Delving Deeper Into Mis-selling

Excellent article by Dhirendra Kumar:

Delving Deeper Into Mis-selling
High-pressure sales tactics corrode trust, but appear to be inherent in the economics of financial products

Last week, I wrote about my struggles with insurance salesmen, which I tried to turn into insurance salesmen’s struggles with me. I also compared insurance sales tactics to email spam. Spam, whether physical or digital, succeeds when there’s a large asymmetry of cost between the spammers and their victims. If the seller can afford hundreds of failed attempts at a sale because one success will more than pay for it all, then it makes more sense for him to be indiscriminate in selecting potential targets. From that it follows that the efficient way of selling products like insurance is to employ hoards of low-cost ‘resources’, as they are called, and hit as large a number of people as possible. This equation has three inputs. These are, one: the cost of the hit. Two, the success rate. And three, the scale of payoff from a successful hit. The scale of payoff is the proportion of the money paid up by the target that can be skimmed off to pay for the entire sales effort. It is this last variable, which is even now, (after all the tightening that IRDA has done) of a completely different scale for insurance products.

The style and scale of the resources dedicated to the sales effort, as well as the hostility they generate among the targets is now part of the game—it won’t change. Which is rather tough on the resources, who happen to be human beings who are just trying to make a living. They sound like hard-working young men and women who make a sincere effort to do their job the way they have been taught to. Unfortunately, a bulk of the interactions they have with people must be ending up in an irritated or even hostile reaction.

Sooner or later, they would learn that there’s something underhand in what they are doing and that would start colouring their behaviour. For example, a colleague received a call from someone who was peddling what he calls a ‘savings plan’ from x, where x was the name of a large Indian business conglomerate. However, the caller wouldn’t say that he was calling from the insurance company of x. Even my colleague repeatedly asked him whether he was calling about an insurance product, the caller refused to admit it, and kept repeating the same phrase. He did this because he must have known from experience that the moment he uttered the word ‘insurance’, a certain percentage of calls would just be cut-off. Therefore, he was trying to get his pitch in without doing that.

I don’t know about you, but I happen to think this is really pitiable situation. Are these pathetic subterfuges really the only way to sell some financial products? I’m told that some banks have a policy of rotating their relationship managers quickly because as time goes by, a greater and greater proportion of the customers start getting hostile towards their relationship manager. A new face helps temper down that hostility because some of it gets deflected on to the previous individual rather than the organisation.

As I said earlier, this sort of a thing is not inherent to insurance, but merely a by-product of the economics of financial product under some circumstances. In the days of incessant NFOs and high commissions, mutual funds were also sold like this. When, in the middle of the last decade, there was a liquidity glut in the economy, loans (even unsecured personal loans) were sold like this. Even today, real estate is sold like this in some markets.
Continuous exposure to intense hype about financial products that eventually prove dodgy has a corrosive effect on all future interactions. Many customers have slowly come to a state of inherent distrust of financial products. Two decades after liberalisation of the sector began, this is a sad place to have reached.

--Dhirendra Kumar