Life Insurance Distribution and Sales Management
Life Insurance Distribution and Sales Management
This domain tests how life products reach customers and how sales forces are managed ethically and effectively. It covers channels, licensing, need analysis, suitability, remuneration and persistency.
Core rules and concepts
- Channels: individual agents, corporate agents, brokers, bancassurance, direct marketing, online aggregators and worksite marketing.
- Licensing and training: agents must be licensed and trained; insurers must maintain records and monitor conduct.
- Sales process: fact-find, risk profiling, need analysis, product recommendation, disclosure of charges and commission, free-look period, and after-sales service.
- Suitability: the recommendation must fit the customer's needs, time horizon, risk capacity and affordability.
- Persistency: 13th-month and 61st-month persistency measure whether business stays in force; poor persistency signals mis-selling and harms profitability.
Worked example
A 60-year-old retiree with a modest pension is sold a unit-linked policy with high early charges and a 15-year commitment, mainly because it pays the agent a high commission. The customer needs regular guaranteed income and liquidity. A suitable recommendation would be an immediate annuity or a short-duration guaranteed product, with charges and surrender penalties disclosed. The reasoning: the recommendation must match need and risk capacity, not agent remuneration. The sale is unsuitable even if the customer signs the form.
Traps
- Letting commission drive the recommendation.
- Failing to document the fact-find and suitability rationale.
- Describing a unit-linked or endowment product as a fixed deposit.
- Projecting guaranteed returns when returns are not guaranteed.
- Ignoring replacement norms when an existing policy is replaced.
Key points
- Suitability is judged against the customer's needs and risk capacity.
- Remuneration must not determine the recommendation.
- Licensing, training and record-keeping are compliance requirements.
- Persistency is a key measure of sales quality.
- Free-look and disclosure protect customers after the sale.