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Switching To Another Insurance Company? Here Are The Latest Guidelines Agents Need To Know Regarding Sign-On Incentives

Attractive financial incentives for agents to join a new insurer are now a thing of the past.

Mass recruitment to entice insurance agents, also known as financial advisory (FA) representatives, from one insurance firm to another is a quick way to win market share. The logic behind this is simple: the more agents you have distributing your products, the higher your sales are likely to be.

In collaboration with the Monetary Authority of Singapore, the Life Insurance Association Singapore (LIA Singapore) has issued guidelines to its members on the use of sign-on incentive for the recruitment of agents. These guidelines are set in place to address the risks posed by the use of sign-on incentives for the recruitment of financial advisory representatives.

The idea behind this is that lucrative sign-on incentives, while attractive for agents, may not necessarily be good for the industry or the consumers in the long term.

In total, there are four measures that will be introduced with immediate effect.

The first two measures will apply to all agents who are offered sign-on incentives tied to a sales target or a transition package.

The other two measures will apply in the event of a mass recruitment. “Mass recruitment” is defined as the movement of 30 or more agents from the same FA firm within a 60-day rolling period.

Read Also: What Happens When Insurance Agents Are Paid Huge Sums Of Money To Join Another Company?

Measure 1: Sales Target To Be Set At A Reasonable Level

To ensure that agents are given appropriate targets to meet, sales target for a newly recruited agent from another company should not be higher than the representative’s average of his annual achieved sales in the preceding three years.

For example, if an agent has achieved sales of $100,000 for each of the past three years, then his/her first-year sales target at the new company should be no more than $100,000. Targets in subsequent years should also be set at a reasonable level.

This is a healthy situation for agents. It essentially ensures that agents who are recruited by another firm are able to continue doing what they normally would do, as opposed to being more aggressive in their sales approach in order to achieve the higher sales target that have been set for them by the new company.

Measure 2: Sign-On Incentive To Be Spread Over A Minimum Of Six Years

Instead of a lump-sum payment to join the new company, agents will now receive their sign-on incentive over a minimum period of six years. In addition to that, first year sign-on payment is capped at 50% of the representative average annual remuneration over the past three years.

For example, if an agent average remuneration over the past three years is $100,000 per year, then the agent can only be paid a maximum sign-on incentive of $50,000 (in the first year) for joining the new company.

Such a measure reduces the likelihood of what could have developed into an unhealthy bidding war, where insurers try to out-do one another in order to attract agents from other insurers to join them. It puts a hard cap on how much sign-on incentive an insurer can pay (in the first year) in order to entice other agents to join them.

At the same time, by spreading the sign-on incentive over a minimum of six years, it also ensures that these newly recruited agents are unlikely to leave for another company anytime soon.

The above two measures apply to all agents as long as they are offered a sign-on incentives or transition package for joining a new company.

In addition, the remaining two measures also apply if agents are deemed to be part of a mass recruitment exercise.

Measure 3: Sign-On Incentives To Be Pegged To The Persistency Of Policies Serviced By The Agent At The Previous Firm

After two years at the new company, the ex-company where the agent worked at should share the persistency of the agent’s “ring-fenced” policies (i.e. block of regular premium life policies, and accident and health policies) with the new company.

Depending on the persistency on the “ring-fenced” policies, the new company may be required to adjust the agent’s entitlement to sign on incentives.

This is a useful measure because it helps ensure that newly recruited agents joining new companies are not achieving their sales target simply by getting their old clients to surrender existing policies, and to sign up for new ones with them. This is an action known as churning, where agents get policyholders to give up their existing policies and to buy new ones, with no additional benefits.

Measure 4: Enhanced Monitoring Of New Agents For At Least Two Years

This is a tough one to swallow. For agents who are deemed to be part of a mass recruitment exercise, the new company they work for will be required to engage an independent party to conduct a pre-transaction survey of all transactions involving the agents. Cost will be borne by the new insurance company.

Tough, But Necessary Measures

For agents who are hoping to earn a high sign-on incentive by switching companies, these measures introduced will reduce significantly the motivation for doing so. In fact, it even adds to the complication of joining another company. Of course, this only applies for agents who receive incentive for joining a new company.

At the same time, for insurance companies intending to dangle attractive incentives to recruit agents from other companies, the new measures will make it a lot harder to put up an (overly) attractive package.

Are you an agent who thinks that these new changes are too tough? Or do you believe that the measures are just right. Share with us your view on the Insurance Discussion SG group, where you can meet and discuss with like-minded individuals who are passionate about the insurance industry.

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