policy to earn a commission. Mis-selling means selling an unsuitable policy to the client so that you can make an earning. Mis-selling is quite rampant among insurance sellers when they want to make a quick buck or to meet their sales targets. However, mis-selling is wrong, not only ethically but also due to the negative impacts it creates for customers, insurance companies and also you, the insurance seller. Here is why mis-selling is damaging –
- It causes claim rejection and affects claim ratios
When you mis-sell insurance policies, it might eventually lead to claim rejection. If the customer is not completely aware of the coverage offered by the policy, he might make a wrong claim and suffer rejection. Similarly, if the client has hidden important facts which affected the risk which was being underwritten by the policy, the company would reject the claim if it found out about those facts which the customer hid or lied about. There might be other reasons for claim rejection which might be tied up with the fact that it was due to a mis-sold policy. In case of claim rejections, the Claim Settlement Ratio of the insurance company suffers. Moreover, the Incurred Claim Ratio (ICR) is also adversely affected which in turn affects the efficiency of the insurance company.
- It hampers customers’ trust
Insurance is an intangible product which promises a benefit in case of an uncertainty. Customers buy a policy only after placing their trust in it to fulfil their financial needs. If a policy is mis-sold, it fails to deliver what customers want. As such, customers lose their trust on the insurance company, you who is their insurance advisor and on the concept of insurance as a whole. This causes a reduction in the sale of insurance policies and affects insurance penetration.
- It results in a low persistency ratio
Persistency ratio is the ratio which measures the policies which are in force (active) compared to the total policies sold. A low ratio indicates that there have been policy lapses which might be due to unwillingness on the part of the policyholder to pay premiums. This unwillingness might result from the fact that the policy was mis-sold to the customer and the customer has lost trust in it. A low persistency ratio is bad for the insurance company as it loses its revenue. It is bad for you too as your reputation as an insurance advisor is damaged when your customers do not continue with their plans. Moreover, you lose out on the renewal commissions too.
Mis-selling has these drawbacks and should be avoided. Though these drawbacks seem small, they have far-reaching effects. They affect the popularity of insurance which in turn works as a deterrent to the growth of insurance business. As the growth of insurance is affected, your business potential also reduces. So, you should always avoid mis-selling. Become a pro-active insurance POSP and sell using the following tips –
- Do a fact-finding analysis of the customer to know which insurance policy would be suitable for them. Sell only what is needed and not what gives you the maximum commission
- Make the client understand the complete terms and conditions of the policy he/she is buying. The client should understand the policy completely to avoid unrealistic expectations
- Ensure that the client fills the proposal form stating the correct details. Any incorrect information has the potential of claim rejection. Educate the client about the implications of non-disclosure or misrepresentation so that they state everything correctly
- Maintain contact with the client even after selling the policy to resolve any query that the client might have and also to ensure continuity of the cover.
Mis-selling might seem tempting but it is a curse for your business. If you want to build a career in insurance and also your goodwill among your clients, don’t mis-sell. Understand your client’s needs and sell only what is right for them and not what is right for you.
