The down-to-earth insurer
An insurer placed an advertisement in today’s The Straits Times announcing their record of never reducing their bonus for their participating policies since they started more than 60 years ago. The are maintaining this “unmatched record” this year. According to the information I got, this move to reassure the consumers was prompted by advisers’ feedback on the poor consumer sentiments due to the financial crisis.
When I first got to know they are going to place advertisement in the papers a couple of days ago, I was worried that they will place fancifully colored full page advertisements that cost tens of thousands of dollars. I was pleasantly surprised to find their their advert taking just slightly more than a quarter page in simple black and white.
This insurer rarely places advertisements in the media. In my opinion, this is good for policy-holders as marketing cost is lowered, thus translating into better value for policy-holders. When coming up with premiums, insurance companies has to take into account mortality and morbidity rates, investment income, expenses and a profit margin. Advertisement is a form of expense. A lower expense would normally point to a lower premium, if not, a bigger amount for investment. Investment return is an unknown future occurrence. Expenses is a known current outflow. If the outflow is lower, this would naturally mean a lower risk for the insurer and thus the policy-holder. However, a lower expense would not mean lower premiums as the insurance company may use different mortality/morbidity tables, take different investment return estimates or go for higher profit margin. A competitive market with balanced distribution channels would mitigate the chances of having too high a profit margin.
In my opinion, the responsibilities of the insurance company is not to generate publicity but to provide the promised coverage and a reasonable return in the case of participating plans. But without publicity, consumers may not even know that such companies exist. Many man-in-the-street would never bother to check out such companies. The responsibility then rest with advisers who then have to recommend the products with superior product features and not the ones with superior commission structures. This is sadly, easier said than done.
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