You Bought an Insurance Policy. Did You Also Buy a Lifetime of Service?

I've been in the financial services industry for more than 10 years, and there's a problem with the insurance industry in Singapore that I've been thinking about.

It's a problem that I face myself as a financial advisor.

Essentially, the insurance industry has failed to establish a clear division of responsibilities between the insurer, the advisor and the consumer.

The compensation model, the services being provided and the expectations of consumers don't seem to align.

And I think this is a problem worth discussing.

What Exactly Are Consumers Paying For?

Let's start with how insurance is distributed in Singapore.

While some insurance products can be purchased directly, many are still distributed primarily through insurance agents and financial advisors.

There's probably a good reason for this.

Insurance isn't necessarily a product that consumers actively seek out. Even today, I occasionally find myself having to convince clients that they may need certain insurance coverage.

Although I do a lot less of that these days.

There's a fine line between advising someone about the financial risks they face and pushing them to purchase insurance.

Ultimately, it's the consumer who must decide whether to retain those risks or transfer them to an insurer.

Perhaps that justifies the existence of an agency force.

Now, suppose a consumer purchases an insurance policy through an agent.

Naturally, they would expect some form of service.

But what exactly does that entail?

Does it mean responding promptly to WhatsApp messages? Being available whenever something happens? Conducting periodic reviews? Assisting with claims?

And when a claim arises, is the agent expected to simply explain the procedure, help prepare the documents, or go as far as advocating for the client when the claim is disputed?

What exactly has the consumer purchased, beyond the insurance policy itself?

More importantly, were these expectations ever explicitly agreed upon?

Or have they simply become implied expectations within the insurance industry?

If so, has the industry overinflated its promise and underdelivered?

The Problem With How Insurance Agents Are Paid

For many traditional insurance products, commissions are front-loaded.

A significant portion of the agent's compensation is paid within the first few years, with smaller renewal commissions potentially payable subsequently.

There's nothing inherently wrong with this arrangement.

If the commission compensates the agent for acquiring the customer, conducting a financial needs analysis, recommending a suitable product and implementing the policy, perhaps it makes sense.

But here's where things get complicated.

Is that same commission also supposed to compensate the agent for servicing the client over the next 20, 30 or even 50 years?

Suppose a 30-year-old purchases a whole-life insurance policy.

The agent receives $3,000 in commissions over the initial years.

The consumer may reasonably expect the agent to remain available throughout the policy's lifetime.

After all, that's often part of the proposition when purchasing insurance through an agent.

Anything happens, just give me a call.

But what exactly does that promise mean?

Is the $3,000 supposed to compensate the agent for a lifetime of servicing?

Even a company offering a lifetime warranty would presumably make some provision for the expected cost of honouring that warranty.

Shouldn't we think about insurance servicing in a similar way?

What Happens When an Agent Retires?

Imagine an insurance agent who has accumulated 500 clients over 20 years.

One day, the agent decides to retire.

What happens to these 500 clients?

Their policies remain in force. They continue paying premiums, and the insurer remains contractually obligated to provide the promised coverage.

But the person who has been looking after them is no longer around.

Perhaps another agent is assigned to take over.

Depending on the commission arrangement, the new agent may receive little or no compensation for servicing these policies.

Yet the clients may expect the same level of service.

Consider the economic incentives.

An agent could spend three hours helping an inherited client with a complicated claim, potentially earning nothing.

Alternatively, the agent could spend those three hours meeting a new prospect, potentially earning a commission.

I'm not suggesting that agents will always prioritise the latter. Many genuinely care about their clients and are willing to go beyond what's required.

But a sustainable servicing model shouldn't depend entirely on the goodwill of individual agents.

I suspect that part of the reason this arrangement has continued for so long is that commissions from new business help sustain an agent's operations, including servicing existing clients.

There's nothing inherently wrong with cross-subsidisation.

But what happens when the agent stops selling, slows down or retires?

The revenue supporting those servicing activities may disappear, even though the clients still expect to receive them.

This exposes a structural weakness.

The compensation is largely tied to the sale of insurance products, but the expectation of servicing can continue long after the sale.

The insurance contract continues.

The servicing relationship may not.

Whose Responsibility Is It to Help With Insurance Claims?

Let's consider something that matters greatly to consumers: insurance claims.

Suppose someone purchases a critical illness policy.

Twenty years later, they're diagnosed with cancer.

Naturally, they would want to make a claim.

But who should be responsible for helping them?

The original agent? The new servicing agent? Or the insurance company?

I think we need to distinguish between two things.

The insurer's responsibility to fulfil its contractual obligations, and the additional personal assistance an agent may provide.

An insurer is responsible for assessing claims in accordance with the policy terms and applicable requirements.

But should it also ensure that consumers can navigate the claims process without relying on an individual agent?

I would argue that the answer is yes.

After all, the insurance contract is between the consumer and the insurer.

The agent is an intermediary.

If an agent retires, the insurer's contractual obligations don't disappear.

So why should the consumer's ability to navigate the claims process depend so heavily on whether their agent is still around?

To be clear, I don't think an insurer should be expected to prepare every document on behalf of the consumer or guarantee that every claim will be approved.

But surely it should provide an accessible process for submitting claims, understanding documentation requirements, obtaining updates and resolving disputes.

And perhaps this is where insurers should compete more aggressively.

We often compare insurance products based on premiums, coverage and policy features.

But shouldn't the claims experience also be an important consideration?

A consumer who purchases insurance is ultimately purchasing a promise.

The value of that promise becomes apparent when a claim arises.

An insurer that makes the claims process straightforward, transparent and accessible should have a competitive advantage over one that doesn't.

At least, that's how I think it ought to work.

Are We Confusing Insurance Servicing With Financial Advice?

I think another part of the problem is that we've bundled several different services into the role of an insurance agent.

Before the sale, the agent conducts a financial needs analysis, recommends suitable coverage and implements the policy.

After the sale, the agent may assist with administrative requests, conduct reviews and help with claims.

But are these really the same services?

I don't think so.

There's a difference between distributing an insurance product, administering an existing policy and providing ongoing financial advice.

For example, updating a mailing address or explaining how to submit a claim should arguably fall within the insurer's basic servicing responsibilities.

But what about reviewing someone's entire insurance portfolio?

Comparing policies across different insurers?

Evaluating whether their coverage remains suitable after marriage, having children or retirement?

These require professional judgement.

And I don't think it's reasonable to assume that every consumer is automatically entitled to unlimited personalised financial advice simply because they purchased an insurance policy many years ago.

What is the minimum level of service that a consumer should reasonably expect when purchasing insurance?

And beyond that minimum, what should be considered an additional professional service?

Who Should Pay for These Services?

One possible solution is to compensate agents for ongoing servicing.

For instance, if a policy is transferred to another agent, perhaps the remaining renewal commissions should follow the policy.

That would provide some financial incentive for the new agent.

But what happens when there are no remaining commissions?

What if the cost of servicing exceeds the compensation?

It's difficult to imagine a commission structure that perfectly reflects the actual work performed.

We could also argue that consumers should pay separately for servicing.

But I'm not entirely convinced that's appropriate for basic policy administration and claims assistance.

As a consumer, I don't think I should have to pay an additional fee simply to receive reasonable assistance in exercising the contractual rights I've already paid for.

Of course, servicing isn't free. Someone has to bear the cost.

But that doesn't mean every service needs to be separately charged.

Perhaps the better approach is to distinguish between essential services included in the insurance product and additional professional services that consumers may choose to purchase.

Basic policy administration and access to a functioning claims process should, in my view, be the insurer's responsibility.

Personalised financial planning, comprehensive insurance reviews and other advisory services could be provided under a separate agreement.

That would make the relationship much clearer.

We Need a Clearer Division of Responsibilities

I don't think there's an easy solution.

Different insurers have different servicing arrangements, and some may already have robust customer service and claims support systems.

There are also regulatory and contractual obligations that determine what insurers and their representatives must do.

But beyond these requirements, I think there's a broader question about how the industry should be structured.

At the moment, three parties may have three different understandings of the same relationship.

The consumer purchases insurance and expects the agent to remain available whenever assistance is needed.

The agent receives commissions for arranging the policy but may not have a clearly defined or adequately funded obligation to provide decades of personalised services.

The insurer provides the insurance contract but may rely on its distribution network to handle much of the personal interaction with policyholders.

The arrangement can work reasonably well while the agent remains active, continues generating revenue and is willing to provide those services.

But when the agent leaves, the mismatch becomes apparent.

As someone who has been in the industry for more than a decade, I find myself facing this problem too.

I want to provide good advice and do right by my clients.

But I also think there's a need to be realistic about what an advisor can reasonably commit to providing.

Should an agent be expected to remain available to every client for the rest of their life?

What happens if the agent retires, falls ill or passes away?

Surely, the consumer's ability to obtain assistance shouldn't depend entirely on the continued existence of that individual relationship.

Rather than treating the agent as the permanent point of contact for everything, insurers should ensure that policyholders have access to reliable servicing infrastructure throughout their policies' lifetime.

Agents can continue providing personalised assistance and professional advice.

But those additional services should have a clearly defined scope, with compensation arrangements reflecting the work involved.

I don't think we should confuse an agent's willingness to go the extra mile with an obligation to provide unlimited services indefinitely.

Neither should insurers rely on that willingness as a substitute for proper servicing systems.

Ultimately, a consumer should be able to receive the insurance coverage and essential services they've paid for, regardless of whether their original agent is still around.

Perhaps the solution will come from insurers redesigning their servicing models.

Perhaps technology will make policy administration and claims assistance sufficiently straightforward that consumers no longer need to rely so heavily on intermediaries.

Or perhaps we'll eventually see a clearer separation between insurance distribution, policy servicing and ongoing financial advice.

I don't know what the eventual solution will look like.

But I think it's worth asking whether the current arrangement is sustainable.

Because an insurance policy can last a lifetime.

The servicing model shouldn't depend on an insurance agent being around for just as long.