Insurance agents who prey on the ignorance of rural=20 clients are wasting huge amounts of public savings,=20 writes Jimmy Roth
IN the last six months of 1994 the Grahamstown Black=20 Sash Advice office assisted 157 rural people with their=20 insurance policies. In the vast majority of cases,=20 agents misrepresented the nature of the policy to=20
Frequently, agents inform buyers that they are being=20 sold a savings policy when in fact they are being sold=20 insurance. In other cases, clients are insufficiently=20 informed about endowment policies and their surrender=20 value. This has an especially significant impact on=20 illiterate and semi-literate policy buyers who rely on=20 the good faith of the insurance agent.
Many of the cases the Black Sash assists involve agents=20 who “sell” a plethora of policies to rural consumers=20 often without their knowledge. One recent, and fairly=20 typical, case involved a domestic worker in a local=20 government agency. Until her retirement this year she=20 earned R573 a month. She paid R130 a month for=20 insurance policies from four major insurance companies.=20 After her retirement in March 1993, all she received=20 from her numerous policies was R206. She went to the=20 advice office for assistance.
When she showed the advice office worker her payslip it=20 became clear that she was not aware of the extent of=20 her deductions, or even the existence of many of her=20 policies. This is typical of insurance cases seen by=20 rural advice offices, where agents do not inform buyers=20 that they are signing a stop-order form.
In the domestic worker’s case, after a long struggle=20 involving many months of correspondence with insurance=20 companies, she eventually received R600 in total (from=20 surrendering policies). One policy was surrendered when=20 she retired, four years before the policy became due.=20 She was “assisted” by the personnel officer of the=20 government agency she worked for, who failed to inform=20 her that if she waited until the policy became due she=20 would have received much more.
Policies ought to be sold so that the retirement date=20 of the client coincides with the date of the last=20 payment. None of her policies corresponded to her=20 retirement date. As she could no longer afford all the=20 premiums, she had to surrender and cancel almost all of=20 her remaining policies, and thus received very little.
The crux of the problem seems to lie in the fact that=20 the vast majority of insurance agents work on=20 commission. This encourages poor selling practices as=20 the insurance agent’s income becomes dependent on the=20 number of policies sold. In such a situation, rural=20 people with little formal education become prime=20 targets for unscrupulous insurance agents.
According to the 47th annual report of the registrar of=20 insurance, it appears that out of two million policies=20 sold in 1992, 500 000 were lapsed and 300 000 were=20 surrendered during the same period. This must be=20 attributable to the poor selling practices of agents.=20 If consumers were fully informed about their policies – – ie when they become due, what the monthly payments=20 are, how much insurance/ savings they are likely to=20 need etc — it seems unlikely that they would allow=20 their policies to lapse or cancel/surrender them.=20
Huge amounts of public savings are being wasted because=20 of poor selling practice by insurance agents.
In the United Kingdom, many insurance companies have=20 been fined for poor selling practice. Norwich Union was=20 recently fined Stg 300 000. If insurance companies=20 cannot regulate the selling practice of their agents=20 internally, stronger legislation is required to force=20 insurance companies to put their house in order.