The Rise of Commission Sharing in Corporate Insurance Sales: A New Challenge for the Industry

Recently, a new loophole known as "commission sharing" has been spreading within the life insurance industry, raising significant concerns. 

Recently, a new loophole known as "commission sharing" has been spreading within the life insurance industry, raising significant concerns. This practice has emerged despite the implementation of restrictions by insurance companies, which prevent new agents from handling corporate contracts. In this blog post, we will explore this growing trend, its implications, and the challenges it poses to the insurance industry.

The insurance industry has long been striving to prevent unethical sales practices and mis-selling in corporate insurance. To mitigate the risks associated with new agents selling corporate insurance products, most life insurance companies have implemented restrictions. These rules typically prohibit new agents from handling corporate contracts, such as corporate term insurance, for the first three months of their employment. This measure aims to reduce the risk of inexperienced agents making costly mistakes when selling complex products that require specialized knowledge in taxation, finance, and legal matters.

However, a new workaround has recently surfaced within some General Agencies (GAs). This scheme involves a manager accompanying a new agent to secure contracts, only to later split the commission. In this practice, the manager records the contract under their own code and then shares up to 90% of the commission with the new agent. Essentially, this creates a new rebate structure that undermines the industry's efforts to prevent unethical sales practices.

Typically, corporate contracts involve multiple roles: the person sourcing the client, those providing consulting support in areas like tax and law, and the agent who closes the deal. The commission is usually divided among these roles, with the largest share going to the agent responsible for securing the contract. Managers traditionally receive around 10% as an overriding commission for their supervisory role. However, the new commission-sharing practice distorts this distribution by allowing managers to take on the contract themselves and then pass the majority of the commission to the new agent.

This practice can be seen as a form of intermediary contract, where one person’s code is used to finalize a deal secured by another. Industry experts warn that such practices could lead to legal issues, as it raises concerns about the legitimacy of the contract process. Insurance companies, meanwhile, may be unaware of this loophole since the contracts are officially recorded under the manager's code.

An industry insider notes that insurance companies lack visibility into the internal commission-sharing arrangements within GAs, making it difficult to detect and address such loopholes. The use of managers in this manner undermines the industry's long-standing efforts to prevent unethical sales practices and mis-selling in corporate insurance.

Currently, it is believed that several GAs are employing this tactic, raising concerns about the potential spread of this practice throughout the industry.

While the insurance industry has made significant strides in curbing mis-selling and unethical sales practices, the emergence of commission sharing presents a new challenge. If left unchecked, this practice could erode customer trust and tarnish the reputation of the entire industry. It is crucial for both insurance companies and GAs to strengthen internal regulations and improve oversight to prevent such practices from becoming widespread. Continuous efforts are needed to protect customer trust and maintain the integrity of the industry.