Small Change

Protecting consumers when agents jump ship

Regulatory action may be needed if poaching continues as insurers battle for market share

The mass resignation by 300 or so agents from Great Eastern (GE) to join archrival AIA has sparked calls by some in the industry for more rules to curb such poaching.

The concerns centre on fears that poached agents would be under pressure to meet sales targets at their new firms, raising the prospect of product mis-selling and policy churning.

Churning or improper switching happens when customers surrender their policies - to their detriment - and the proceeds are used to buy new plans from the agents' new employer.

There are also questions about who would really end up bearing the high acquisition cost.

Looking back, it must have taken months of meticulous planning to be able to convince so many agents at one go to migrate together.

The departing agents - who operate under one of GE's agency units, Advisors Alliance Group (AAG) - have decided to jump ship for AIA's newly set up financial advisory arm, AIA Financial Advisers (AIA FA).

Not only is this the largest one-off act of poaching so far, eclipsing the 250 agents who crossed over from Prudential to Aviva Financial Advisers last year, but also, the $100 million carrot said to have been dangled by AIA is mind-numbing.

AAG founder Tan Koon Chuan himself has left GE for AIA FA. An insurance veteran, he joined GE 40 years ago in 1977 and was its senior executive director.

The slick execution of the recruitment - including the timing and the choice of location where the exercise was conducted - has been fodder for coffee-shop talk among industry observers in the past few weeks.


It was such a well-kept secret that most of AAG's agents and GE's senior management were taken by surprise at the sudden turnaround in AAG's agency leaders.

The ball started rolling when AAG invited its 400 agents to a three-day "seminar" in Batam from Aug 29 to 31. Some agents thought it was just another team-building exercise.

With military-like precision, a presentation was made on the first day extolling the benefits of the new firm to the agents. Following the presentation, each agent was asked to sign a customised "migration contract" - detailing the terms and incentives should he cross over to AIA - as well as his resignation letter, which had already been prepared on his behalf. Many agents signed both documents on the spot.

Those who could not make it for the Batam "seminar" were invited by AAG to attend a separate meeting at the National University of Singapore Society Kent Ridge Guild House on Aug 31.

The offer to the GE agents included sign-on bonuses and a five-year "bond" period during which the monetary incentives could be clawed back if sales quotas were not met. Sources said AIA FA also offered more perks.

The timing was perfect as there was a public holiday on Sept 1, followed by the weekend.

For those who agreed to resign from GE, they were told that they could still change their minds later. A few did and decided to stay put at GE.

By the time GE found out that nearly 10 per cent of its 3,800-strong agency force had decided to resign, it was too late, despite attempts to retain the agents. The insurer switched into damage control mode, quickly putting in place a dedicated hotline manned by a service team to provide appropriate advice to customers unsettled by their departing agents.

Great Eastern Holdings group chief executive Khor Hock Seng told The Sunday Times that it takes "a very stern view" of the recent mass poaching of its agents.

He said: "This is unhealthy for the industry and could be detrimental to customers' interests in the long term. We have expressed our concerns to the regulator...

"We will also proactively monitor for any irregular policy transactions and will report these to the regulator as required."

The episode throws up some pertinent issues.

The Monetary Authority of Singapore (MAS) has stated that it recognises that large-scale movements of representatives from one financial institution to another could give rise to risks of improper switching of policies and could cause disruption to business operations. The offering of high sign-on bonuses and other financial incentives could drive up costs in the industry as well.

The regulator pointed out that there are MAS guidelines and rules to guard against improper switching of policies. And where firms or representatives are found to have breached regulations or engaged in improper conduct, the regulator would not hesitate to take action against them.

Meanwhile, the Life Insurance Association Singapore has already started work to come up with new guidelines relating to the recruitment of rival agents. Sources have said that one such guideline could involve requiring crossover agents to be accompanied by a manager during their appointments with clients for a specified period, say, three months.

Apart from these measures, industry practitioners are asking if more can be done.

Even though MAS says that it does not intervene in the general recruitment decisions of financial institutions, the question arises as to whether such aggressive poaching activities with huge carrots should be allowed to go on.

Should there be regulations against such moves? Perhaps MAS could impose a cap on the amount offered to departing agents.

Some have asked whether MAS could do what is apparently done over in Indonesia, where departing insurance agents are put on garden leave for a period of six months before they are allowed to sell any policies.

Are the incentives and targets given by the recruiting firm to the agents (whom it has recruited at a high cost) going to create a conflict of interest in the sales process?

Also, who is actually bearing the cost of the recruitment?

MAS has stated that financial incentives offered by an insurer to recruit existing representatives from another company to join the insurer or its related financial advisory firm cannot be charged to the insurance funds. If the insurer disburses financial incentives, the amount must be borne by the insurer's shareholders.

Thus, it is likely that the acquisition cost will be amortised or recovered over a number of years from the income and profits of the recruiting firm. There are many ways to maintain profit margins, such as achieving higher sales or reducing unnecessary costs. But could maintaining profitability also translate into higher premiums and/or lower cash values, which would act against consumer interests?

Given the intense rivalry between financial institutions and the ongoing battle for market share, such poaching activities are likely to continue. Furthermore, the traditional belief that insurance is to be sold rather than bought still holds, placing a high premium on agents as an essential tool for successful marketing.

Let's not wait until consumer interests suffer drastically, while trust and confidence in the sector are eroded, before regulatory steps are taken.

A version of this article appeared in the print edition of The Sunday Times on October 01, 2017, with the headline 'Protecting consumers when agents jump ship'. Print Edition | Subscribe