To sell an insurance policy, an advisor is subject in Quebec to a code of ethics and to the Law on the distribution and service of financial products. What is not understood is that the code of ethics and the law only regulate the actions of the advisor at the point of sale and do not regulate the service that this advisor is supposed to provide after the sale. An advisor can thus sell an insurance policy and disappear leaving behind him the responsibility of the management of the inforce policy to the customer while still getting his service commissions.
This is an example of this problem. An advisor sold a large Universal Life policy to a customer. As soon as the policy was sold, he disappeared and refused to return the calls of the customer who must now manage personally and without adequate knowledge, this policy which is extremely complicated. He is finally able to find an advisor who is willing to help him. This advisor is in Montreal and the client is in Sherbrooke. The advisor nevertheless comes to see him and explains the different options available under this insurance contract and he also resolves all of the administrative problems of the client. The customer thus wants to make this advisor as the servicing advisor in of this policy.
The advisor informs the client that it may not be possible. This advisor feels uncomfortable about what he will be doing. He informs the client that if he takes over the service of his policy, he will never be paid for this service because the commissions are vested with the original advisor. He will do the work and it is the original advisor who will earn the commission. Thus, the only way he could accept him as a customer is for him to transfer an investment with him or if he buys a new product from him. Suddenly, the advisor is on slippery ground. He is now applying pressure on the client. But can one blame him? Everyone has the right to be paid for the work that he does.
The culprits are in fact the insurance companies who protect the advisors who do not provide service to their customers. We could also take the example of the orphan policies where agents who have no license continue to offer service and to receive commissions relating to this service. I questioned one of those advisors about whether he feels a responsibility towards his customer. He answered me that: “In any event, the insurance company is aware of what I am doing and it does not have any problems with this situation”. We therefore have a person who does not have to keep up to date with the changes in the insurance industry and who does not have the knowledge to offer adequate service and the insurance companies do not have problems with this situation?
What happens at your death? I asked. He answered that the commissions of service will go to his wife and it is her who will offer the service. His wife never sold an insurance policy in her life. She will provide the service? What kind of industry is this? If a lawyer dies can his wife discuss the law with his customers and earn an income from this service? It is appalling!!!
We thus find ourselves with orphan policies and policyowners who must rely on the charity of other advisors in order to get access to any form of service.
The main issue in the insurance industry it is that there are no standards of service in this industry. Advisers are free to sell all kinds of insurance products and to disappear afterwards because they know that they will always receive their commission of service. This problem has existed for a long time but insurance companies continue to use agent contracts that provide for the vesting of service commissions. They thus protect this behavior. Why are there no changes? Everyone in the financial industry is aware of this problem. One must wonder why? The reason is simple. It would not be advantageous for the insurance companies. These companies must manage their block of inforce policies according to a certain lapse rate. There is enormous profit to be made if the insurer meets or experience a higher lapse rate that is used to establish the cost of insurance of these policies. When a life policy is cancelled, the company will not have to pay a death benefit and can keep all the premiums paid as profit. A way of increasing this lapse rate is make the access to service difficult and to ensure that the service is made by people who are not qualified. Exactly what is occurring today.